Legislative hearing reveals news not good on energy prices | News
The Kentucky Interim Joint Committee on Natural Resources and Energy met on June 9 and heard an update on the factors driving high energy prices.
The news wasn’t good.
While Dr. Rodney Andrews, of the University of Kentucky Center for Applied Energy Research, told the legislators that there are indications that some energy prices may be going down — the prices at which they’re projected to land would still be far above what was being paid even a year ago.
Pain at the pump expected to continue
Andrews said that while fuel prices, currently around or above $5 a gallon for unleaded and diesel, are expected to drop some, it won’t be much.
“They’re forecasting the gasoline prices to begin to ease down as low as $4.25 (a gallon),” he said. “They’re not predicting below $4 in the near term and diesel is following that trend but it’s about $1 above gasoline right now.”
The reasons for that, Andrews told the committee, are varied. But, he said, the Russia-Ukraine conflict is not completely to blame.
“That does play a role, but that is not the primary driver that we have in the United States for what we’re seeing,” he said.
The factors, Andrews said, include more exports due to the Russia-Ukraine situation and the actions by the Organization of the Petroleum Exporting Countries (OPEC) to not increase production, keeping prices high.
“A huge issue for us is our inventories are down right now,” Andrews said.
In addition, he said, the rate at which the oil and gas producers domestically produce is a factor.
“There are a lot of permits that could be exercised that are not, and that’s just a reflection that, with prices high, it’s favorable toward them,” he said.
U.S. crude oil inventories, Andrews said, are down about 57.3 million barrels from where they were at a year earlier and refined gasoline inventories are also down.
“There’s not a whole lot of flex in the market,” he said.
Typically, he said, refiners do maintenance at this time of year and lean on the inventories. However, because the lower inventories and other factors, refiners are currently operating at 90 percent. That, he said, is fine unless ignoring the maintenance leads to a refinery going down.
Natural gas concerns even greater
Rising natural gas prices, he said, are also due to a multitude of factors, including low inventories.
“Inventories are the lowest they’ve been in a five-year average,” he said.
Exports are up, he said, including because European countries are beginning to be cut off from Russian supplies.
Also, he said, demand from power producers is up and the demand for electricity remains high, especially with a warm summer predicted.
Natural gas demand from power producers, as well as prices, are impacted, Andrews said, by the closure of coal power plants, a need for more natural gas to back up renewable resources and an inability from power producers to switch from gas back to coal in response to market factors.
“One of the issues that it’s difficult to switch from gas to coal is that we’ve closed those plants and you can’t just turn one back on,” he said.
Andrews said the prices are likely going to remain up through the middle of next year, but are likely to remain around $5.
Coal production likely to increase, power costs likely to remain at same level
While Andrews said coal production is likely to increase in the short term, especially in the western U.S., eventually demand will slack, as natural gas prices fall.
“Unfortunately, you’ll see then a lightening in the demand for coal and those losses are probably going to be from the Appalachian and Interior basins, simply because of the economic costs for that coal,” he said.
Coal use in the production of electricity, Andrews said, will continue to decline domestically.
Kentucky is mainly stable, Andrews said, as far as reliability is concerned because of the state’s mix of generation sources.
“We do have the issue nationally of the continued closure of coal-fired power plants taking that base out of the grid which means we’re running into reliability issues,” he said. “That’s obviously a concern as we go into high-demand months where you can end up with blackouts or brownouts. We’ve avoided that in the east, primarily, but that has happened in the west in the last few years. We would hopefully continue to avoid that.”
The costs of solar power, he said are falling, meaning there will likely continue to be more installation of solar into the grid.
“That’s fine as far as it goes, however, we still have the lack of storage to offset that being intermittent,” Andrews said. “That then means you’re again falling back on natural gas as the backup that can be turned on and off quickly enough to deal with that change. The low cost in renewables may actually cause more issues and uncertainty in that market.”
Andrews said an increased focus on switching from gasoline to electric vehicles will cause more pressure on the grid.
“That will stress current generation capacity and that will need to be handled,” he said.
One result may be increased reliance on nuclear power, according to Andrews, especially with the proliferation of small modular reactors which are becoming more popular.
The idea of switching all cars over to electric, Andrews said, is sometimes put forth as a need for a new “Apollo Program” — the program which put a man on the moon. However, he said, that program cost less than $1 trillion, while the switch from gasoline to electric cars would potentially cost as much as $5 trillion. That move, he said, has been predicted to put as much as 1/3 more pressure on the power grid.
“We are at a point where we couldn’t just flip a switch,” he said.
Legislators question federal causes of costs, uncertainty
Many of the committee members’ questions focused on policy decisions at the federal level and their relation to many of the issues being faced with costs, especially in the area of power generation.
Sen. Phillip Wheeler of Pikeville questioned how much “anti-coal” policies coming out of Washington are playing a role in the matter.
Andrews answered that he wasn’t as sure it was policy decisions, as much as financial decisions, driving the problems.
“You can’t finance a coal plant,” he said. “You also can’t finance if you have to replace your boiler. To restart a boiler, you’re probably talking $20 million to $30 million if it’s been closed long enough.”
Wheeler continued his questioning.
“Is that due to, I guess for the lack of a better term, woke policies and certain banking institutions that do not want to support anything but green energy policies?” he asked.
Andrews said it’s more about banks being concerned that, if they invest in coal, and the U.S. goes back to something along the lines of the Clean Power Plant, where those plants will be put out of business, they won’t be able to recoup their investment. It’s not so much current policy, Andrews said.
“It’s the fear of a future policy,” he said.
Committee Chairman Sen. Brandon Smith of Hazard said he believes there’s a disconnect between politicians in Washington and families in the country.
“We recently had a Democratic congresswoman say that these prices would force families into buying much more efficient electrical vehicles, and it won’t,” he said. “I think some people can, but I think that the majority of people that are already struggling to pay these bills will just cut back on groceries and cut back on other things, as opposed to going out and buying a $35,000 electric car.
“I think it makes it tougher and an undue burden on a lot of working families that are already seeing 30 percent cost of their groceries — inflation — probably more,” he said. “They’re not going to say, ‘This is our time to go get a hybrid car.’”