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US Is Moving Beyond Oil: The Most Important Emerging Energy Trend

[John Hanger]

Few predicted that natural gas would rapidly displace coal to generate electricity, as it has since 2008.

While it is not quite a case of history repeating itself, another enormous energy transition is now underway.

The US is moving beyond oil, though oil currently provides more of our total energy than any other fuel. US oil demand peaked in 2007, and this July fell back to July 1995 levels.

The transition from oil to other fuels is essentially complete in the electricity generation sector. Burning oil to make electricity generated a bit more than 20% of US electricity supply from 1972 to 1978. The significant reliance on oil to make electricity meant that oil price shocks meant sharp electric rate increases too. Oil shocks really were energy shocks that created both inflation and recession or infamous stagflation.

After 40 years of building new nuclear plants, new coal plants, new natural gas plants, and recently substantial renewable energy generation, today less than 1% of our nation’s electricity comes from oil, and Hawaii is the only state whose electricity sector is dependent on oil. As a result, oil price shocks now have essentially no impact on our electricity prices, outside of Hawaii, where residential electricity rates are more than 30 cents per kilowatt-hour or three times the national average.

The US move beyond oil is now spreading from the electricity sector to the space heating, industrial, and transportation sectors. The transition is being driven by sustained world oil prices above $100 per barrel and gasoline prices above $3 per gallon. Policy initiatives promoting biofuels, natural gas and electric vehicles, and rising fuel efficiency for vehicles are adding to the market pressure to get off expensive oil.

The combination of high market prices for oil and increasing federal and state policy initiatives to substitute other fuels for oil and to raise the efficiency of oil use are moving the US beyond oil. The shale gas boom adds new momentum to substituting natural gas for oil for transportation and could become another major cause of declining US oil consumption.

Unless oil pricing drops to about $70 per barrel or lower and remains at such low levels for years, an unlikely scenario, the trend away from oil will gather momentum. That is exceptionally good news for the US economy and environment.

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