By Jeremy Simon, Rob Heidrick and Courtney Boedeker

The U.S. is currently at 70 percent energy independence, but we still import 30 percent of our energy and that figure is increasing.The U.S. is facing massive energy challenges, and they’re not likely to go away anytime soon. That was the outlook shared by the keynote speaker at the second annual UT Energy Forum in early February.

Keynote speaker Steven E. Koonin, former undersecretary for science at the U.S. Department of Energy, laid out the energy challenges currently facing the United States:

• Energy security (oil is held in nations with questionable goals)

• Competitiveness (technology is being developed abroad, which impacts the role of the U.S. in the global economy) 

• Environmental effects (including carbon dioxide emissions and water withdrawals)

Don’t expect a quick fix for any of those problems. “[It] takes decades to affect change in the energy system,” Koonin said. 

The Energy Forum brought together energy experts and attendees from a variety of backgrounds — including academia, advocacy, and industry — to share their thoughts regarding our most pressing energy challenges. Panels addressed such topics as “Who Pays for Our Renewable Future?” and “The Future of Energy Storage.” 

Read on for a selection of highlights from the forum.

How Close Are We to Energy Independence?

In a debate about energy independence, University of Texas energy research fellow Fred Beach; Robert Bryce, senior fellow at the Manhattan Institute; and Joe Capps, U.S. Army Installation Management Command, discussed the costs of various energy sources.

On domestic sources of energy in the U.S.
• Solar, geothermal, and wind energy in the U.S. – all are 100 percent domestically produced

• The U.S. is currently at 70 percent energy independence; 85 percent if you include Canada and Mexico as sources

• But: We still import 30 percent of our energy, mostly oil – and this figure is increasing

According to Beach, “In 1970, we imported 7 percent of our energy. In 1990 it was up to 20 percent, and in 2010 it was 30 percent. That is not a good trend if you think energy independence is important. It’s almost all oil. It’s because there’s no limit on demand. The supply can grow to meet it. Supply will continue to be pushed to meet our hunger.”

On the Keystone Pipeline
Bryce: “That pipeline, by itself, if built, would deliver 700,000 barrels of oil to the United States per day. By itself, it would deliver 46 percent more energy to the U.S. than all the solar panels and all the wind turbines in the U.S. combined.  It’s another example of the Obama administration’s incoherent policy when it comes to energy.”

On how long until less than half of our energy comes from oil and coal? 
Beach: “It’s not in my lifetime, unfortunately. I don’t see the political will or the understanding in the general population, not only in this country but worldwide, to understand how you solve that problem.”

Could it be done in less than 60 years? “The sad thing is that it’s doable in much less if we chose to.”

On the cost of energy
Beach: “Energy is too cheap, and it’s cheap because of our reliance on fossil fuels, because fossil fuels are cheap. You dig them up out of the ground. We do not pay the proper price for energy based on the impact it has environmentally. Plain and simple: We’re all lazy, and we like cheap.”

Bryce disagrees: “My view is that energy should be cheaper. You say it’s too cheap; it’s not cheap enough. Tell me which consumers think, when they go to the gas station, ‘Oh please, make my gasoline more expensive.’ I don’t know of any.”

Cheap natural gas has helped the economy: From 2003 to 2008 natural gas was about $7 per 1 million BTUs; today it’s less than $3. That decrease is saving the U.S. economy $260 million a day.

On the government’s role
Capps: Policy is created by bureaucrats who have little business experience; they don’t consider the need for private industry to earn a profit.

Bryce: Even if the U.S. does impose a price on energy, other countries won’t do it just because the UN says to.

On the electric grid in the U.S. and abroad
Beach: Our situation now is similar to the evolution of telephone lines. The U.S. developed a big network of hard lines, but third-world countries skipped that step and went straight to cell phones. The same thing is about to happen with the energy grid. “We’re stuck with the equivalent of land lines and they will pass us. The U.S. model of centralized utilities is dead.” Electricity needs to be generated on a smaller scale. It’s possible to generate power within an area about the size of a neighborhood block.

Hydraulic Fracturing Has Economic Value

Michael Bahorich, chief technology officer of Apache Energy, emphasized the economic value of multi-stage hydraulic fracturing in a horizontal well in his talk, “Fracking Helps the Poor.” He noted that this drilling technique has lowered natural gas prices by two-thirds (from $12/MMBtu to $4/MMBtu) and allowed it to compete with liquefied natural gas.

As a result of the lower prices, he estimated that U.S. consumers will save more than $900 per household in 2012.

Using natural gas is beneficial, according to Bahorich, because it is a clean, abundant energy source that had significant impact on creating jobs domestically. He projected that the Eagle Ford Shale formation in Texas would account for $21.5 billion in total annual economic output by 2020.

He pointed out that all energy production comes with some risk, and that with more than one million wells that have been fracture stimulated, natural gas has a decades-long history of safety. He emphasized that there was no need to trade environmental protection for economic benefits because communities can, and should, have both. He addressed some of the “real risks” with the production process which included diesel trucks hauling fuel and frac water accidently getting dumped on the ground. However, he also emphasized that the environmental impact was reduced at the surface due to multi-frac horizontal drilling, which can develop 40 miles of an area from one 10-acre pad. 

Bahorich also noted that natural gas cars were cleaner than electric cars and compared converting one commercial vehicle to natural gas as the equivalent of removing more than 300 gasoline-powered cars from the road.

Understanding Movements in Oil Prices

In a discussion moderated by Professor Sheridan Titman, panelists Roger Ihne of the Deloitte Center for Energy Solutions, Jeff Bartlett of Apollo Global Management, Jason Schenker of Prestige Economics, and Niloy Shah of BP’s Gulf of Mexico Region focused on the causes of shifting natural gas and oil prices, current issues in the natural gas market, and addressed consumer perceptions and the factors that drive the energy market.

On lower natural gas prices:
Ihne: The fundamental change has to do with the shale gas revolution. Horizontal drilling unlocked shale potential and caused a shift in focus from LNG import facilities to the immense natural gas resource in the U.S.

Bartlett: If a company is 80 percent or more in natural gas, it’s a very painful time. Many can’t withstand the low prices when the cost of field services is higher.

Schenker: Why do natural gas companies continue to produce? “The only way to maintain your cash flow when your margin gets compressed is to produce more.”

On natural gas and transportation:
Ihne: NGVs (natural gas vehicles) would be the holy grail for natural gas companies.

Bartlett: The movement over the next 5 years will be from coal to natural gas. Conversion to NGV fleets will have traction and be impactful, but not game-changing.

Shah: In terms of exporting LNG, it will become a reality. Transport will become LNG based, but probably not at the consumer level, more with commercial fleets.

Schenker: The amount of money it requires to pipe the gas around is crazy. Natural gas is cheaper, but it’s billions to convert fleets. What’s the incentive? How do you approach shareholders? Petroleum products are also way too cheap. Oil is way too cheap.

On the role speculators play in increasing volatility of oil prices:
Schenker: “Unless you’re physically in the market, you’re a speculator. Unless you’re at BP, buying BP stock, you’re a speculator.” There are thre types of trading: speculative, arbitrage, and back-to-back.

On the regulatory climate and its impact:
Shah: The regulatory climate is having a significant impact. Lease royalty rates have gone up. Tax rates have gone up. Regulations that prevent oil from hitting the oceans are important, but fiscal regulations have a longer-term effect and an impact on investments. Regarding the Keystone pipeline, that’s a political issue but a much needed source.

Ihne: Regarding the Keystone pipeline, we are the best source for that crude to flow through. We have the ability to refine that crude. If we don’t, it will be shipped to China, so the environmental footprint goes up! It doesn’t make sense from an economic or environmental standpoint.

On predictions for the future:
Schenke: The oil price in 2016 will probably be a lot higher than it is now. 

Bartlett: In five years, there will be a massive demand for commodities and a large demand for oil in China and India.

Ihne: Natural gas will probably be in the $4.5-7 range, if the technology continues to improve.

Schenke: Stainless steel will be wildly higher, due to pipeline construction, etc.