US Natural Gas: The Big Chill
[ From The Wilderness editor comments:
A MUST READ! -- At last, a glimmer of sanity somewhere in the mainstream media. It’s as bad or worse than FTW said it would be. But for me that’s good news. Pardon the pun but US News’ analysis is sound and this winter will be our much needed cold shower and wake up call. As people like Julian Darley of the Post Carbon Institute and Matt Simmons have been saying, natural gas is our biggest problem this winter. So where is all this hidden abiotic stuff? Where are these prolific reserves promised by Cambridge Energy Research Associates? Where is the abundance guaranteed us by DoE? Someone had better “‘splain” this to the people suffering here. Someone had better ‘splain' this to all of us. Peak Oil cannot be a conspiracy of big business to get rich when big businesses are about to be shut down, either because of a lack of energy or a frozen work force. It cannot be a conspiracy of big business when GM and Ford teeter on the edge of bankruptcy; when 800,000 jobs are slated for the ax this winter; when Delta and Northwest are in bankruptcy; when the Federal Reserve has blithely announced it is going to conceal how much money it is printing into the M3 money supply. It cannot be a conspiracy to impose a one-world order when the international scene is starting to look like a saloon fight in a “B” western. It cannot be anything other than what it is: the beginning of the collapse of modern industrialized civilization.
Those new to our writings sometimes view FTW as an alarmist harbinger of travail. To all those who have listened to FTW for so long and changed their lives before this winter, FTW is a godsend. Quite frankly, FTW doesn’t care what anyone thinks about us just as long as they come here to read, to learn, and to prepare. We called these developments long before the waters had drained from New Orleans, long before the last rains had fallen and the last gusts blown. For everyone who hears the “click” now and starts to change their lives, the good news is that they will soon discover that a lot of folks have been out here ahead of them and they will not be without guides. You are not alone. The problem is how quickly the survival wisdom can be collected, analyzed and distributed in a way that permits the pathfinders to be better and more effective. Right now, there’s someone freezing in Montana who could benefit from what someone has already learned in Vermont or Northern California. How do we get that knowledge out?
FTW will soon be moving to Oregon to become part of one of many such communities that have already started dealing with the problem rather than denying it. From the time that we get there this mission will be all we think about. – MCR]
A winter fuel crisis of high prices and shortages could darken homes and factories
By Marianne Lavelle
Falling gasoline prices make it easy to believe the nation has seen the last of the energy woes that swept in behind this year's Gulf Coast hurricanes. But they don't fool an unemployed woman on the Crow Indian Reservation, using the electric oven to warm her house on increasingly crisp Montana nights because her natural-gas heat has been cut off. For brickyard workers in Mill Hall, Pa., unemployment looms after the holidays, because it will be too expensive to fire the clay kilns this winter. And one retiree in a mobile home in Millinocket plans to take her asthma medication once daily instead of three times as prescribed, to save money to pay the kerosene bills that will soar in Maine's bitter cold.
With the season's first snowfall hitting the Northeast last week, it is becoming apparent that Hurricanes Katrina and Rita did far more to the nation's energy equation than spoil Labor Day vacation drives. The storms upset the already precarious balance of the nation's supply and demand for fuel. So much Gulf of Mexico oil and natural gas production remains in disarray that even with a mild winter, Americans face a Big Chill: astronomical heating bills--on average, 38 percent higher than last year's record costs for natural gas and 21 percent higher for oil.
Triple threat. That means hundreds of closed factories and enormous hardship for low-income and working poor families, who can expect scant federal government help. And if bitter cold rides in on Mother Nature's coattails, extraordinary measures will be needed to keep energy flowing, particularly in the Northeast, as natural-gas shortages spill over into oil and electricity supplies. "We pray for warm weather. We have a prayer chain going," says Diane Munns, an Iowa regulator who is president of the National Association of Regulatory Utility Commissioners. "People are talking not just about high prices but actual shortages."
Adds Matthew Simmons, a prominent Houston energy investment banker, who has warned of a new era of scarcity: "We're headed into a winter that could be a real winter of discontent."
It is not just about money. Damage to rigs, pipelines, and processing facilities means a shortage of natural gas, the fuel that heats 52 percent of U.S. homes. The industry says 2.3 billion cubic feet per day, or 23 percent of the Gulf of Mexico's natural-gas production, will be offline through March. But even before the deadly storms struck, the country was consuming more natural gas than it produced and prices were at record highs. Demand grew nearly 16 percent from 1990 through 2004, driven mainly by the companies that generate electric power. Policymakers viewed natural gas as cleaner than coal and more palatable than nuclear, so it was easy to get required government approvals to build much-needed electric power plants that run on natural gas. And everyone bet heavily--and incorrectly--that prices would stay cheap. The United States now relies on Canadian imports by pipeline and has begun to call on a new source, tankers from Africa and the Middle East filled with liquefied natural gas, or LNG. But the imports haven't been enough. "The hurricanes--they hit a sick patient," says Roger Cooper, executive vice president of the American Gas Association, representing utilities. "We're vulnerable. If we were hit in the 1990s, we would not have been in this situation. But when you are consuming 100 percent of your supply, there's not much room to maneuver."
The simple economic rule of supply and demand is now at work: The market price of natural gas hit $15 per million British thermal units (Btu) last week, well over double what traders paid last year. Traditional storage measures, such as stockpiling gas in underground caverns in the fall, are not enough. The result: higher heating bills for consumers and hard choices for many businesses.
The 38 workers at Mill Hall Clay Products in central Pennsylvania will be looking for other jobs and collecting unemployment in January and February as their operation shuts down. Company president Robbie Hyde says transportation costs alone for natural gas will increase sixfold at the beginning of the year, as pipeline companies anticipate overwhelming demand in the Northeast. Hyde, who uses 100 billion Btu every year, can't afford to fire the beehive kilns where workers fashion clay chimney flue liners, decorative chimney tops, and bricks. He tracks the gas futures market on his office computer to find a price that will allow him to reopen in the spring. "I don't know if we're going to be able to weather the storm or not," he says. "It's day to day for us."
Out of options. Hundreds of factories will be similarly forced to lay off workers or freeze or cut wages because of high natural gas prices this winter, says the National Association of Manufacturers. Many large companies, like chemical giant Dow, have moved major operations overseas near cheaper fuel. But smaller domestic companies don't have that option. "In manufacturing, there's just one way to use less energy, and that's to make less widgets," says Paul Cicio, executive director of the Industrial Energy Consumers of America.
Industrial shutdowns are actually vital to the current energy market because they curb demand. Without them, prices would be even higher for consumers trying to heat homes.
Already, the bills are taking their toll. Mervalene Eastman fell behind on her natural-gas payments last winter when a $380 December bill to heat her four-bedroom Montana home rose by more than $100 in January and again in February. Eastman was an emergency dispatcher on the Crow Indian Reservation for more than a decade until medical problems forced her to leave her job. Then an aunt took sick and died, leaving Eastman to care for her 7-year-old son. In the midst of this tragedy, Montana-Dakota Utilities turned off her gas service last May. Now she owes not only back payments but a reconnection fee and a security deposit, which total more than $850. That sum has proved insurmountable. Eastman's teenage daughter goes to her brother's house for hot showers, and the family relies on a couple of space heaters. When it's especially cold at night, Eastman admits that she fires up the electric oven (not a safe practice). "My electric bill is so high, what I've been saving to pay MDU I've been tapping into to pay electric," she says, adding she was grateful for a mild November. "Once January comes, I don't know how I'm going to keep everybody warm."
Eastman's experience is all too common, says Jerry McKim, chief of Iowa's Bureau of Energy Assistance. "These households are carrying significant debt from last winter into this winter--that's something people aren't catching," he says. In Iowa, one of the few states that keep such statistics, overdue utility accounts in October reached a record 221,558, up 5 percent over the previous year. Most northern states have rules against utilities cutting off heat in winter for some customers who are delinquent. But the rules don't help everyone, including many cut off before winter. McKim last week petitioned Iowa officials to enact more protection for households with children. Because shutoffs can begin apace in spring, that's when the true impact of the current shortage may become apparent. "I have equal concerns about what's going to happen this winter and coming out of the winter," says McKim.
The federal Low-Income Home Energy Assistance Program is supposed to help, but funding is so inadequate it is like a Band-Aid on a gaping wound. The average $311 payment per family would barely cover the projected increase in household winter energy costs for just this year ($281 for natural gas, $255 for oil). But the program would collapse if all 33 million eligible households applied. That number has ballooned 66 percent since the program was founded in 1981, while funding ticked up just 4 percent as consumer prices rose 81 percent and energy bills tripled. LIHEAP reaches 4.9 million households, only 15 percent of those eligible.
Maine has one of the highest benefits, at about $420 per household. But with heating oil there recently selling at $2.35 per gallon, LIHEAP aid would put just 179 gallons in a home tank. The average Maine home needs 850 to 1,200 gallons to make it through winter, says the state's energy assistance office. One 70-year-old Maine LIHEAP recipient, who asked not to be named, says that she gets through the winter by keeping her thermostat at 62 degrees. As for her expensive asthma medication: "I try to stretch that out if I can." It's a common route; a survey showed that one third of LIHEAP recipients didn't take prescriptions fully in order to pay energy bills. Some 94 percent of those receiving aid are elderly, disabled, or taking care of children.
Making do with less. Some states are cutting back on payments, hoping the pot of money will last longer. Colorado has reduced its average grant from $366 to $300, says Glenn Cooper, the state's energy assistance director. "We try to help more people with fewer dollars rather than fewer people with more dollars," he says. "The downside is the benefits are not adequate." Some states have kicked in extra funding this year, but Congress, struggling with a mounting deficit, recently rejected several bids for more dollars. Despite urgings from some Republican senators, the U.S. oil industry declined to offer any of its $30 billion in third-quarter profits for what it views as a government responsibility. The only significant outside aid has come from Citgo Petroleum, controlled by the Venezuelan government and its president, fierce Bush administration adversary Hugo Chavez, who has promised $10 million in discounts to low-income northeastern heating oil customers.
While the Big Chill will hit low-income households the hardest, no one may be immune if the weather turns foul. New England and perhaps all of the Northeast, including New York City, are a special worry. Gas companies grant big price breaks to customers year-round if they agree to have their service cut when supplies are short. Chances are great these discount customers will be shut down this winter, and they include manufacturers, some schools and hospitals, and, ominously, about 77 percent of New England's gas-fired electric power generation, which requires large quantities of fuel.
The curtailment of "interruptible" customers will trigger a double squeeze on consumers throughout the Northeast. First, costs for home heating oil will skyrocket, as scores of power plants and other interruptible gas customers switch fuels and make a grab for all the oil on the market. Even though heating oil is a major fuel source in the Northeast, there are no oil pipelines from refineries into New England, which relies on deliveries by tanker or barge. And in recent years, the oil industry--following the U.S. industrial trend--has been keeping inventories low to promote efficiency. Tim Irving, executive director of Heat, U.S.A., a company that buys heating oil in bulk for northeastern homes, recalls that in the most recent severe cold snap, January 2004, the industry simply could not ship in sufficient supplies. "The just-in-time inventory system, when put together with the utility policy of having interruptible gas customers, creates a very volatile situation where literally in a week, New York harbor went dry [of heating oil shipments] because utility customers went on line," Irving says. "Your middle American ends up paying more to support this situation."
Some say the heating oil shortage will be made even worse because the U.S. oil industry's exports of distillate fuel oil, a category that includes both diesel and heating oil, have skyrocketed this year by nearly 50 percent, to 42.4 million barrels through September. Consumer advocates say the exports have set the stage for a price spike, but the oil industry maintains the exports, mainly to Latin American countries that lack their own refineries, were not extraordinary. In any case, experts believe that this may be the first year the president opts to tap the Northeast Home Heating Oil Reserve established in 2000. Prices were high enough that the "market disruption" trigger actually was reached for a time in October, but warm temperatures meant there was no urgency to release the 2 million barrels of oil, or 10-day supply, stored in New Jersey, Connecticut, and Rhode Island.
In the dark. The second threat is a severe electricity shortage in the Northeast--with possible brownouts or blackouts. Deregulated natural-gas-fired power generators, under no legal obligation to serve customers as the old monopoly electric companies were, can simply stop generating power. Some plants will be interruptible customers with no backup fuel source. But in other cases, power plants that have firm natural gas contracts will stop generating electricity anyway and sell their fuel at enormous profit. That is precisely what happened during the three-day January 2004 cold snap, when more than 25 percent of New England's generating capacity went off line and the reserve margin was near zero. The market weathered that storm, but ISO New England, the organization responsible for managing the electric grid, says that even under normal weather conditions, electricity demand this winter most likely will set a new record surpassing that of the perilous 2004 cold snap. The grid operator has taken steps to head off a shortage, spearheading a public-relations campaign to urge New Englanders to conserve electricity, attempting to work out agreements with big customers to curtail demand, and asking the Coast Guard to station ice-breaking barges in locations that will assure fuel oil deliveries can make it downriver to electric plants. But Connecticut Attorney General Richard Blumenthal says as long as power generators are allowed to shut down and sell natural gas during a weather crisis, there is a risk of the kind of market chaos, as well as manipulation, that roiled California in 2000 and 2001. "The result could be a calamity," he says.
Neal Costello, a Boston lawyer who represents deregulated power plant operators, argues "the generators benefit, but so do others" from the system in which they sell to hospitals, schools, and businesses that otherwise would have no natural gas. In January 2004, he says, "the lights stayed on, and no one was cold; the market worked as it should have." However, he is quick to add that there is reason for alarm. " New England clearly has a looming energy crisis, not just this winter," due to overreliance on natural gas for electricity.
Unstable electricity in one region can cascade into another, as New York City learned in the eight-state blackout that began with an Ohio power company's mistakes in August 2003. The nation's largest city is vulnerable because it is an electricity "load pocket," or importer, consuming more energy than produced within its borders. Also, much of Manhattan relies on a 123-year-old steam power system, the largest in the world, for both heating and cooling. Although it proved robust during the 1965 and 1977 blackouts and the Sept. 11, 2001, terrorist attacks, it failed during the 2003 outage, causing a loss of air conditioning that delayed a return to business in many buildings concerned about heat damage to computer systems.
"A frozen New Orleans." A winter failure could prove catastrophic, because any extended loss of heat could cause water pipes to burst in residential and commercial buildings alike. Also, the thousands of "traps" where steam escapes (and billows from manhole covers) could freeze and fail, causing distribution pipes to crack or lose pressure. Former Central Intelligence Agency chief Jim Woolsey, now active on energy issues, argues that parts of the city "could resemble a frozen New Orleans." Also, repressurizing the system could prove laborious and hazardous, because of the power of steam escaping from cracks. "Nobody could simulate the kind of disaster that could happen," says Adam Victor, president of TransGas Energy, a company that has been trying to build a backup power plant in the city but has run into opposition from residents and city officials who prefer building parkland at the old industrial waterside location. Con Edison downplays concerns about the system. "You can't say never because something can always break," says Chris Olert, utility spokesman. "But we've upgraded the plant so it's in tip-top condition, and we've bought plenty of gas for the steam system." Power will be available for New Yorkers, he says, though at a cost up 30 to 35 percent over last year.
Whether because of cost or cold, officials are bracing for human suffering across America this winter. "Forces can come together that turn crisis for some into disaster--that's really what I think we could be looking at this winter," says Iowa energy assistance director McKim. "I hate to sound like the voice of doom, but somebody has to say this stuff. It's just like Hurricane Katrina. They knew it was coming, but little was done to prepare an effective response. And the same thing is happening here."