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2017 in Energy: A Future of Lower Energy Prices
For a long time, the United States was striving to become energy self-sufficient; now the country is self-sufficient and is becoming a net exporter of energy. That has pretty profound global economic and political implications, and we’ve seen some of those effects in the last year.
In 2017, because of healthy, albeit relatively slow, economic growth in the developed world and increasing urbanization in developing economies, we expected to see growing demand for oil and natural gas and a subsequent price spike. We saw the growing demand, but as soon as prices increased, the US production system responded immediately. The United States has become the swing supply in the global system, a role that used to belong to Saudi Arabia, and technological advances mean that producers can respond more quickly than ever before. That means fewer supply constraints and less likelihood that oil and natural gas prices revert to historical mean levels.
Depending on where you are in the economic supply chain that can be beneficial or detrimental. If you look at all the economies that depend on petro dollars, the prospect of systemically low oil prices for a long time is a scary prospect. On the other hand, it creates all kinds of interesting opportunities for energy-intensive manufacturing. You will also see restructuring in the power generation sector, as low oil and natural gas prices reduce power prices.
It may be a contrarian standpoint—there are a lot of variables—but I think the United States will continue to play the role of swing supplier for years to come. And because improving technology will allow the North American oil and natural gas production sector to respond ever more quickly to global demand spikes, this trend of lower oil and gas prices is likely to be a long-term one.
What’s next in energy?
“Electric cars. Everyone knows they are coming, but the energy sector isn’t ready. There are two main questions: Is there going to be a market for gasoline in 25 years? And where are we going to get the electricity to power electric vehicles? We will need to generate more and consistent electricity. The sun doesn’t shine all the time, and the wind doesn’t blow all the time, so that may mean a new life for nuclear.”
—Professor Richard Vietor
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