[The Vector] Energy Future’s “New Normal”

What will the new energy future look like?

Black & Veatch, a global engineering, construction and consulting firm based in Kansas, offers a view. The company provides energy report to its clients, including those in the electric utilities and related energy providers. The most recent research report takes a view of energy in U.S. through 2035, entitled What Will Be the North American Energy Industry’s “New Normal”.

The company acknowledges that long-term forecasts are inherently tentative because government policies (or lack thereof), technological advances and such cannot be foreseen. “One crystal ball is not enough, but it’s hard to consider a future that stays the same,” said Mark Griffith, managing director at Black & Veatch. (Kansas City Star. Dec 20, 2010.)

Black & Veatch believes that major changes are coming to the electricity-generation industry. International demand and growth will be felt in the U.S. China and other growing economies are “game changers” for energy markets – energy demand is expected to rise 75% by 2035 and to account for more than one third of global energy use. The International Energy Agency (IEA) predicts that nearly all of the energy the globe will use in the next 25 years will go to meet demand in China and other emerging countries.

“Whatever direction we take, the cheaper energy age is simply over,” said NobuoTanaka, executive director at IEA. The fact that China needs so much energy is already pushing up oil prices, even though China has been increasing its renewable energy focus.

The chart below, courtesy of Black & Veatch from its report, illustrates the U.S. Energy mix now and projected in 2035.  It projects that hydro stays about the same, renewable energy moves to 11% of the energy mix, nuclear staying about the same at 21%, coal dropping to 21% and natural gas rising to 40% of energy generation.

A big story is natural gas. Natural gas is abundant in the U.S. and is cleaner than coal, though more volatile. Power demand will drive a growth in natural gas, says Black & Veatch. Gulf Coast shale production is expected to increase, and the Haynesville and Marcellus Shales may be more economical than the tight gas shale plays. Fracking and water issues complicate extraction from gas formations, and will need to be resolved – and are the riskiest factors. The report opines that the Marcellus will produce the most and drive portfolio restructuring.

Some other information revealed and projected in the study:

Renewable energy will climb as high as 50% for electricity generation by 2035.

• Coal-fired power plants generating electricity will drop dramatically to 25% of our energy, from 49% today. At the same time, it believe natural gas powered plants generating electricity will rise to 40% generation, up from 21%.
• Natural gas is cheap and plentiful in the U.S. “Over the past two years it has become a growing factor in the decision-making process,” said Mark Griffith, Black & Veatch managing director. With chances of Congress passing the cap-and-trade quite low, Griffith assumes some sort of legislation will come into play.
• Expect the power generation industry to grow at about 2.6% per year through 2035.

Electric vehicles stimulating electricity demand is an unknown, said Griffith. “When you start looking at the longer-term view, investors are starting to get a sense of these long-term issues that need to be addressed.”

During the 2009 recession, electricity demand fell 4.1% in the U.S. which is the biggest drop in 60 years.  Griffith said electricity demand increased in 2010 by 4.7%, but don’t mistake the uptick as a sign of major resurgence of the industry. Why? “…we had an unseasonably hot summer – 24.5% warmer than normal.” Assuming typical weather in 2011, Black & Vetch expects another 1.5% to 2.0% growth.