Sky High
We know where global energy demand
is heading;
ditto energy costs. Can supply catch up?
The impulse is to say you enjoyed the presentation,
but that wouldn’t be quite right. Even if it’s the
most concise, trenchant analysis yet, nobody enjoys hearing
global energy demand is headed straight up, while U.S. domestic
production is flat or falling. Nobody, that is, who’s
your friend.
“Sobering” is the word Dave Mohre
chooses to characterize his professional assessment of the energy
supply and demand picture.
Mohre is executive director of the National
Rural Electric Cooperative Association’s Energy and Power
Division. With natural gas prices near all-time highs and restrained
from new records only by the good fortune of a mostly mild winter,
the outlook he lays before participants at the recent Wisconsin
Electric Cooperative Association Education and Lobby Days in
Madison is sobering, indeed.
No Longer Alone
An attentive audience is guaranteed by Mohre’s
reminder that even though last year’s hurricanes played
a clearly identifiable role in driving up energy costs, they
didn’t start the trend, and the gradual fadeout of their
effects won’t end it.
“Just before Katrina the [natural gas
futures-market price per million BTUs] was about nine dollars,”
he says. “Not surprisingly after Katrina it spiked to
about twelve dollars. But Katrina did not cause the price of
gas to go from two dollars to basically nine dollars,”
where it had returned as he made his presentation at the end
of January.
The long climb began in January 2002 and the
peak, so far, was reached last December at about $15. That’s
more than seven times the price during the late 1990s when independent
energy producers began building fleets of gas-fired merchant
power plants across the U.S. It’s no coincidence that
that the building boom outlasted the low gas prices and industry-restructuring
enthusiasm that sparked it—or that many independents have
gone bankrupt.
Mohre notes, “In the past five years
we’ve built more than 200,000 megawatts of brand-spanking
new gas-fired electric generation facilities” in the United
States, meaning that “at the margin, gas is the fuel being
used in just about every region of the country,” and,
“the price of electricity is tied directly to the price
of natural gas.”
Mohre’s analysis makes clear that Wisconsin’s
energy-isolation, thanks to Great Lakes geography and a weak
transmission system, and the growing challenges facing the United
States in global competition for energy supplies are inseparable
parts of a single picture. The nation can no longer count on
being at the top of the food chain in energy import markets,
and geography no longer defines Wisconsin’s energy market
as our own generation capacity supplemented by whatever we can
buy across the state line from Commonwealth Edison. We’re
no longer alone. Today’s market has overwhelmed yesterday’s,
and rather than hold its effects at bay, our electrical isolation
intensifies them.
Wisconsin is no longer alone because federal
energy policies since the mid-1990s have pushed development
of next-day or “Day-2” regional wholesale electricity
markets with rapidly fluctuating prices, and they have reinforced
natural gas as the fuel of choice. That’s by far the most
expensive fuel right now, and today’s wholesale market
tacks on an extra premium for the difficulty of delivering power
through this state’s underbuilt and congested transmission
system.
Americans are no longer alone as the world’s
pre-eminent energy consumers because other nations’ economies
are growing at a phenomenal pace.
Mohre visited China recently and reports that
Shanghai has more new industrial plants under construction than
we’ve built in the U.S. in the past five years. Beijing
is at work on its seventh “outer beltway.” Together,
he notes, the two cities hold five times as many people as New
York, and growth in India is not far behind.
That adds up to unprecedented competition for
the world’s output of oil and natural gas, including the
liquefied form (LNG). While the U.S. generates little electricity
from oil and is only beginning to get serious about importing
LNG, higher prices for one fuel can spur more demand—and
higher prices—for others.
Day 2=Tomorrow Never Comes
Fuel may be costly but it’s also a necessity.
Power producers must meet the need and find alternatives to
moderate the price. Infrastructure is another matter, and Mohre
believes the industry model promoted by federal regulators for
the past two decades deters needed investment.
Regional transmission operators and the Federal
Energy Regulatory Commission (FERC) focus on real-time information
on the wholesale price of power delivered at thousands of points
across the country “and ignore the fact that the industry
is a 30-year, 40-year industry where you invest in your generation
and your transmission lines. That’s not a short-term investment,
that’s a long-term investment,” he says.
“FERC is saying we’re going to
send the right price signals that change every five minutes
and you’re going to base your investment decisions on
that.” Noting that a recent three-hour period saw the
price of power delivered at one U.S. location vary $700 per
megawatt-hour, he says, “That’s why things are not
getting built.”
Less able than investor-owned utilities to
pass on costs, electric cooperatives with growing membership
face a more straightforward choice between volatile wholesale
markets and building new generation. Nationwide, co-ops have
about $21 billion in generation facilities on the drawing board,
mainly coal-fired and all in response to member growth, Mohre
says.
Playing Catch-Up
“Energy Independence” is a popular
rhetorical phrase but the graphs nearby, depicting data from
the U.S. Energy Information Administration, show domestic gas
production rising slowly, domestic oil production flat or falling,
and they predict widening gaps between production and consumption
of both.
Responding to audience questions about how
many years of gas reserves exist in the U.S., Dave Mohre says,
“I don’t think anybody knows.”
“We can’t even do test drills in
two-thirds of our coastal area. We might be sitting on top of
more oil and gas than Saudi Arabia. We don’t know,”
he says, quickly adding, “I’m not saying it’s
right or wrong, I’m just saying what is.”
His parting remark is this: “Our balancing
of energy and environmental interests is probably the most difficult
discussion we have, politically, in this country today, and
we’ve got to figure it out or we won’t have an economy
to worry about.”
Less than 48 hours later and as if to underline
Mohre’s point, Florida’s two U.S. Senators—one
Democrat, one Republican—introduced legislation to permanently
ban drilling in a small Gulf Coast area believed to hold as
much as seven trillion cubic feet of natural gas.—Dave
Hoopman
