Low Oil Prices Could Be Good
for Electricity and Renewables Since I first wrote about the price of oil last
December, the global oil price has fallen to levels
not seen in over five years. For many, the recent
price decline brings back memories of the 1980s oil
price collapse, which followed the 70s oil price spike
and drew attention away from renewable energy
and other alternatives — famously prompting U.S.
President Ronald Reagan to remove the White House
solar panels that had been installed by the previous
Thankfully, this time around, the outlook for
renewable energy isn’t so bleak. In fact, it is possible
low oil prices could actually improve the economics
of renewable energy. It all comes down to the
relationship between oil and gas production and the
price of electricity, which directly affects the bottom
line of technologies like wind and solar.
In 1973, the year the Arab Oil Embargo caused
a steep rise in oil prices, the United States produced
17 percent of its electricity using petroleum. When the
oil price increased, the price of electricity increased
too. This increase in price prompted greater interest in
domestic sources of electricity, like coal, nuclear, and
Due in part to the turn away from oil in the 70s,
today the United States produces just 0.7 percent of
its electricity using petroleum. Therefore, the price of
oil has no direct impact on the price of electricity. Most
electricity comes from coal (39 percent) and natural
gas (27 percent), with the remainder coming from
nuclear, hydroelectric, wind, and other renewables.
The fuel with the most direct impact on the price
of electricity is natural gas, because natural gas
generation often sets the price of electricity in the
market. To gauge how low oil prices might affect the
price of electricity, it’s really important to think about
how they might affect the price of natural gas.
Although oil and natural gas prices have
decoupled in recent years, there is still an indirect link
between the price of oil and the price of natural gas,
because both oil and natural gas are often produced
from the same well. While most U.S. natural gas is
produced from wells drilled for the express purpose
of extracting gas, a portion comes from wells that
are drilled to extract oil, but produce natural gas as
a byproduct. This “associated gas” or “casinghead
gas” is often flared in regions like the Bakken in North
Dakota, which has limited pipeline infrastructure.
However, in regions like Texas’s Eagle Ford and
Permian Basin, this gas is often injected into the
existing pipeline network. Because drillers are really
after the more-valuable oil, associated natural gas is
often simply dumped into the pipelines at little or no
cost — depressing the overall price of natural gas.
The Railroad Commission of Texas, which
regulates the oil and gas industry, collects separate
data on natural gas produced from gas wells and
natural gas produced as a byproduct from oil wells.
These data show that, while overall Texas natural gas
production has increased since 2008, the amount
of gas produced from purpose-drilled gas wells has
actually declined. On the other hand, natural gas
associated with oil production has increased markedly
since 2008. By Robert Fares Available at: http://blogs.scientifi camerican.com/plugged-in/
Retrieved on: Nov. 10th, 2015. Adapted.
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