Avalon Energy Services Senior Energy Consultant Jeff Dowdell was the featured guest on the most recent Energy Sense Podcast. Check out the episode to learn about combined heat and power (CHP) – what it is, how it can reduce costs and improve efficiency, and how it improves resilience. Jeff also discusses the future of natural gas as the US moves towards a more renewables-focused fuel mix, as well as considerations for deciding to work with an energy consultant. Interested in a career in the energy industry? Jeff has advice for you, too.
With the decade coming to a close, this is a perfect opportunity to look back at how the energy market has changed over the past ten years. It has certainly been a whirlwind ride, starting shortly after the 2008 stock market crash and continuing through the Great Recession and the subsequent recovery. The decade also saw the shale gas revolution take hold. Arguably the most significant change in the energy market over the past ten years, the shale gas revolution has not only provided great economic benefit within the United States but also reshaped our position on the world stage.
The two technologies instrumental to the shale gas revolution – hydraulic fracturing (i.e., fracking, or inducing porosity and permeability in rock) and directional drilling (greatly increasing a wellbore’s exposure to hydrocarbon bearing formations) – have been around for decades. However, Texan George P. Mitchell of Mitchell Energy & Development Corp., through sheer determination and personal will over seventeen years, was able to advance and combine these technologies, thus enabling the extraction of natural gas from shale formations that are of low porosity (i.e., not much pore space in the rock) and low permeability (i.e., the pore spaces are not well interconnected). These formations underlie large swaths of the United States, and the proven reserves of natural gas have consistently increased over the past decade.
The shale gas revolution is commonly considered to have started in 2008, and in the 2010s, we have witnessed the remarkable changes that have resulted from its growth. As fracked wells have come online, the ready supply of low-cost natural gas has transformed the energy industry in America and the world. The graph below on the left shows the volume of natural gas produced daily in the United States between 1997 and 2010, measured in billions of cubic feet per day (Bcf/day). Production over this period remained relatively flat, averaging about 50 Bcf/day. Compare that to the graph on the right, which shows the volume of natural gas produced in the United States from 2010 to the present. The volume of natural gas produced daily has very nearly doubled to about 93 Bcf/day.
Though demand for natural gas has increased, the more dramatically increasing supply of natural gas has driven down its price. The graph below shows how US natural gas prices at the Henry Hub have declined from about $6 per million Btu (mmBtu) to $2.19 per mmBtu today.
Due to the increased availability of cheap, abundant natural gas, an increasing number of liquified natural gas (LNG) export terminals have come online, and the United States has become a major exporter of LNG. This reverses a long-term trend of rising LNG imports. The graphs below show US LNG imports and exports from 1985 – 2009 (left) and 2010 – 2019 (right).
In most parts of the country, natural gas prices and electricity prices are strongly correlated. As natural gas prices move so do, generally, electricity prices. Thus, as natural gas prices have fallen, electricity prices have fallen as well. The graph below shows wholesale electricity prices in the Mid-Atlantic measured in dollars per megawatt-hour ($/MWH). Wholesale electricity prices are almost half of what they were ten years ago.
The abundance of natural gas and the declining prices of natural gas and electricity have been driven by the dramatic increase in shale gas production.
The map and graph below identify the regions and geological “plays” in the US where shale gas production is occurring. Shale gas production has increased to two-thirds of this rising total US natural gas production from only a minor contribution only ten years ago.
Though many people doubted fracking would work with crude oil deposits, as oil molecules are much larger than those of natural gas, Mark Papa of EOG Resources, Harold Hamm of Continental Resources, and others have been able to adapt fracking technology to the extraction of oil. We have thus seen a shale oil revolution take hold, which has brought benefits similar to those of the shale gas revolution. It has driven down petroleum prices in the United States and dramatically reduced our dependence on foreign oil. The US recently became a net exporter of oil products (refined petroleum and crude oil). Overall, the US is now the world’s largest producer of natural gas (93 Bcf per day versus 58 Bcf per day during 2010) and crude oil (13 million barrels per day versus 5.5 million barrels per day during 2010).
The shale revolutions have significantly changed the US energy landscape over the past decade. They have brought online abundant sources of low-cost domestic energy, which have driven down consumer prices, boosted our economy, created jobs, improved America’s energy security, and increased revenue to state and local governments and the federal government. Fracking and directional drilling require a smaller footprint than traditional drilling, and have helped reduce CO2 emissions as natural gas is being substituted for coal in electricity generation. Low cost, abundant natural gas complements intermittent sources of energy such as wind and solar.
In addition to all the benefits noted above, low energy prices in the United States have expanded the manufacturing sector and made the country more attractive to companies willing to relocate from overseas. Indeed, the shale revolutions have done nothing less than improve the United States’ geopolitical position, reducing our dependence on foreign oil and shoring up our export capacity.
Like any fuel source, shale gas comes with trade-offs. There are concerns about induced seismicity, water and air pollution, and health impacts. Further technological advances and refinements in the field may alleviate these concerns, and we look forward to seeing how this industry progresses in the 2020s.
The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at firstname.lastname@example.org.
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Wind energy is an incredible resource with incredible potential. The generation costs are low, the efficiency of turbines continues to increase, and the threat to birds continues to decline. An unfortunate irony, however, is that the places with the most prolific wind energy tend to be places with relatively little demand for power.
West Texas, the Dakotas, Kansas, the Oklahoma panhandle – these are all places where the wind blows powerfully and fairly consistently. However, getting electricity generated by that wind to the population centers that most need it is challenging in the current environment. The decentralized nature of the US power grid means that moving electricity across state lines and between regions is difficult, and sometimes seemingly impossible.
Several people have envisioned networks of high-voltage transmission lines that could move power from areas of abundant wind energy (as well as solar energy) to areas that could use that power. Russell Gold’s book Superpower centers on one of those people.
Michael Skelly conceptualized a series of high-voltage, direct current transmission lines radiating out from the center of the United States to points east and west. Little did he realize, however, quite how complicated it would be to implement that vision. With differing economic, political, regulatory, and cultural realities in different states, overlain by the interests and powers of the federal government, Michael Skelly’s company, Clean Line Energy Partners, would require agreement from myriad stakeholders in order to make their project a reality.
Though Superpower focuses primarily on Michael Skelly – including earlier ventures that prepared him for the task at hand – the author incorporates a wealth of information about the history of the electric grid and the energy field. He provides fascinating background about major developments that have led to the system we have in place today, from the first factory with generator-powered electric lights to the first centralized power plants to the first “experiment” in which wind energy was fed back into the electric grid. He also illustrates the massive declines in the cost to generate wind energy, along with the growth in the size of wind farms.
The electric grid has evolved over time such that electricity is generated and used within the same general area – first, within the same building; then, the same city; and now, the same region. In order for renewable energy to provide a sizeable percentage of our electricity needs, the next step in that evolution will need to be transmission lines that allow electricity to be moved across regions. The book’s extensive discussions of the various players in this drama – utility companies, public service commissions, elected officials, landowners, federal agencies – and their interests and motivations bring clarity to the challenges facing anyone attempting to modernize the grid. It is also fascinating to learn how differently various states approach the energy industry, and how state and federal powers intersect.
Russell Gold is clearly very sympathetic to Michael Skelly and comes across at times as more cheerleader than reporter. However, looking beyond the fanfare, the reader can gain a strong understanding of the challenges facing the US as we seek to incorporate more renewable energy, update the electric grid, and increase the resilience of our power supply.
The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at email@example.com.
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Late 2008/early 2009 was an unsettling time. Bear Stearns was bailed out, Lehman Brothers went bankrupt, the housing market collapsed, credit markets were frozen, the stock market fell more than 40%, the unemployment rate was approaching 10%, and energy markets were in turmoil. The Great Recession was underway. Despite this uncertainty, during April of 2009, Avalon Energy Services, LLC was established.
More than a
few of our family and friends suggested we were crazy to start a business
during such a difficult economic time.
We probably were. But, with expanded
customer choice and intense energy commodity price volatility, confusion was immense
and we saw a clear need among energy users for independent and objective energy-related
advice. Our belief was that with a
singular focus on the individual needs of energy users, we could help. So, we set off on a mission to help
commercial and industrial customers “save
energy and save money.”
users have more options than ever for energy procurement and usage, including
onsite and offsite renewable energy, energy storage, and combined heat and
power (CHP), to name just a few. Sustainability
has also become a major consideration, and customers have access to numerous
options for ensuring their energy usage aligns with their needs and priorities.
from satisfied customers have enabled Avalon to grow and serve an expanded
market, but we continue to maintain a singular focus on each customer’s
individual needs and priorities. The
turmoil of the Great Recession may have abated, but the need for professional
guidance in navigating energy usage, procurement, and sustainability has only
grown. At ten years old, we are proud to
continue to provide our customers with top quality independent and objective advice
based on sound economics.
By Jim McDonnell and Evelyn Teel, Avalon Energy Services, LLC
Compared to the rest of the United States, electricity prices in
New England are high. Nothing surprising
there. So, just how expensive are
they? Well, it depends. And, the surprising part is which utility, in
one comparison, has the lowest rates.
First, some background.
Eversource Energy is an investor-owned utility headquartered in Hartford, CT and Boston, MA. Eversource is the rebranded name of Northeast Utilities, after its merger with NSTAR in 2012. Through its three electric distribution companies, Eversource operates New England’s largest energy delivery system and has 3.2 million electricity customers.
United Illuminating Company, a subsidiary of Avangrid, Inc., is an
electric distribution company serving 325,000 customers in Connecticut. Avangrid, through its four electric utility
subsidiaries, serves about 2.2 million customers in New England and New York State.
Wallingford, Connecticut is a town of 45,000 people located between Hartford and New Haven. Despite its size, the town operates its own municipal electric utility, known as the Wallingford Electric Division (WED).
Despite operating in the same geographic area, the three utilities
vary dramatically in terms of their rates and the costs to their consumers.
A recent bill insert sent out by WED provided the following rate comparison. These are residential rates for an account that averages 750 kWh per month.
Utilities have different energy procurement strategies and
different infrastructure issues, which contribute to their varied pricing.
Furthermore, municipal electric utilities are exempt from certain mandates that
affect the pricing of larger utilities.
However, the 6.2 and 11.5 cents per kWh differences between a small municipal
utility and the two large investor-owned utilities are dramatic.
Note: The WED bill insert was provided by Dan McDonnell of Wallingford, CT.
Propane is a versatile source of energy common in rural areas that are “beyond the main” of utility natural gas service. It is often used for home space and water heating and cooking, as well as for agricultural uses such as crop drying, irrigation pump fueling, space heating in green houses, pig and poultry brooding, frost protection, standby electricity generation, and even food refrigeration.
Where does propane come from?
Propane is produced in association with natural gas (along with other natural gas liquids, or NGLs) and is also a byproduct of crude oil refining. Because propane is a gas at atmospheric pressure, it is compressed into a liquid state under moderate pressure for storage and delivery.
The shale gas revolution has led to dramatic increases in natural gas production.
As previously reported, US natural gas prices have remained low for some time. This is despite the existence of many influences that more recently would have driven natural gas prices upward (see Natural Gas Market Update, June 2018).
Because propane is produced in association with natural gas, along with the dramatic increase in US natural gas production has come a dramatic increase in US propane production. As natural gas production has increased, so has NGL production.
With such an increase in propane supply, propane prices, like natural gas prices, are low – right?
While natural gas prices have remained low (red line below), propane prices have risen significantly (blue line below).
Exports of propane from the US have grown and continue to grow.
Rural residential and agricultural customers who rely on propane rather than natural gas are not benefiting from the shale gas revolution to the extent that others are in the US. Increasing propane exports are a major driver of this phenomenon. This is another illustration of the complicated dynamics underlying energy commodity markets and an example of how those markets can change over time, often in unexpected ways.
For several years, the U.S. Geological Survey (USGS) has been investigating the potential effects of intense geomagnetic storms on electric utility infrastructure. In 2016 they concluded,
“A severe geomagnetic storm could disrupt the nation’s power grid for months, potentially leading to widespread blackouts. Resulting damage and disruption from such an event could cost more than $1 trillion, with a full recovery time taking months to years.” (1)
Bloomberg recently noted that in an upcoming report, the USGS more specifically identifies a stretch of the Interstate 95 corridor as particularly at risk of power outages related to geomagnetic storms.
This corridor is largely underlain by Paleozoic (very old) crystalline rock that acts as an insulator, reflecting back incoming energy from the sun, thus giving that energy a second chance to damage utility infrastructure. Damaged electrical infrastructure, particularly utility transformers, can take many months to replace.
“Through a stroke of bad luck, the worst of these rocks basically traces the path of I-95 from Richmond, Virginia, to Portland, Maine, passing through Washington, New York and Boston along the way.” (2)
Putting aside for the moment the notion that rocks can be inherently good or bad, concerning how this connection between electricity and rocks may impact the electric grid, solutions are not simple. Some may look to off-grid self-generation and battery storage for protection. But, if a geomagnetic storm is strong enough to impact the grid, it also may impact the electric infrastructure at individual customers’ sites.
Faraday cages are a potential solution. Faraday cages also may provide protection against EMPs (electromagnetic pulses). More on this in the weeks ahead.
And there is more. Avalon Energy Services is pleased to announce it will co-sponsor Bisnow’s July 26 educational networking event, “Future of Bethesda: Building the Area’s Identity & Investing in its Growth.” Topics to be discussed include:
How can you capitalize on the growth promised by the Marriott headquarters and hotel?
What type of tenant is ideal for Carr’s Apex Building?
Will Bethesda ever see a nightlife scene? Does it want one?
With a historically strong retail market, is Bethesda immune to the asset class’s national uncertainty?
How can Bethesda develop a unique identity as a suburb of DC?
Friends of Avalon Energy Services can receive 20% off the price of admission by using the following code: AES20UZ1A5.
As previously announced, Avalon Energy Services is also co-sponsoring Bisnow’s July 24 event, “Baltimore-Washington Industrial & Logistics Forecast: How Quickly is the Market Actually Growing and Can You Capitalize on It?” Check out our previous post for more details and the Avalon Energy Services friends’ discount code.
Avalon Energy Services is pleased to announce it is co-sponsoring Bisnow’s July 24 educational networking event, “Baltimore-Washington Industrial & Logistics Forecast: How Quickly is the Market Actually Growing and Can You Capitalize on It?” Topics to be discussed include:
With more and more companies adapting to an e-commerce model, are they prepared for the industrial world? Are they making educated decisions in their industrial moves, leases and logistics?
As more developers grow their industrial portfolios, will this create healthy competition for the marketplace?
How will the trucking labor shortage impact drayage costs? Will self-driving vehicles play a role in shipping?
As vacancy rates continue to decline, how high will rent rise?
Is there a chance we are over estimating e-commerce’s growth, or will its exponential growth continue as expected by many?
Find more information about this exciting event here. Friends of Avalon Energy Services can receive 20% off the price of admission by using the following code: AES20S31XL.
Natural gas prices remain low and below their declining 21-year trend. See graph below.
The prices presented here are for delivery at the Henry Hub in Southern Louisiana. Natural gas prices in other producing areas of the US, such as Northeastern Pennsylvania, the Permian Basin, and the Williston Basin, are significantly lower. The prices here are also in nominal dollars. If plotted in real dollars, the downward trend would be even more pronounced (see These are Days to Remember).
Despite the current low price environment, there are a number of factors putting upward pressure on natural gas prices, including:
Increasing liquified natural gas (LNG) exports
Cheniere Sabine Pass trains 1-4 online
Cove Point terminal on the Chesapeake Bay ramping up
11 additional liquification trains along the Gulf Coast in the works to come online in the next five years
Increasing pipeline exports to Mexico
Up more than 300% since the Great Recession
Increased industrial demand
Particularly in the petrochemical industry
Increased demand for natural gas-fired electricity generation
As coal plants retire
Natural gas storage levels down
Currently 25% below five-year average at this time of year
Given these influences, how do natural gas prices look in the futures market? Low and continuing their decline. See the graph below.
After peaking at $3.16/mmBtu during the winter of 2018/2019, natural gas prices remain below $3/mmBtu for the remainder of the 60-month forward period.
What is driving this?
Supply. More specifically, dramatically increasing supply.
Natural gas production is up 7 Bcf/day from this time last year to 79 Bcf/day. The US Energy Information Administration (EIA) projects US natural gas production will reach 83 Bcf/day by December 2018.
To see how much things have changed, read these older natural gas market updates: