Bankruptcies gash the oil industry as clean energy growth surges; a lesson for the Beartooth Front

It is often important for communities to understand macroeconomic trends in making  local decisions regarding business development and growth. This is certainly true in the energy sector, where long-term trends are becoming increasingly clear. Along the Beartooth Front, these trends are particularly important in light of what has transpired over the last two years.

Bankruptcies decimate oil and gas industry
2015 was not kind to oil and gas operators. Between the filings of WBH Energy Partners on January 3 and Swift Energy on December 31, a total of 42 oil and gas companies filed for bankruptcy last year, with a combined total debt of $17.85 billion. These are levels last seen during the Great Depression, with many more to come in 2016.

The chart below shows that global production is expected to exceed consumption in 2016, resulting in excess supply and increased inventories, and continued poor performance in the sector.

Global oil supply overhang

Clean energy surging
While the oil and gas industry is deeply depressed, the clean energy industry is growing quickly. According to Bloomberg New Energy Finance clean energy investment surged in 2015 to a record high of $328.9 billion, up 4% from 2013 and 3% from the previous record set in 2011. Global investment in clean energy has grown by nearly six times in dollar terms since 2004, despite several factors that work against that growth:

  • The cost of solar cells is declining, which means that more capacity can be installed for the same price;
  • The US dollar is strong, reducing the value of investments made in other currencies.
  • The European economy is weak. European demand has been a prime driver of clean energy growth.
  • Low oil and gas prices, which means clean energy is growing despite the fact that gas is cheap.

This chart from Bloomberg shows the continuing 10-year surge in clean energy investment.

global clean energy investment 2015Globally, the largest investor by far in clean energy is China, which grew 17% in 2015 to $110.5 billion. The US is second, with 8% growth to $56 billion. Growth in Europe and Brazil slowed, but several emerging markets picked up the slack: Mexico, Chile, South Africa and Morocco.

According to Michael Liebreich, chairman of the advisory board at Bloomberg New Energy Finance:

“These figures are a stunning riposte to all those who expected clean energy investment to stall on falling oil and gas prices….Wind and solar power are now being adopted in many developing countries as a natural and substantial part of the generation mix: they can be produced more cheaply than often high wholesale power prices; they reduce a country’s exposure to expected future fossil fuel prices; and above all they can be built very quickly to meet unfulfilled demand for electricity. And it is very hard to see these trends going backwards, in the light of December’s Paris Climate Agreement.”

In the United States, two-thirds of all new energy capacity installed in 2015 was in renewable projects, as falling prices and government incentives made wind and solar strong alternatives to fossil fuels. This was the second straight year that clean power eclipsed fossil fuels.

renewables beat gas

The biggest growth came from wind farms, with 8.5 gigawatts of new turbines installed as developers sought to take advantage of a federal tax credit that was due to expire at the end of 2016; Congress extended it in December.

Wheatland County wind farm. Photo: Johanna Abzug

Wheatland County wind farm. Photo: Johanna Abzug

“This is a long-term trend,” said Colleen Regan, a New Energy Finance analyst who follows North American power markets. “System costs have really come down for renewables, which makes the case for installing them a lot stronger.”

Nobel Prize-winning economist Paul Krugman comments in today’s New York Times:

“(The pace of renewable growth) is not enough: coal-fired generation is slowly being phased out, but the process needs to go much faster, and while replacement of coal with natural gas could in principle be a net positive — less carbon, more hydrogen — in practice the leaks associated with fracking make that highly doubtful.

“But the point you should take is that really dramatic reductions in greenhouse gas emissions are well within reach, requiring only moderate incentives rather than a complete teardown of the existing system.”

Why this is important to the Beartooth Front
These trends are clear. Clean energy is replacing coal, oil and gas. The pace is gradual today, but market forces and government action will accelerate the change over the next two decades.

The oil market will probably recover in the short term, and there will probably be another boom. Another oil developer will come knocking on our doors along the Beartooth Front, promising jobs and riches.

But we shouldn’t be fooled. In the last two years we have seen boom turn to bust and the plans for wells disappear as quickly as prices fell. In the future, the booms will be smaller and the busts will be bigger as solar and wind  gradually replace coal, oil and gas. Everything points in this direction, from last year’s Paris agreement to the economic trends described above to the increasing evidence that oil and gas drilling is harmful to public health. The markets for coal are drying up; the displacement of oil and gas will take longer. But as Krugman points out, increased government incentives would speed the process.

So when the oilman comes knocking, we should be resolute in making sure that any fossil fuel activity that takes place leaves our community intact. It needs to take place on our terms, not the oil industry’s. Sensible regulations need to be put in place before any drilling occurs. These rules need to protect our water and air, farming and agriculture, and our way of life.

About davidjkatz

The Moses family has lived on the Stillwater River since 1974, when George and Lucile Moses retired and moved to the Beehive from the Twin Cities. They’re gone now, but their four daughters (pictured at left, on the Beehive) and their families continue to spend time there, and have grown to love the area. This blog started as an email chain to keep the family informed about the threat of increased fracking activity in the area, but the desire to inform and get involved led to the creation of this blog.
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1 Response to Bankruptcies gash the oil industry as clean energy growth surges; a lesson for the Beartooth Front

  1. Lt. Col (Ret) Rich Liebert says:

    Senator Daines had a ‘public’ conference call and somehow I was ‘on the list’ which was interesting since I’m a LOW carbon advocate and everbody on Daine’s ‘call’ were industry plants, pre-fab questions and answers to console themselves against the ‘Demon’ in the White House and his ‘voodoo’ clean power plan and end of coal, Colstrip and jobs which is ABSURD and that will take a generation to transition as horses and wagons just didn’t disappear OVERNIGHT when Model T and Model A Fords appeared on the streets and roads of Montana. Heck, how many of ya’ll still driving a CLUTCH? That hasn’t been banned and Germany is using both a tremendous volume of renewables AND burning Lignite, the dirty coal, as it keeps transitioning while in here in Montana, the Koal Kings are in complete PANIC mode and avoiding a PLAN, and perhaps we need ‘Coal anonymous’ 12 step program.

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