You think the financial crisis unfolded quickly? That’s nothing compared to how fast things could happen with oil. That’s the message Matthew Simmons, chair of the oil investment banking firm Simmons & Company International, delivered last month at a conference on peak oil.
Vermont is unprepared for change of that rapidity. One thing that Republicans and Democrats in the Legislature agree on is that Montpelier has frittered away at least a decade to prepare for the end of electric contracts with Entergy’s nuclear power plant and Hydro-Quebec. Gov. James Douglas has also blocked preparations for an unwinding of the oil sector comparable in magnitude to the unwinding of the financial sector.
If anyone understands the relative fragility of the oil and financial sectors, it’s Simmons. Having financed oil projects for decades, Simmons has long been a student of the movements of capital, of where oil is likely to be found and of the steel equipment necessary to find the oil, pump it and ship it to market. He’s participated in the upper echelons of energy planning, such as Vice President Dick Cheney’s secretive energy task force. And he has authored “Twilight in the Desert,” a wonkishly researched 2005 book arguing that Saudi Arabian oil production is about to enter long-term decline.
Speaking in Sacramento at the annual North American conference of the Association for the Study of Peak Oil and Gas, Simmons said it took five months for the financial system to unwind. The U.S. oil sector could collapse in less than 30 days, he believes, through bank-run-like behavior at a time when inventories are low.
Volatile oil and gasoline prices have meant that companies are hesitant to build inventories; we’ve experienced that through the reluctance of fuel dealers to offer pre-buy deals on heating fuel this year. Earlier this fall, the effects were more dramatic in the southeastern United States. Hurricanes Gustav and Ike knocked out the port, refineries and offshore platforms that supply the southeast with its fuel, and gasoline inventories were near exhaustion in parts of an area stretching from Tallahassee to Nashville to Ashville. Drivers in metropolitan Atlanta reported traveling for miles in search of a gas station with the pumps open, and they waited in lines sometimes blocks long when they found one.
Shortages stimulate panic buying, people topping off their tanks to be prepared for closed gas pumps the next day. Like a run of depositors on a bank, the panic buying can worsen existing problems and create problems for otherwise well-supplied areas. If all gas purchases that take place normally over a week or 10 days happen in a day or two, the supply system may not be able to keep up with the surge of demand. With back-of-the-envelop calculations, Simmons projects that if car owners decided overnight to fill up all 220 million cars in this country, it could drain most of the gasoline inventory dry and cause havoc with our entire transportation system.
The “bank run” on gasoline is just one of the dangerous scenarios Simmons says we’re vulnerable to. For us in the Northeast, where there 9 to 10 million homes heat with oil, he sees peril in near-record-low oil inventories. A few weeks of winter, he claims, could deplete useable stocks.
How likely are these scenarios? No one knows, says Simmons; no one gathers the data that solid predictions could be based on.
The data for world oil supply, reserves, etc. are even sparser, and there are more opportunities internationally to create supply crunches. Drilling rigs are in short supply. (Even if all off-shore areas of the U.S. were opened for drilling immediately, many observers say the rig shortage would delay new exploration until 2013.) Simmons says there’s an even scarcer supply of equipment in the industry serving those rigs, and skilled personnel are retiring from the oil industry in droves. Also, as more unconventional sources of oil are tapped, the production process sucks up a higher percentage of each barrel brought to market.
Vermont’s preparation for energy changes too slow
Back in Vermont, members of the House Natural Resources and Energy Committee agreed earlier this month that the state has squandered years that could have been used to prepare for an energy future that looks significantly different than the past. They spoke at a panel on Vermont’s energy policy at the Renewable Energy Vermont conference in South Burlington.
Tony Klein, the Democratic chair of the committee, said he has worked on energy issues at the Statehouse level since 1997, and every year he’s heard that the state needs to prepare for the nuclear power plant’s license expiring in 2012 and Hydro-Quebec contracts expiring by 2015. “I’m going to walk into that building in January 2009, 12 years later, and the same statement is going to be made. What we’ve done, shamefully, is nothing.”
Joyce Errecart, a Republican representative on the same committee, agrees that Vermont has moved too slowly. “Many times in committee we’ve said, how do we get off the dime?”
On the heating fuel front, Klein complained that the Douglas administration was not moving to help middle-class Vermonters and small businesses improve the heating efficiency of their buildings, the way he thought the Legislature intended. Act 92, which became law earlier this year, created an all-fuels efficiency utility. The utility would perform the sort of work that Efficiency Vermont performs to save electricity, directed toward residential and business heating. Earlier this month, the Douglas administration revealed that the work would be targeted only to low-income households.
An exchange between two other panel members, Department of Public Service Commissioner David O’Brien and Senate President Pro Tem Peter Shumlin, laid bare the administration’s willingness to pay lip service to a need for energy changes while blocking them from happening. O’Brien admitted that the department didn’t have enough money to serve everyone with the all-fuels efficiency utility, saying they had “a Champagne taste and a beer wallet.”
Shumlin pointed out that the Legislature in 2007 had funded the all-fuels efficiency utility with $30 million dollars. The money came from taxing electricity from nuclear power at the same rate that wind-generated electricity was set to be taxed. Douglas vetoed the legislation, saying the nuclear tax was anti-business. Now, Shumlin said, the Douglas administration was reporting that they don’t have enough money to help businesses or middle-class Vermonters with heating efficiency.
One new efficiency program directed at all Vermonters that the Douglas administration has funded is the ongoing series of “Button Up Vermont” workshops, educating people both on work they can do themselves to lower their heating bills and services they can ask professionals for. The workshops are an initiative of the Central Vermont Community Action Council.
After the Button Up workshop hosted by the East Montpelier Energy Committee last week, I spoke with neighbors who live in a drafty, 150-year-old farmhouse. They seemed overwhelmed by the number of efficiency improvements to be made and how little money they had to spend on them. They both have professional jobs, although not in the most lucrative fields, and so surely would not qualify for the means-tested assistance Douglas will provide.
My neighbors are eager to do the work and reduce the amount of money they spend on fuel, and therefore send out of state. If Douglas had signed the energy bill last year, Entergy would be paying taxes at the same rate set for wind generators. The state would have more revenues to help my neighbors cut their heating bills. And every dollar invested would have led to more than three dollars payback, even at the low oil prices of a couple years back.
Douglas’ administration has similarly blocked many paths to renewable generation of electricity. He opposes the commercial scale of wind generation that 90 percent of Vermonters say they want, even with the turbines visible from their homes. Small hydro promoters have found themselves stymied in the permitting process.
Douglas is friendly toward some renewable energy initiatives; it would be tough to keep getting re-elected in Vermont without at least seeming to do something on the energy front. He has kept Vermont in the Regional Greenhouse Gas Initiative, during a time when some states were opting out and then back in. Vermont’s share of the proceeds from the first RGGI auction of carbon credits recently brought the state more than $600,000 for the efficiency fund, according to Deputy Public Service Commissioner Richard Smith, and the annual total may be $3.7 million.
Douglas has also supported or initiated a number of studies that have been useful in pushing the planning conversation forward, even if their recommendations have not yet led to much action. As I described in my previous column, Douglas supported the “25 by ’25” initiative to generate 25 percent of Vermont’s electricity from renewable sources, mostly from farms and forests, by 2025. The six Vermonters from very diverse backgrounds who comprised the Governor’s Commission on Climate Change achieved consensus on a broad range of recommendations (many of which had been opposed by the administration). The Department of Public Service held a series of workshops to hear what kind of electrical future the public wants, and department spokesperson Stephen Wark says they were able to improve that process by raising outside money to supplement the tax dollars the Legislature allocated them.
High oil prices and any supply shocks will hit Vermont’s transportation sector hard. Here, Douglas has not only shown little leadership, he has directed investment to antiquated priorities (supported by the Legislature). In Washington County, for example, the Agency of Transportation is working to permit a widening of Route 2 that would suck millions from the Transportation budget, at a time when bridges are in disrepair and traffic counts are dropping. And how can Douglas justify spending tens of millions on the Circ or the Bennington bypass, when gas prices are starting to reduce traffic without any new infrastructure?
Vermont desperately needs more public transit. Greyhound has stopped serving Rutland and is dropping trips on its Montpelier route. Demand for rail service is up. Yet Douglas shut down the Champlain Flyer train. He is still dragging his feet on purchasing Amtrak trains that would both save fuel and double the number of departures on a portion of the Vermonter run.
Vermont faces potential changes in the energy sector that could make the current effects of the financial meltdown seem mild. Douglas has chosen to look away, muttering incantations of “affordability” to justify blocking investments that would make rising oil and electricity prices more affordable. As a result, many Vermonters are wondering how they can afford to keep their homes warm this winter, and the winter after that, and we’re unprepared for future shortages.
Carl Etnier, director of Peak Oil Awareness, blogs at vtcommons.org/blog and hosts radio shows on WGDR, 91.1 FM Plainfield and WDEV 96.1 FM/550 AM, Waterbury. He can be reached at EnergyMattersVermont(at)yahoo.com.
