By Mark R. Smith, Senior Writer
Nick Popielski feels he’s in an interesting position to offer insights into the strengths and challenges of today’s oil, gas and coal markets.
To him, it all comes down to what he sees from his even-keeled, geographically-influenced perspective.
“This a large, large industry. We’re in Missouri and we’re middle-of-the-road,” said Popielski, vice president of sustainability at Spire Energy, in St. Louis. “From an energy point of view, we support taking care of our environment, but we are sensitive to energy affordability and reliability for all our customers.”
“Energy is not a resource. It’s a product,” he said. “You’ve got to make energy from something. Historically, that something has been coal, which has been plentiful, but has a terrible emissions profile.”
Therefore, he pointed to a product that has a stronger profile: natural gas, which is “in a very sweet spot,” Popielski said, “for a couple of reasons.”
Market Rates
Popielski explained his viewpoint by calling the use of natural gas “one of the environmental success stories for the country because we have moved a great deal of electric generation away from coal to natural gas,” he said, “and that’s good, because natural gas is available where we need it, when we need it, at a price we can pay for it.”
He said with the move away from coal, electric generation in the U.S. “is now about 40 percent natural gas. This is the reason for the United States’ trend towards reducing emissions, over time.”
“Natural gas is also a win from a direct use standpoint,” Popielski said. “Roughly 60 percent of power generated is lost in transmission. If you use gas for heat, instead of for electricity, you lose less than five percent due to leakage. Less is lost in transmission and we’re able to offer a huge supply of electricity when people want it―all the time, at an affordable price, especially here in the Midwest. That’s important because we don’t make New York or D.C. or California money.”
While saying that “the amount of natural gas burned on the coldest day of the year by an energy company is the equivalent of the entire energy grid in the country,” he made a key point about energy produced from renewable sources: it costs more.
That’s what many users “have begun to learn,” said Popielski. “Many people are having a harder time paying bills and this is part of the social justice equation. People need to be able to be able to pay a reasonable amount for the power because they need to buy life’s necessities.”
So from an economic development standpoint, a given locale that’s working to attract businesses as well as boost its existing base, “want to know that affordable energy is available to businesses,” he said, with “an available workforce.”
Enabling Growth
Expanding on the importance of economic development to economic security was Dean Foreman, chief economist with the Texas Oil & Gas Association, who offered some optimistic observations of the current market for both products.
“In the near-term, the crux has concerned the strong productivity of U.S. energy production and the economic security it brings. Led by Texas, the U.S. has remained the single largest contributor to global oil supply growth in 2023,” Foreman said, “with both Texas and the U.S. recently delivering record-high crude oil production.”
As for natural gas, it “has continued to be in strong demand globally,” said Foreman, “despite the loss of Russian pipeline supplies. Geopolitical uncertainties have amplified the importance of U.S. energy exports, and the U.S. Energy Information Administration projects that America’s natural gas net exports could grow by more than 80 percent between 2023 and 2030.”
That international pull for U.S. natural gas not only reflects the world’s voracious appetite for energy to enable economic growth, “but also the need to advance environmental progress by curbing the burning of coal in power generation,” he said, “especially in emerging Asia.”
Foreman added that, as it is within other industries, automation is coming to the fore “through the deployment of Robotic Process Automation bots in cost management, workload scheduling, real-time pricing and trading, as well as monitoring of wells and pipelines, reporting and regulatory compliance.”
He then remarked on the early influence of Artificial Intelligence.
“For resource development in the upstream, we’ve seen advancements in supervisory control and data acquisition for remote drilling and operations, pipeline flow monitoring and industrial Internet of Things sensors,” said Foreman. “AI is being applied below the ground to enhance our understanding and recovery of resources, but also in the processing, refining and transportation of products and manufacturing based on them.”
However, the most important developments in the short-term for energy “are more related to economic and geopolitical factors than technology,” said Alejandro Vanags, a senior managing director in FTI Consulting’s Energy and Industrials Business Transformation practice, in Houston. “The question around a potential global recession due to interest rate increases is a very important factor for global energy demand, as is the potential effects on supply from the Israel-Hamas conflict.”
While observing “a lot of interest” in AI by energy companies, Vanags said “the implementation of this very new technology is years away. We’re in the initial steps of identifying the most valuable use cases.”
Coal’s Role
As the market moves forward, how does coal fit into the macro view? Emily Arthun, CEO of the American Coal Council in Washington, said dealing with the obvious challenges “won’t change,” but added that what she heard at the Coal Association of Canada annual meeting “is encouraging for the coal industry―which was that “the international markets driven by Asia and India are developing and their use of coal is rising.”
Arthun said attendees were “also encouraged by the delay of closing of coal-fired plants in Germany and the United States, which is the recognition that we need dependable and affordable energy.”
As for the coal sector overall, “Coal and fossil fuels are a valuable component of dependable, affordable energy and need to be celebrated instead of demonized,” she said. “We need all energy sources and we support all of them, also including nuclear, solar, wind,” etc.
So despite its many detractors, she stands by the product and cited other uses many observers may not be aware of. “Too often, our net goal for the use of coal in steel production is forgotten in the mix,” Arthun said, “but the industry and the general public need to understand that it’s a strong component of what we do, which supports our infrastructure and manufacturing industry.”
On that note, she pointed out that the Inflation Reduction Act included funding for infrastructure upgrades that will utilize steel and concrete for manufacturing, thus utilizing coal. There are also provisions for more efficient coal-burning technology.
One step further into Arthun’s point: “Wind turbines have a component of coal in their manufacturing. They’re made of steel and to make steel, you have to include metallurgical coal in the manufacturing process.”
She said that during the next 6-12 months she expects the coal industry will have a strong export market “as international countries continue to grow their economies utilizing coal as an affordable energy source.”
“As energy usage increases in the United States, a continued steady supply of dependable, affordable coal-produced energy is needed,” Arthun said, citing National Energy Technology Laboratory data that revealed today’s power plants emit more than 90 percent fewer pollutants (sulfer dioxide, nitrogen oxide, particulates and mercury) per unit of electricity generated than the plants they replaced from the 1970s.
“Supporting and advancing technology for increased efficiency and reduced emissions is critical in keeping all America powered,” she said, “and will continue to improve every day.”
It’s Available
Charles Olson also addressed coal’s evolving role in the market while discussing energy options.
“One trend is that there is much more oil, gas and coal available to the market than we knew of in the past―at least 10 years’ worth, according to Chevron,” said Olson, professor emeritus from the University of Maryland’s Smith School of Business, and “100 years’ worth” of coal, “which is being replaced to a degree by hydrogen, which has become more available via the Inflation Reduction Act.”
He also added that’s crucial information in regard to manufacturing steel, since coal is often used to make it, though that course is changing.
“Cleveland-Cliffs,” for instance, “is more often using hydrogen instead of coal, because coal is dirty and hydrogen is clean,” said Olson. “I think this approach will catch on, because it’s economical and there is much pressure from environmentalists and society, in general, to operate in a more efficient, cleaner way.”
But he doesn’t think coal will go away altogether. “It’s still dirty relative to gas, but it’s cleaner than it was. And we’ve had to use more coal in recent years due to the Russian-Ukraine conflict and the market in Europe.”
The production processes for oil have also become much more efficient due to the use of fracking to get product out of the ground. “It used to cost the oil companies $50-$60 per barrel to break even,” he said, “but today, that number is $30 per barrel.”
There has been similar progress with gas. The oil companies don’t have to drill as far down to harvest the crude oil due to fracking, “which saves time and money. Refineries are cheaper, too, because they have also increased efficiency,” Olson said.
EIA: Up 60 Percent
Looking ahead to 2024, Foreman focused on the demand angle.
“Official EIA, International Energy Agency and Organization of the Petroleum Exporting Countries estimates agree on one thing,” he said, which is that “global oil demand could reach another record high in 2024, along with the economy.”
But Foreman noted that is but one factor concerning where the market is headed.
“We monitor multiple indicators that have shown tightened oil market fundamentals and we need to see how these mesh with the rise in geopolitical uncertainties,” he said. “Natural gas shares a similar global backdrop, compounded by the loss of Russian supplies and less flexibility to trade it globally compared with oil, so the severity of winter weather will have much to say about near-term outcomes.”
However, he added that, amid these varying viewpoints, there’s a unanimous belief that’s good news on the domestic front.
“The U.S., particularly Texas,” said Foreman, “is set to play a pivotal role in global oil supply growth outside of OPEC+ nations. EIA expects the U.S. to account for up to 60 percent of this growth between 2023 and 2028.”
While those numbers are impressive, Vanags looked at the bigger picture concerning the recalibration of Environmental, Social and Governance commitments “as we start to face infrastructure and regulatory realities in the different geographies.”
“Realities of required electric infrastructure investment, energy storage and renewable generation, coupled with complex regulatory frameworks that require change to enable progress, are becoming more evident,” he said. “Fossil-based energy will be required for longer than original aspirations desired.
“The pace of progress,” Vanags said, “will also be evident in geographies with better and/or faster political alignment.”
About the Author: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.
