Tuesday, December 13, 2005

Triple Witching Winter
USN&WR sounds the "triple threat" alarm for this winter: Shortage of natural gas and electricity could make "a frozen New Orleans" in areas like New York City. It may be a bit of a post-Katrina hysteria, but add in high prices of other petroleum fuels, inflation, slowing economy, bursting real estate bubble, rising trade deficit, and crushing household debt levels: it sure looks like something wicked this way comes...
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.


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 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.


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."


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