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Robert Rapier: Top 10 Energy Related Stories of 2010

General Ideas

Here are my choices for the Top 10 energy related stories of 2010. I can’t remember having such a difficult time squeezing this list down to 10 stories, because there were many important energy stories for 2010. It was hard to cut some of them from the Top 10; so hard that I almost did a Top 15. But I made some difficult choices, and offer my views on the 10 most important energy stories of 2010. Previously I listed a link to Platt’s survey of the Top 10 oil stories of 2010, but my list covers more than just oil.

Reviewing my list of Top 10 Energy Related Stories of 2009, I see that I made three predictions. Those predictions were:

  • China’s moves are going to continue to make waves
  • There will be more delays (and excuses) from those attempting to produce fuel from algae and cellulose
  • There will be little relief from oil prices.

Given that total energy demand from China surpassed that of the U.S. in 2010 (five years earlier than expected), the EPA twice rolled back cellulosic ethanol mandates (and there are still no functioning commercial plants), and we are closing the year with oil above $90 per barrel, I would say I nailed all of those.

For this year’s list, don’t get too hung up on the relative rankings. They are mostly subjective, but I think we would have fairly broad agreement on the top story.

1. Deepwater Horizon Accident

On April 20, 2010 the BP-owned Deepwater Horizon drilling rig exploded, killing 11 men working on the rig and injuring 17 others. Because of the depth of the rig, there was no easy way to cap it and it gushed oil until it was finally capped three months later on July 15th. In the interim, the leak released almost 5 million barrels of oil into the Gulf of Mexico, making it the largest accidental marine oil spill in the history of the petroleum industry. In fact, not only was this my top energy story of the year, according to a poll of AP writers and editors it was the top news story period.

2. The Deepwater Horizon Fallout

While the accident itself was the biggest story, there was much fallout from the incident that will continue to be felt for years. Just three weeks before the incident, President Obama had proposed to open up vast new areas off the Atlantic coast, the eastern Gulf of Mexico, and the north coast of Alaska. Governor Schwarzeneggar was pushing for offshore oil drilling near Santa Barbara County. There was a great deal of momentum that promised to greatly expand the areas available for offshore production. In the wake of the disaster, the debate shifted sharply. President Obama canceled a planned August offshore drilling lease sale in the Western Gulf and off the coast of Virginia, citing that his “eyes had been opened” to the risks of offshore drilling. The administration also put a temporary deepwater drilling ban in place until additional safety reviews could take place. Governor Schwarzeneggar dropped his plans, citing the spill as evidence that offshore drilling still poses too great a risk.

But there were far-reaching impacts in other areas. BP began to sell off assets, raising $10 billion to pay claims of those impacted by the spill. BP CEO Tony Hayward — after a series of gaffes — stepped down from the helm of BP. Around the area affected by the spill, people lost jobs, particularly in the fishing and tourism industries. The long-term environmental impact remains uncertain, with some groups claiming the area has recovered, and others stating that it will be years before the full environmental impact can be determined.

3. China Becomes World’s Top Energy Consumer

For more than a century, the United States has been the world’s top consumer of energy. In 2010, China surpassed the U.S. in total energy consumption. If not for the Deepwater Horizon accident, this would have easily been my #1 story. As I said last year, I believe that China will be the single-biggest driver of oil prices over at least the next 5-10 years.

4. Matt Simmons Dies

On October 8th, I came into my office to the shocking news that Matt Simmons, Peak Oil guru and author of the book Twilight in the Desert, had died. Matt was an important voice on the topic of peak oil, preaching about the dangers of peak oil everywhere he went. I discussed the impact that Matt’s book had on me here. Were it not for his tragic passing, the energy world would now be discussing the results of the famous Simmons-Tierney bet, which would have been settled following the last day of 2010. Tierney just discussed the results of the bet in a New York Times column: Economic Optimism? Yes, I’ll Take That Bet.

5. Oil Prices Back Above $90

One of my predictions for this year was that there would be little relief from oil prices, and that this would make economic recovery from the recession very difficult. Indeed, oil prices traded for most of the year in the $75-$85 range, but by year end broke above $90.

6. Ethanol

Ethanol policy was in the news all year long. There was a long and contentious debate on extension of the ethanol tax credits and import tariffs, but the ethanol industry once more got what they wanted when their tax credits and protective tariffs were extended for another year. The EPA made a decision that E15 could be used in newer vehicles, but it isn’t expected to have much impact as few retailers seem willing to risk the legal exposure of someone putting E15 into the wrong car and damaging it. Cellulosic ethanol mandates were twice rolled back during the year when projected production fell far short of the mandate. The initial mandate called for 100 million gallons of cellulosic ethanol in 2010, but actual qualifying production year to date has been zero.

7. Electric Cars Start Rolling Off Assembly Lines

Electric cars were a hot news item throughout 2010. By year’s end, both the Chevy Volt and Nissan Leaf began to be delivered to customers. At $41,000 and $33,000 respectively, it will be interesting to see whether the market embraces these cars.

8. Russian Crude Output Climbs

Russian crude oil output continued its post-Soviet climb, eclipsing last year’s record production rate. Production for 2010 for crude oil plus condensate was just under 10 million barrels per day. Other countries that were in the news during the year for either increasing output or having very good prospects were Columbia, Iraq, and Uganda. At the other end of the spectrum was Venezuela, where mismanagement has continued to run their oil industry into the ground. While the Venezuelan government has denied the problems, the recent release of the Wikileaks diplomatic cables detailed their troubles.

9. Militaries Acknowledge Peak Oil Threat

There were two major military-related stories on peak oil in 2010. First, the US Joint Forces Command issued a report (story here) that warned of the potential for a 10 million barrel per day shortfall of oil by 2015. Then, in late summer a study on peak oil by a German military think tank was leaked on the Internet. I reported on the translated highlights, which included warnings of the potential for regional shortages, market failures, and a shift in political power toward those capable of exporting oil.

Part of the U.S. military’s response to the threat of Peak Oil has been to carry out a number of initiatives around biofuels and improved energy efficiency. In an interview with Tom Hicks, who is the Deputy Assistant Secretary to the Navy for Energy (Link to: Part I, Part II, Part III), he explained that the intent was that by 2012 the navy would put a carrier strike group in local operations entirely on alternative fuels and then in 2016 deploy that strike group on all alternative fuels. By 2020, the goal is that 50% of all of the Navy’s energy consumption will come from alternative sources.

10. The IEA Recognized Peak Oil

In their World Energy Outlook 2010, the International Energy Agency stated that it was possible that conventional oil “never regains its all-time peak of 70 million barrels per day reached in 2006.” However, they did not foresee this as a problem, as they believe natural gas, deep water drilling, and oil sands will avert a supply crunch.

Predictions for 2011

As for predictions for 2011’s top stories, I believe high oil prices will continue to put a strain on the economies of oil-importing nations. I expect that we will see oil prices once again head above $100 per barrel, although I expect the annual average for 2011 to be below $100 because of sluggish economies. I also expect that the bills are going to start coming due for some of the high profile ‘next generation’ biofuel producers, and that we will see bankruptcies from some of the companies I have discussed in this column. Some of them — probably most of them — do not have a sustainable business model, and the length of time they will be able to avoid bankruptcy is going to be solely dependent on how much cash they can manage to get infused into their operations.

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