In a worst-case scenario, the Northeast in
particular but much of the Midwest could resemble “a frozen New Orleans”. kwc
A winter fuel crisis of
high prices and shortages could darken homes and factories
By Marianne Lavelle, US News & World
Report, 12/19/05
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% 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% 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%, 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 8-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."
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Article found at Energy Bulletin http://www.energybulletin.net/11733.html
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