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IEEFA Update: A Growing Sense Across Energy Markets, and Among Market Players, That Change Is Gaining Pace

July 28, 2017
Karl Cates

Two stories this week got some bombshell play still ricocheting around.

First was Royal Dutch Shell Chief Executive Ben van Beurden saying the company, second only to Exxon Mobil among the oil majors and the biggest energy outfit in Europe, sees peak demand for oil occurring sooner than anticipated, contrary to the comparatively stodgy and widely quoted modeling put out by the likes of BP and the International Energy Agency.

Peak demand will happen as soon as the late 2020s, by van Beurden’s lights. He says the next car he buys will be electric and that Shell is remaking itself as a company that sells electricity-generation fuel “such as natural gas and even renewables.” A global oil company, then, is openly going green and not necessarily just because it wants to. Market forces are at play, as the Wall Street Journal summarized in a headline headline that showcased van Beruden’s key concern, “‘Lower Forever’ Oil Prices.”

“The view that oil consumption could start falling that fast is remarkable compared to other forecasts,” CNBC added.

Shell’s stock price rose.

The other item that burned up the wires was American Electric Power’s announcement of its intention to buy an 800-turbine wind farm in the panhandle of Oklahoma. The dollar-size of the deal—$4.5 billion—made headlines, as did the other numbers: 2,000 megawatts of capacity (almost as much  and a 350-mile transmission line to bring the generation from its remote location to AEP’s customers elsewhere. AEP said the Oklahoma wind farm will create 2,000 construction jobs and 80 permanent jobs.

Bloomberg News put the deal in perspective as “a new model emerging for growth-starved utilities looking to profit from America’s solar and wind power boom.”  NextEra Energy and Xcel, which are also among the biggest energy companies in the U.S. are doing similar deals.

Business Insider, in explaining how the AEP project is being developed in partnership with GE and Invenergy, played up the political irony, if that’s the word, in the placement of “America’s biggest wind farm in a red state.”  The political “reality” might be a better way of putting it.

Kansas Gov. Sam Brownback applauded his state on having recently become the fifth in the nation to pass the 5,000-megawatt mark in wind-energy capacity (UPI: “That means about 1.5 million average homes in the state could draw power from wind energy, or about half the state’s population.”).

“We don’t intend to stop,” Brownback said. “Here’s to the next 5,000 megawatts of wind energy capacity in Kansas and the jobs, businesses and private capital it brings to all parts of our great state.”

Brownback, recently tapped to joined the Trump administration as a State Department official, is able—as many politicians are—to separate tribal politics from blunt economics.

ON A RELATED NOTED, SNL, THE ENERGY-INDUSTRY PUBLICATION, REPORTED that grid operators in testimony to federal lawmakers said they “did not need extra help from Congress” in managing the market and technology changes sweeping across the grid.

On the coal-fired end of the electricity market, the four municipalities that own the aging Gibbons Creek plant in Texas said they would mothball it for much of the year because it’s become too expensive to run. “This reflects a growing trend in which municipal utilities and public power agencies are increasingly willing to retire uneconomic coal plants to protect their ratepayers from changing market forces and to take advantage of the improving economics of renewable wind and solar resources,” IEEFA’s David Schlissel wrote in response.

With the advent of earnings season, IEEFA’s Tom Sanzillo had his eye on Arch Coal and Cloud Peak Energy, the first big U.S. coal producers out of the gate. “Too much coal is being mined still for too few customers,” Sanzillo wrote in advance of earnings reports in which both Arch and Cloud Peak underperformed.

Arch’s stock price dropped. So did Cloud Peak’s.

IEEFA’s Seth Feaster, putting a much-publicized uptick in U.S. coal production in context, has a data rundown today explaining how “the second-worst production performance in at least 30 years isn’t much of a comeback.”

Karl Cates is IEEFA’s director of media relations.


IEEFA Update: The Coal ‘Recovery’ of 2017

IEEFA Update: Across a Bedeviled Industry, Too Much Coal Is Being Mined Still for Too Few Customers

IEEFA Update: A Texas Coal Domino Teeters

Karl Cates

Former IEEFA Transition Policy Analyst Karl Cates has been an editor for Bloomberg LP, an editor for the New York Times, and a consultant to the Treasury Department-sanctioned community development financial institution (CDFI) industry.

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