Domestic Energy Challenges in the 21st Century

December 1, 2016

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Domestic Energy Challenges in the 21 Century

Overview

Advances in technology have dramatically increased U.S.

oil and natural gas production (Figure 1). This increase has

important policy implications for energy markets,

infrastructure, security, and the environment. The Energy

Information Administration (EIA) projects that electricity

demand will continue growing, with generation fuel shifting

further away from coal toward natural gas and renewables.

An increase in electricity demand would put strain on

transmission capacity. How best to leverage all domestic

energy supplies (fossil fuels, renewables, and nuclear) to

promote economic growth while balancing the economic,

environmental, and security tradeoffs inherent to energy use

is an enduring question.

In the 114th Congress, the House and Senate debated major

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.

for further increases in either export remains unclear. With

growing U.S. crude oil production and falling prices, there

was keen interest in the 114th Congress in eliminating a 40year limitation on exports of most U.S.-produced crude oil.

In December 2015, Congress passed the Consolidated

Appropriations Act for FY2016, which included a repeal of

the oil export ban. Before the ban was lifted, U.S. crude oil

exports averaged roughly 500,000 barrels per day (bpd),

mainly to Canada. Since the ban was lifted, exports have

generally fluctuated around or below that 500,000 bpd

mark, although exports did reach a record level of 662,000

bpd in May 2016. Most notably, the number of countries

receiving U.S. crude has expanded, including countries in

Europe, Asia, the Middle East, and the Caribbean.

Figure 1. U.S. Natural Gas and Crude Oil Production

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,

water supply and quality, and induced seismicity. These

techniques have dramatically lowered natural gas cost and

increased supply, which has helped reduce overall power

plant emissions, including greenhouse gases (GHGs), and

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.

Source: Energy Information Administration (EIA). Prepared by CRS.

Notes: Bcf/d = billion cubic feet of natural gas per day; Mb/d =

million barrels of oil per day.

Figure 2. Spot U.S. Natural Gas and Crude Oil Prices

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

possibility for the United States to export large quantities of

natural gas and crude oil, although the long-term prospects

Source: Energy Information Administration (EIA). Prepared by CRS.

Notes: $/MMBtu = dollars per million British thermal units of natural

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

such exports are in the public interest. Exports to free trade

agreement (FTA) countries are assumed in the public

interest by statute, while exports to non-FTA countries

require a public interest determination. To date, the

Department of Energy (DOE) (to which authority has been

delegated) has approved roughly 15 billion cubic feet per

day (bcf/day) of LNG exports to non-FTA countries, with

applications for significantly more capacity still under

review. However, even with DOE authorization, there is no

guarantee that all of these projects will be completed: these

facilities require large infrastructure investments, and a

variety of economic and other factors could hinder each

project’s completion. The first U.S. LNG exports from the

lower-48 states began in February 2016, but most LNG

export projects remain in the construction or planning

phases. Proposals in the 114th Congress were introduced to

expedite DOE’s export approval process, including

provisions contained in S. 2012.

Environmental Concerns. Increased use of advanced

drilling and production techniques has raised questions

about the environmental effects of the current oil and gas

boom. These concerns include effects on water quality and

supply, air quality, and GHG emissions. For example, waste

water disposal raises concerns about water quality and

seismicity. Diverse regulatory regimes across the states

have led some to call for national regulation, while others

prefer to maintain state authority. In the 114th Congress,

some bills would have limited and others would have

expanded federal regulation of hydraulic fracturing, while a

few states and localities have adopted moratoria or bans on

the practice.

Infrastructure. Increased North American oil and gas

production, particularly in areas that historically were not

major producers, has led to growth in demand to transport

those commodities to market. Perhaps most notably, rail

tanker oil shipments increased more than four-fold between

2011 and 2012. Since that time, several high-profile

derailments have raised concerns over the safety of rail

tankers. Barge traffic has also grown. Massive investments

have been made in oil and gas pipelines, although

controversy has arisen around projects such as the Dakota

Access Pipeline and the Keystone XL Pipeline. As noted

above, many projects aim to export LNG: if completed,

these projects would encompass new terminal facilities at

U.S. ports. In the 114th Congress, various bills would have

amended rail safety standards, approved the Keystone XL

pipeline, or promoted other oil and gas infrastructure

projects.

Electricity

Generation. The Energy Information Administration

projects that U.S. electricity demand will grow by 10-15%

between 2016 and 2030. Because of economic and

regulatory factors, renewable energy and natural gas-fired

generation are projected to grow by 60-80% and 10-30%,

respectively, over the same time frame. Coal-fired

generation is projected to range between a 30% decrease

and a 5% increase, remaining below historic levels,

regardless. The former numbers reflect EIA’s projections

assuming EPA’s Clean Power Plan to reduce GHG

emissions is upheld, while the latter numbers reflect

projections based on a repeal of the plan. The future of U.S.

nuclear power is unclear. GHG regulations could provide

an opportunity for growth, but uncertainty about

construction costs and long-term waste disposal raises

investment risk.

Transmission. Growth in electricity demand would require

the expansion and refurbishment of an aging and alreadystrained electric grid. Furthermore, concerns about both the

physical and cyber-security of the grid remain, and may

grow as digital “Smart Grid” technology expands.

Environment. Electric power is the largest consumer of

fossil fuels in the United States and its interactions with the

environment are often substantial. Concerns with electricity

generation include air and water pollutant emissions, GHG

emissions, and water use. For example, electricity

generation accounts for roughly a third of U.S. GHG

emissions and cooling water for power production

represents 45% of U.S. water withdrawals. Thus policy

actions to address concerns over air and water quality, GHG

emissions, and the effects of drought will directly affect the

economics of power generation. Some power producers

have announced plans to retire existing coal-fired plants in

anticipation of Clean Power Plan implementation. Various

bills in the 114th Congress would have explicitly limited

EPA’s authority to regulate GHGs. Whether planned

retirements would be reversed if GHG limits were repealed

is unclear – the economics of coal vs. natural gas-fired

generation remains a challenge for power producers.

Energy Efficiency

Increased efficiency could forestall the need for new

electric capacity and help limit demand for U.S. energy

supplies. In the 114th Congress, several bills would have

promoted energy efficiency in the industrial, commercial,

and residential sectors. At the same time, concerns have

been raised about the effects of federal efficiency standards

on consumer products such as lighting and furnaces.

States’ Roles

Many decisions about energy markets, infrastructure, and

regulation are implemented at the state level. Regardless of

whether the federal government takes a more or less active

role in the future, state and regional decisions often have

national impacts. California’s 2002 decision to regulate

GHG emissions from automobiles had ripple effects

throughout other states. Similar issues may arise with

electricity, as 29 states have established renewable portfolio

standards (RPS) for their electric grids. However, each state

RPS is different. The interaction of state and local policies

with national decisions is often complex.

For more information, see CRS Report R42856, Energy

Policy: 114th Congress Issues.

Brent D. Yacobucci, Section Research Manager

https://crsreports.congress.gov

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Domestic Energy Challenges in the 21st Century

Disclaimer

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