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  • - [Narrator] The price of virtually every form of energy

  • is hitting new lows in 2020.

  • Oil prices are still depressed

  • after a historic crash in spring.

  • Natural gas hit a 25 year low this summer

  • and prices for coal continue their descent.

  • Even the cost of generating renewable energy

  • has fallen so sharply

  • that it's becoming competitive with fossil fuels.

  • The rock bottom energy prices are bad

  • for drillers and other producers,

  • but they're great for consumers

  • who have to fill their tanks

  • and power their homes

  • and there are boosts for businesses

  • that consume a lot of energy

  • like manufacturers and utilities.

  • But some experts say this price rout

  • across the energy sector isn't built to last.

  • Here's how energy got so cheap.

  • The main thing pushing down prices

  • is a huge glut of natural gas.

  • Production sky-rocketed in the U.S.

  • over the last decade and a half

  • as shale drillers unearthed troves of the fuel.

  • - We started to build U.S. gas supply

  • just ahead of the Great Recession,

  • anticipating a real exponential growth

  • in energy demand globally.

  • We built capacity toward a demand peak

  • that never materialized.

  • - [Narrator] The rise in production swamped the market,

  • pushing down prices, even as the U.S.

  • burned more natural gas than ever in 2019.

  • Then the coronavirus shut down businesses

  • around the globe.

  • As Americans hunkered down,

  • demand for electricity plunged.

  • Economists estimate that roughly half

  • of the American workforce is now working from home.

  • With workers gone, office buildings and factories

  • turned off the lights and the air conditioning.

  • - Back in April, when COVID containment measures

  • were at their peak, overall power demand was down 10%.

  • - [Narrator] As demand sunk, U.S. gas producers

  • were slow to respond and dial back output

  • which added to the glut,

  • driving down wholesale prices even further.

  • Cheap natural gas which is the biggest source of electricity

  • in the United States has meant lower power prices.

  • Here's a look at prices in 2020,

  • versus past years.

  • In New York City, prices were down by about half,

  • compared to the five year average.

  • As gas prices bottomed out,

  • a similar dynamic was playing out in oil.

  • This spring, crude prices took an unprecedented turn

  • with futures contracts trading in negative territory

  • for the first time ever.

  • - We think of it more, not so much as a perfect storm,

  • but rather, death by a thousand cuts

  • for these oil producers.

  • Over the years, U.S. production grew.

  • To some extent, global demand didn't quite reach

  • the expectations on which producers

  • hinged their production plans

  • and we ended up with more oil in the market

  • than we knew what to do with

  • and then COVID was the last shoe to drop

  • and cut things in a way

  • that we've certainly never seen before in the industry.

  • We simply ran out of space to put the oil.

  • - [Narrator] Within a few weeks, prices bounced back,

  • but are still low enough to bankrupt oil companies.

  • This pushed down gasoline prices across the country.

  • In some regions, prices dropped below $1 a gallon.

  • Though fewer people are driving and flying,

  • those who are, are reaping the benefits.

  • Here's the retail price of gasoline in the United States.

  • You can see, at its lowest point,

  • the average price was $1.77, down from $2.78 in July 2019.

  • The cost to install new, renewable energy projects

  • is plunging, too.

  • The long-held theory is that low fossil fuel prices

  • would hamper the development of renewable energy projects,

  • but that's not how it's playing out.

  • Renewable energy has gotten cheaper

  • presenting power buyers with options.

  • - Certainly in the United States, previously a lot of

  • renewable energy deployment was driven by state mandates.

  • Now because the price of energy for these technologies

  • has dropped so rapidly, many utilities and energy purchasers

  • are choosing to buy wind and solar

  • for clearly economic reasons.

  • - [Narrator] This chart shows the levelized price

  • of different types of energy

  • which accounts for production costs.

  • - The levelized cost of energy is trying to capture

  • the total lifetime costs of an energy asset,

  • so it captures upfront costs, operating costs,

  • and benefits associated with that system.

  • - [Narrator] You can see that prices

  • for new, renewable projects

  • have fallen over the last decade.

  • In some cases, sharply.

  • That's in part, thanks to a decade of low interest rates

  • which helped fuel the shale drilling boom

  • and made renewable energy projects cheaper, too.

  • But it's also do to advances in technology.

  • - [David] Scaling up that supply chain

  • has really reduced costs.

  • - [Narrator] Declining costs to produce renewable energy

  • have resulted in growing supplies of green power

  • around the world, pushing down prices,

  • and encouraging consumption.

  • In the U.S., more electricity was consumed last year

  • with renewable sources than with coal

  • for the first time in more than 130 years.

  • So what do these trends mean for consumers?

  • The lower prices aren't always evident

  • on your monthly bill, due to taxes and other factors,

  • but the real cost of electricity to consumers and businesses

  • has declined slightly over the last decade.

  • - Analysts expect, at the end of the day, in the long term

  • for electricity prices to go down.

  • It's already based off of technology improvements,

  • the lowering costs of wind and solar,

  • but some of it is also regulatory.

  • - [Narrator] In the short term however,

  • experts say prices could rise.

  • Producers turned off the spigots

  • in hopes of reducing the glut

  • and now, demand for natural gas is picking back up.

  • - Those two trends don't work together.

  • Growing demand on one side, encouraged by the low prices

  • and declining supply with producers who simply can't

  • make things work with the gas prices where they are.

  • Do we think, by the winter, you're gonna see

  • a much stronger gas price come through?

  • Do we think we're at a point where gas prices

  • are unsustainably low, such that they have to rise?

  • - [Narrator] What is certain is that 2020

  • is shaping up to be a historic year

  • of abundant, cheaply produced energy.

- [Narrator] The price of virtually every form of energy

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How Energy Got So Cheap | WSJ

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    moge0072008 posted on 2021/08/24
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