Major turning points are best identified with the passage of time, and with so many legitimate candidates it might seem a bit deflating to note, as the chart below reflects, that the growth pattern for US energy supplies in 2015 looks a lot like the one for 2014. Despite low prices, oil and gas posted solid gains, while wind and solar power contributed modestly, when compared on an energy-equivalent basis.
However, anyone identifying 2015 as the start of a global shift away from oil must contend with some contrary statistics. Global oil demand appears to have increased by around 2%--equivalent to the output of Nigeria--in response to a 70% drop in oil prices. And despite a lot of media coverage, electric vehicles--the leading contender to replace the internal-combustion cars that are the main users of refined oil--have yet to catch on with mainstream consumers.
Based on data from Hybridcars.com, US sales of battery-electric vehicles (EVs) grew slightly faster than the 6% pace of the entire US car market in 2015 but still accounted for less than 0.5% of all new cars. In fact, the combined US market share of hybrids, plug-in hybrids and full EVs fell by 18%, compared to 2014, to below 3%. This is a respectable start, but it's not much different from the beachhead hybrids alone occupied in 2009.
Although we might look back on this situation in a few years as a turning point, I believe that will depend on the condition of OPEC and the global oil industry, as well as the level of global oil consumption, when supply and demand come back into balance and today's high oil inventories are drawn down.
At the launch of API's latest State of American Energy report earlier this week I had the opportunity to ask Jack Gerard, the President and CEO of API, how he thought the current situation could change the industry, and whether it would push it even farther towards shale development, including outside the US. His response focused on ensuring that policies will allow US producers to compete globally and build on the advantages of US resources, capital markets and rule of law to increase their share of the market.
As for US natural gas production, rising per-well productivity and growth in the Utica shale and Permian Basin offset less drilling in general and output declines in the Marcellus shale and elsewhere. The continued expansion of gas is remarkable, considering that natural gas futures prices (front month) averaged just $ 2.63 per million BTUs for the year and dipped below $2 in December. The LNG exports set to begin this month look very timely.
Renewable energy, mainly in the form of wind and solar power, continues to grow rapidly as its costs decline. US renewables got an unexpected boost in December when the Congress extended the two main federal tax credits for wind, solar and other technologies by five years, including retroactively reinstating the lapsed wind Production Tax Credit (PTC). They should also benefit from the implementation of the EPA's Clean Power Plan, and from the effect of the Paris climate agreement on the investment climate for these technologies.
We may not know for some time whether the Paris Agreement was truly a turning point for climate change, as many have suggested. Another prescriptive agreement with legally binding targets, along the lines of the Kyoto Protocol, was never in the cards. However, the Paris text is replete with tentative verbs, along the lines of, "requests, invites, recognizes, aims, takes note, encourages, welcomes, etc. " It remains up to the participating countries whether and how they fulfill their voluntary Intended Nationally Determined Contributions and financial commitments.
This could turn out to be the necessary framework for firm steps by both developed and developing countries to reduce emissions and adapt to climatic changes that are already "baked in", or it could shortly be overtaken by other events, as previous climate change measures were in the aftermath of the financial crisis. The current financial problems of the world's largest emitter of greenhouse gases--arguably the most important signatory to the Paris Agreement--are not a positive sign.
With so many uncertainties in play, we should consider all of these potential turning points as signposts of changes that depend on other interconnected factors, if they are to lead to a future that breaks with the status quo. There are enough of them to make for a very interesting 2016, even if this wasn't also a US presidential election year.