Low Oil Prices Could Be Good

for Electricity and Renewables

By Robert Fares

Since I first wrote about the price of oil last

December, the global oil price has fallen to levels

not seen in over five years. For many, the recent

price decline brings back memories of the 1980s oil

5 price collapse, which followed the 70s oil price spike

and drew attention away from renewable energy

and other alternatives — famously prompting U.S.

President Ronald Reagan to remove the White House

solar panels that had been installed by the previous

10 administration.

Thankfully, this time around, the outlook for

renewable energy isn’t so bleak. In fact, it is possible

low oil prices could actually improve the economics

of renewable energy. It all comes down to the

15 relationship between oil and gas production and the

price of electricity, which directly affects the bottom

line of technologies like wind and solar.

In 1973, the year the Arab Oil Embargo caused

a steep rise in oil prices, the United States produced

20 17 percent of its electricity using petroleum. When the

oil price increased, the price of electricity increased

too. This increase in price prompted greater interest in

domestic sources of electricity, like coal, nuclear, and

renewable energy.

25 Due in part to the turn away from oil in the 70s,

today the United States produces just 0.7 percent of

its electricity using petroleum. Therefore, the price of

oil has no direct impact on the price of electricity. Most

electricity comes from coal (39 percent) and natural

30 gas (27 percent), with the remainder coming from

nuclear, hydroelectric, wind, and other renewables.

The fuel with the most direct impact on the price

of electricity is natural gas, because natural gas

generation often sets the price of electricity in the

35 market. To gauge how low oil prices might affect the

price of electricity, it’s really important to think about

how they might affect the price of natural gas.

Although oil and natural gas prices have

decoupled in recent years, there is still an indirect link

40 between the price of oil and the price of natural gas,

because both oil and natural gas are often produced

from the same well. While most U.S. natural gas is

produced from wells drilled for the express purpose

of extracting gas, a portion comes from wells that

45 are drilled to extract oil, but produce natural gas as

a byproduct. This “associated gas” or “casinghead

gas” is often flared in regions like the Bakken in North

Dakota, which has limited pipeline infrastructure.

However, in regions like Texas’s Eagle Ford and

50 Permian Basin, this gas is often injected into the

existing pipeline network. Because drillers are really

after the more-valuable oil, associated natural gas is

often simply dumped into the pipelines at little or no

cost — depressing the overall price of natural gas.

55 The Railroad Commission of Texas, which

regulates the oil and gas industry, collects separate

data on natural gas produced from gas wells and

natural gas produced as a byproduct from oil wells.

These data show that, while overall Texas natural gas

60 production has increased since 2008, the amount

of gas produced from purpose-drilled gas wells has

actually declined. On the other hand, natural gas

associated with oil production has increased markedly

since 2008.

Available at: <http://blogs.scientifi camerican.com/plugged-in/

low-oil-prices-could-be-good-for-electricity-and-renewables/>.

Retrieved on: Nov. 10th, 2015. Adapted.

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