How Energy Got So Cheap | WSJ

– [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..

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