2012 Was A Big Year For Fossil Fuels

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Energy independence is something that has eluded America for decades. Major new oil discoveries and the growing use of hydraulic fracking technology have made 2012 a seminal year for energy companies, and may indeed secure the countries energy supply in the future. But other fossil fuel companies found 2012 to be a tough year. Weekend Edition Sunday host Rachel Martin explores the year in fossil fuels with guests J. Robinson West of PFC Energy, a global consulting firm specializing in oil and gas, and James Stevenson, associate director of North American Coal for the consulting group IHS.


This is WEEKEND EDITION from NPR News. I'm Rachel Martin.

For more than 40 years, American presidents have talked about the need for the U.S. to become energy-independent. Easy to talk about, difficult to make happen. But some recent discoveries could mean a giant leap in that direction. We begin this hour talking about energy and whether it's the kind that burns to power the internal combustion engine in your car, or the kind that harnesses wind to turn on the lights in your house.

Twenty-twelve has been a seminal year. In a moment, we'll hear about renewable energy sources. But we begin with the most widespread source of power in the world - oil.

J. ROBINSON WEST: The world is full of hydrocarbons. But the question is at what price does it cost to produce it?

MARTIN: That's J. Robinson West. He's the chairman and founder of PFC Energy, a global consulting firm specializing in oil and gas. He says the biggest news is the oil fields right here at home.

WEST: The most significant discoveries were literally thousands of discoveries in the United States. That was the transformational event. And for those of us in the business this is an almost out of body experience, it's extraordinary. The oil fields particularly are in places like Texas, the Dakotas, Montana, Colorado, and there will be several million barrels a day. And so, production is surging in the United States.

MARTIN: Why is this happening? I mean, it's not like these kinds of discoveries are made every year. What's changed?

WEST: Well, what's changed is that there were breakthroughs in technology by the private sector on private land; government had nothing to do with it. And they figured out how to make what had previously been unprofitable wells profitable. And as a result now, gas production has surged in the United States and the price of natural gas has collapsed. Since oil prices are relatively high they've shifted to oil, and that's why there's this extraordinary surge in the United States.

MARTIN: We've heard a lot about fracking recently. Does this have anything to do with these recent discoveries?

WEST: In North America, very much so. That's the technology that's employed in both oil and gas.

MARTIN: So consumers want to know how these discoveries will affect their lives. When are we going to see prices change at gas stations?

WEST: Well, the price of gasoline is driven largely by the price of oil and oil is a globally-traded fungible commodity.

MARTIN: So just because we discover more oil doesn't mean at all that we could see prices go down that's subject to geopolitics?

WEST: Well, we've made world-class - I mean the United States is a new world-class province of surging production. I think that what Americans should take away is that we will never be energy-independent in oil. That implies that no one can touch us. That's just not true. We can have increased energy security, which means reliable supply, but the price that you pay will be set by the global market.

This is a big deal. We spend hundreds of billions of dollars a year importing oil. And those bills are going to go down very, very dramatically.

MARTIN: So what's the horizon for this? When would we see those bills drop?

WEST: They're going down now. But by 2020, they will be dramatically reduced. We're still going to need to import some oil. We're going to need to import oil from Canada. But, you know, Canada is part of North America. We see it as more or less a single entity.

MARTIN: Besides oil, you also do a lot of thinking about natural gas. As you look forward to 2013, what are your projections for natural gas and how that plays into America's energy security?

WEST: Well, natural gas is tremendously important but it's very different than oil. Oil is used as a transportation fuel. Natural gas is a - it's physical characteristics are different, and you have different markets where prices are set differently. The result is that we have the lowest natural gas prices in the world, with the exception of Saudi Arabia - and we have ample supply.

What it means is that for consumers - they are a tremendous beneficiary - means that electricity and heating costs and everything are approximately a third of what they are in Europe. It means that you're going to have what Boston Consulting Group calls reshoring, which is industry is going to come back to the United States; this is going to create new jobs in the petrochemical sector and a number of sectors like that, that use natural gas as feedstock. Plus, just lower prices for consumers.

MARTIN: J. Robinson West is chairman of the consulting grew PFC Energy.

And, as we just heard, the oil and gas industries in the United States are well positioned for 2013. But at the same time, the coal industry is struggling.

We turn now to James Stevenson, the associate director of North American Coal for the consulting group IHS. Thanks so much for joining us, Mr. Stevenson.

JAMES STEVENSON: Hey, my pleasure.

MARTIN: So, how would you describe 2012 for coal in the United States? What's the year been like?

STEVENSON: 2012 has probably been the worst year in coal history with an incredibly low levels of coal-fired generation. As a result, we've had a lot of production cuts - some coal production companies going bankrupt. Really, the only saving grace has been a record coal exports.

MARTIN: What's to account for this steep decline?

STEVENSON: There are two things really but primarily cheap gas. And that was compounded this year by an incredibly warm winter, from the end of January '11 into 2012. Over the last few years, we've had the displacement of coal-fired generation by gas and that more than doubled this year. And rather than just plain displacement of very expensive Eastern coals, we saw displacement of very cheap Western and Midwestern coals. And basically, generation plummeted as a result.

MARTIN: This past week, the International Energy Agency, the IEA, released a report saying that coal use would increase substantially over the next few years, especially in Europe and Asia. Is this a potential bright spot for your industry?

STEVENSON: Potentially, but I'm quite guarded about it. Europe certainly in the next year or two will continue to take coal; it's more profitable to generate power in Europe currently using coal than it is gas, but we expect that to slide over the next two years. Asia will certainly continue to grow and there's certainly a lot of upside in Asia. However, we also see China in particular becoming more self-sufficient in its coal needs.

So from a U.S. perspective, we expect that exports probably won't be quite as high as they were in 2012. And then we'll probably plateau at a fairly strong number but not an ongoing growth trajectory.

MARTIN: That's James Stevenson, the associate director of North American Coal for the consulting group IHS.

Mr. Stevenson, thanks so much.

STEVENSON: Yeah, my pleasure.

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