Domestic Energy Challenges in the 21st Century

Domestic Energy Challenges in the 21st Century

December 1, 2016
Domestic Energy Challenges in the 21st Century
Overview
for further increases in either export remains unclear. With
Advances in technology have dramatically increased U.S.
growing U.S. crude oil production and falling prices, there
oil and natural gas production (Figure 1). This increase has
was keen interest in the 114th Congress in eliminating a 40-
important policy implications for energy markets,
year limitation on exports of most U.S.-produced crude oil.
infrastructure, security, and the environment. The Energy
In December 2015, Congress passed the Consolidated
Information Administration (EIA) projects that electricity
Appropriations Act for FY2016, which included a repeal of
demand will continue growing, with generation fuel shifting
the oil export ban. Before the ban was lifted, U.S. crude oil
further away from coal toward natural gas and renewables.
exports averaged roughly 500,000 barrels per day (bpd),
An increase in electricity demand would put strain on
mainly to Canada. Since the ban was lifted, exports have
transmission capacity. How best to leverage all domestic
generally fluctuated around or below that 500,000 bpd
energy supplies (fossil fuels, renewables, and nuclear) to
mark, although exports did reach a record level of 662,000
promote economic growth while balancing the economic,
bpd in May 2016. Most notably, the number of countries
environmental, and security tradeoffs inherent to energy use
receiving U.S. crude has expanded, including countries in
is an enduring question.
Europe, Asia, the Middle East, and the Caribbean.
In the 114th Congress, the House and Senate debated major
Figure 1. U.S. Natural Gas and Crude Oil Production
energy legislation addressing topics such as energy
efficiency, pipeline permitting, exports, and energy
development on federal land, among other topics. If
enacted, S. 2012 would have been the most comprehensive
energy legislation in nearly 10 years. The conference
committee has met, but there are significant differences in
the two versions, including differences over non-energy
provisions such as access to and use of federal lands.
Oil and Natural Gas
Expanded domestic oil and natural gas supply through
techniques such as hydraulic fracturing and horizontal
drilling increase the likelihood of the United States
becoming a net exporter of both commodities (U.S. natural
gas exports exceeded imports for the month of November

2016), but have also led to concerns over air pollution,
Source: Energy Information Administration (EIA). Prepared by CRS.
water supply and quality, and induced seismicity. These
Notes: Bcf/d = billion cubic feet of natural gas per day; Mb/d =
techniques have dramatically lowered natural gas cost and
million barrels of oil per day.
increased supply, which has helped reduce overall power
plant emissions, including greenhouse gases (GHGs), and
Figure 2. Spot U.S. Natural Gas and Crude Oil Prices
made it uneconomic to operate many existing coal-fired and
nuclear power plants. At the same time, cheap, abundant
natural gas could forestall movement to even lower carbon
options such as renewables and advanced nuclear reactors.
Commodity Prices. The expansion of natural gas supply
has led to a dramatic drop in prices since 2008 (Figure 2),
with implications for many different sectors including
electricity generation and manufacturing. Over that time, oil
prices remained volatile, but dropped in late 2014, and have
remained lower since then. Note that while oil is traded on a
global market, natural gas is much more of a regional
commodity. International price disparities for natural gas
have diminished as more liquefied natural gas (LNG) has
become available to global buyers.

Exports. Abundant domestic resources also present the
Source: Energy Information Administration (EIA). Prepared by CRS.
possibility for the United States to export large quantities of
Notes: $/MMBtu = dollars per million British thermal units of natural
natural gas and crude oil, although the long-term prospects
gas; $/bbl = dollars per barrel of oil.
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Domestic Energy Challenges in the 21st Century
Natural gas exports require a presidential determination that
assuming EPA’s Clean Power Plan to reduce GHG
such exports are in the public interest. Exports to free trade
emissions is upheld, while the latter numbers reflect
agreement (FTA) countries are assumed in the public
projections based on a repeal of the plan. The future of U.S.
interest by statute, while exports to non-FTA countries
nuclear power is unclear. GHG regulations could provide
require a public interest determination. To date, the
an opportunity for growth, but uncertainty about
Department of Energy (DOE) (to which authority has been
construction costs and long-term waste disposal raises
delegated) has approved roughly 15 billion cubic feet per
investment risk.
day (bcf/day) of LNG exports to non-FTA countries, with
applications for significantly more capacity still under
Transmission. Growth in electricity demand would require
review. However, even with DOE authorization, there is no
the expansion and refurbishment of an aging and already-
guarantee that all of these projects will be completed: these
strained electric grid. Furthermore, concerns about both the
facilities require large infrastructure investments, and a
physical and cyber-security of the grid remain, and may
variety of economic and other factors could hinder each
grow as digital “Smart Grid” technology expands.
project’s completion. The first U.S. LNG exports from the
lower-48 states began in February 2016, but most LNG
Environment. Electric power is the largest consumer of
export projects remain in the construction or planning
fossil fuels in the United States and its interactions with the
phases. Proposals in the 114th Congress were introduced to
environment are often substantial. Concerns with electricity
expedite DOE’s export approval process, including
generation include air and water pollutant emissions, GHG
provisions contained in S. 2012.
emissions, and water use. For example, electricity
generation accounts for roughly a third of U.S. GHG
Environmental Concerns. Increased use of advanced
emissions and cooling water for power production
drilling and production techniques has raised questions
represents 45% of U.S. water withdrawals. Thus policy
about the environmental effects of the current oil and gas
actions to address concerns over air and water quality, GHG
boom. These concerns include effects on water quality and
emissions, and the effects of drought will directly affect the
supply, air quality, and GHG emissions. For example, waste
economics of power generation. Some power producers
water disposal raises concerns about water quality and
have announced plans to retire existing coal-fired plants in
seismicity. Diverse regulatory regimes across the states
anticipation of Clean Power Plan implementation. Various
have led some to call for national regulation, while others
bills in the 114th Congress would have explicitly limited
prefer to maintain state authority. In the 114th Congress,
EPA’s authority to regulate GHGs. Whether planned
some bills would have limited and others would have
retirements would be reversed if GHG limits were repealed
expanded federal regulation of hydraulic fracturing, while a
is unclear – the economics of coal vs. natural gas-fired
few states and localities have adopted moratoria or bans on
generation remains a challenge for power producers.
the practice.
Energy Efficiency
Infrastructure. Increased North American oil and gas
Increased efficiency could forestall the need for new
production, particularly in areas that historically were not
electric capacity and help limit demand for U.S. energy
major producers, has led to growth in demand to transport
supplies. In the 114th Congress, several bills would have
those commodities to market. Perhaps most notably, rail
promoted energy efficiency in the industrial, commercial,
tanker oil shipments increased more than four-fold between
and residential sectors. At the same time, concerns have
2011 and 2012. Since that time, several high-profile
been raised about the effects of federal efficiency standards
derailments have raised concerns over the safety of rail
on consumer products such as lighting and furnaces.
tankers. Barge traffic has also grown. Massive investments
have been made in oil and gas pipelines, although
States’ Roles
controversy has arisen around projects such as the Dakota
Many decisions about energy markets, infrastructure, and
Access Pipeline and the Keystone XL Pipeline. As noted
regulation are implemented at the state level. Regardless of
above, many projects aim to export LNG: if completed,
whether the federal government takes a more or less active
these projects would encompass new terminal facilities at
role in the future, state and regional decisions often have
U.S. ports. In the 114th Congress, various bills would have
national impacts. California’s 2002 decision to regulate
amended rail safety standards, approved the Keystone XL
GHG emissions from automobiles had ripple effects
pipeline, or promoted other oil and gas infrastructure
throughout other states. Similar issues may arise with
projects.
electricity, as 29 states have established renewable portfolio
standards (RPS) for their electric grids. However, each state
Electricity
RPS is different. The interaction of state and local policies
Generation. The Energy Information Administration
with national decisions is often complex.
projects that U.S. electricity demand will grow by 10-15%
between 2016 and 2030. Because of economic and
For more information, see CRS Report R42856, Energy
regulatory factors, renewable energy and natural gas-fired
Policy: 114th Congress Issues.
generation are projected to grow by 60-80% and 10-30%,
respectively, over the same time frame. Coal-fired
Brent D. Yacobucci, Section Research Manager
generation is projected to range between a 30% decrease
and a 5% increase, remaining below historic levels,
IF10531
regardless. The former numbers reflect EIA’s projections

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Domestic Energy Challenges in the 21st Century

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