The Real Meaning of Kewaunee’s Demise

Immediate release
November 8, 20112

More information
Michael Vickerman
608.225.4044, ext. 2
mvickerman@renewwisconsin.org

The Real Meaning of Kewaunee’s Demise
November 6, 2012
A commentary by Michael Vickerman, Director, Policy and Programs:

Shock waves reverberated across the Upper Midwest when Dominion Resources announced in late October that it would permanently shut down its Kewaunee nuclear generating station in early 2013. Operational since 1974, the Kewaunee station, located along Lake Michigan 30 miles east of Green Bay, currently generates about 5% of the electricity that originates in Wisconsin.

Virginia-based Dominion, which bought the 560-megawatt Kewaunee plant in 2005 from two Wisconsin utilities, attributed its decision to its inability to secure long-term power purchase agreements to keep the plant going. Without securing purchasing commitments from utilities, Dominion would have to sell Kewaunee’s output into the regional wholesale market at prices well below the plant’s cost of production.

While the pricing environment for all bulk power generators is nothing short of brutal these days, Kewaunee carries the additional burden of being an independently owned power plant, since the entities most likely to buy electricity from that generator—utilities--have power plants of their own that compete for the same set of customers. And a growing number of these utility-owned generators burn natural gas, which is currently the least expensive generation source in most areas of the country.

Dominion’s decision comes down to simple economics. Wisconsin utilities believe that over the foreseeable future natural gas will remain cheap and supplies will remain abundant. That would explain their unwillingness to enter into long-term commitments with Dominion, even though Kewaunee recently acquired a 20-year extension to its operating license and does not need expansive retrofits to comply with environmental standards, unlike a host of utility-owned coal plants in Wisconsin.

But even if Dominion’s managers were convinced that natural gas prices have nowhere to go but up in 2013 and beyond, the company, lacking a retail customer base in the Midwest, could not risk producing power below cost while waiting for the turnaround.

Wisconsin utilities have placed heavy bets on natural gas in the expectation that it will remain the price-setting fuel for years to come. Over the last 12 months, they have bought several combined-cycle generators from independent power producers. Buying power plants enables them to pass through their acquisition and operating costs directly to their customers while generating returns to their shareholders. I suspect these utilities are anything but broken up over the impending demise of a nonutility competitor that could have supplied electricity to Wisconsin customers for 20 more years.

But there is another side to this story, which is that the low-price energy future Wisconsin utilities are embracing can only materialize if natural gas extraction companies continue to sell their output below production costs. This expectation is unrealistic, given the massive pain being inflicted on these companies in the form of operating losses, write-downs, and credit rating downgrades.

Don’t just take my word for it, ask Exxon Mobil CEO Rex Tillerson, whose company spent $41 billion during the shale gas boom to acquire XTO, a large gas producer that is now yielding more red ink than methane. As reported in a recent New York Times article, Tillerson minced no words in assessing the impact of its recent misadventures on the company’s bottom line. “We’re all losing our shirts today,” Tillerson said. “We’re making no money. It’s all in the red.”

Much of the industry’s woes are self-inflicted. The lease agreements that drillers eagerly signed during the height of the shale gas boom obligate them to extract the resource by a certain deadline, regardless of whether such activity is profitable. That these companies cannot disengage quickly from existing leases is greatly diminishing their appetite for exploring new natural gas prospects. Until a pricing turnaround occurs, they will refrain from spending money on exploring new resource provinces like Ohio and Michigan.

Sooner or later, this slowdown in exploration activity will tip the supply-demand equation in the opposite direction, resulting in lower-than-average gas storage volumes. Barring a repeat of last winter’s unusually mild weather, the crossover point should occur around January 1st. But with so many balance sheets in tatters from this highly unprofitable market environment, nothing short of a strong and sustained price increase will be required to persuade drillers to start taking risks again.

When this corrective price increase begins rippling through the electricity markets, it will be interesting to observe how the customers will respond. Right now Wisconsin utility managers are convinced that they are making the right call on natural gas. So completely have they swallowed the shale gas “game-changing” mystique that they were willing to let a 560 MW nuclear plant fall out of the supply picture for good. In this brave new world of theirs, gas is the new coal, and resource diversity is passé.

In the aftermath of Dominion’s announcement, a few commentators have defended the impending closure as a textbook example of how markets work. But this view ignores the delusional thinking that sent shale gas extraction into overdrive, causing prices to plunge below the cost of production. The real game-changer, as it turns out, here was not the emergence of “fracking” technology but the industry-generated public relations campaign that implanted the narrative of a nation awash in cheap natural gas into virtually every American cranium. But as we now see, this narrative has boomeranged on the natural gas industry, and they are paying for their current woes in ways that guarantee a pronounced pendulum swing in the direction of higher prices.

The question going forward is, will this narrative also boomerang on Wisconsin electricity users, especially after the last employee leaving Kewaunee turns out the lights?
END
Michael Vickerman is program and policy director of RENEW Wisconsin, a sustainable energy advocacy organization. For more information on the global and national petroleum and natural gas supply picture, visit "The End of Cheap Oil" section in RENEW Wisconsin's web site: www.renewwisconsin.org. These commentaries also posted on RENEW’s blog: http://renewwisconsinblog.org and Madison Peak Oil Group’s blog: http://www.madisonpeakoil-blog.blogspot.com

Natural Gas: Wrestling With Reality

August 10, 2012
A commentary by Michael Vickerman, RENEW Wisconsin, Director, Policy and Programs:

After skidding below $2.00/MMBtu this winter, wholesale natural gas prices are now creeping toward the $3.00 mark. This upward movement is the result of below-normal volumes of natural gas going into storage for the winter heating season. The latest report, released August 16th, marks the 16th straight week where injection volumes lagged significantly behind the five-year average.

Notwithstanding this mild rebound, everyone in the energy industry, including the traders themselves, knows that $3.00/MMBtu is well below the cost of producing natural gas, and cannot deliver a return that can support future drilling efforts. This is particularly true with shale gas, the so-called “game-changer” that industry flacks contended would topple King Coal’s reign over the electricity sector.

High-profile shale gas producers like Chesapeake Energy are now running out of ways of concealing their financial distress. Consider the following developments that occurred over the last fortnight.

• Chesapeake Energy announced plans to reduce domestic gas production in 2013 by 8%; 
• BHP Billiton wrote down $2.84 billion on the value of Fayetteville shale gas assets it had acquired in 2011; and 
• The most recent count of rigs drilling for natural gas in the United States is 495, down 70% from the record-setting levels seen in September 2008.

“Write down” is a fairly bloodless way to describe the loss of $3 billion; “carnage” is better at conveying the pain that now grips the natural gas sector. This begs the question: why are wholesale natural gas prices still under the $3.00/MMBtu level?

I believe that there are two reasons for this phenomenon. The first is that energy traders, like virtually everyone else in this country, are truly convinced that the United States is awash in shale gas, thanks to a brilliant industry-led public relations campaign. Lower prices help reinforce the popular belief that cheap gas will be with us for another century. Unfortunately, federal energy agencies and universities have also bought into this view of the supply picture big-time, leaving little room for skeptics and agnostics to influence public perceptions.

This overarching belief has been unintentionally reinforced by local and regional controversies over the practice of hydraulic fracturing solid rock to obtain the shale gas trapped inside. Virtually unheard of four years ago, “fracking” has vaulted into the public consciousness, and in doing so, sustains the society-wide belief that natural gas can be accessed almost anywhere in the United States.

Ironically, the myth of abundance that E&P companies so carefully cultivated--and bankrolled--is now clearly working against their short-term interests.

The other factor that keeps prices so low is the traders’ fear of large demand swings. For example, the phantom winter of 2011-2012, which cut demand for heating fuel by more than 25%, creating a colossal oversupply that sent wholesale prices crashing. The supply pendulum is now swinging the other way, and more than half of the bulge has melted away. Assuming a continuation of smaller-than normal injections, natural gas inventories should be in line with the five-year average by mid-December.

Traders attribute the ongoing reduction in inventories to a hotter than normal summer, prompting utilities to switch on more gas generators to meet system peaks. But weather isn’t the only thing that influences the storage picture; output does as well. But as long as traders and speculators subscribe to the myth of nearly limitless supply, they will discount the possibility that declining output is also responsible for lagging storage volumes.

The paradigm shift ushered in by the fracking phenomenon won’t go away easily. But in the not-very-distant future, the reality of reduced drilling activity and capital spending, along with rapid decline rates in shale gas plays, will bite deeply into natural gas supplies and cause yet another overturning of expectations in this sector. For electric utilities as well as end-users, the results will not be pretty.

Michael Vickerman is program and policy director of RENEW Wisconsin, a sustainable energy advocacy organization. For more information on the global and national petroleum and natural gas supply picture, visit "The End of Cheap Oil" section in RENEW Wisconsin's web site: www.renewwisconsin.org. These commentaries also posted on RENEW’s blog: http://renewwisconsinblog.org and Madison Peak Oil Group’s blog: http://www.madisonpeakoil-blog.blogspot.com

Comments of RENEW on the draft Strategic Energy Assessment, January 28, 2010

BEFORE THE

PUBLIC SERVICE COMMISSION OF WISCONSIN

Strategic Energy Assessment for the Years

January 1, 2010 through December 31
2016 Docket No. 05-ES-105

COMMENTS OF RENEW WISCONSIN ON THE DRAFT STRATEGIC ENERGY ASSESSMENT

_________________________________________________

RENEW Wisconsin submits these comments on the Commission’s draft Strategic Energy Assessment (SEA) 2016. RENEW’s comments focus on the “Electric Demand and Supply Conditions in Wisconsin” section.

The draft SEA notes that, in 2008, 67% of the energy produced in Wisconsin was generated by coal-fired power plants; 8% by natural gas; and 2% by biomass. Draft SEA, p. 18. Collectively, these units supplied 77% of the energy produced in Wisconsin. With the addition of the two new coal-fired generating units at the Elm Road Generation Station in 2010 and 2011, Wisconsin’s percentage of coal-fired generation has increased even more.

Fuel for all of these types of generating units comes at a cost, both the cost of the fuel itself and the cost to transport it to a generating station. Because coal makes up such a significant portion of the energy generated in Wisconsin and because it is not available in Wisconsin, its costs are particularly important. For years, the assumption has been that coal is cheap and abundant. Even the draft SEA notes that “Coal has historically been an abundant and inexpensive fuel for electric generation.” Draft SEA, p. 46. However, the ability to extract high quality coal and the cost to transport it to Wisconsin have been steadily increasing, calling into question the “abundant and cheap” mantra.

Most of the coal that fuels Wisconsin’s power plants comes from the Powder River Basin (PRB) in Wyoming. That region supplies coal to many of the largest coal plants in Wisconsin’s generating fleet--Columbia, Pleasant Prairie, Weston, Oak Creek, J.P. Madgett, Edgewater, and others. The contribution from other coal fields, such as those in the North Appalachian and Colorado regions, is small by comparison to the voluminous flow of low-sulfur subbituminous coal coming out of such mines as Black Thunder, Jacobs Ranch, Cordero Rojo, Antelope, and North Antelope Rochelle. The coal extracted from these mines is transported to power plants 1,000 miles away in Wisconsin on unit trains with as many as 130 cars.
Data from the Energy Information Administration (EIA) document the steadily rising cost of coal imported to Wisconsin over the past 10 years. In 1999, the average cost of coal delivered to Wisconsin electric utilities was $1.02/MMBtu (Table 34, Electric Power Monthly (EPM), March 2001). By 2004, the average cost had risen to $1.18/MMBtu (Table 4.10B, EPM, April 2005). The cost increase over the next five years was more pronounced, rising to $2.02/MMBtu (Table 4.10B, EPM, March 2010). The cost escalation between 1999 and 2009 corresponds to annual increases of 7%.

Increases in the cost of diesel fuel account for a significant portion of coal’s price rise. Spiking dramatically in mid-2008, diesel prices slumped 40% in 2009 but have since mid-2010 retraced a significant part of that decline, and are now comparable to where they were in early 2008.

Another driver behind rising coal prices is the increased cost of resource extraction. From 2000 to 2010, spot market prices of PRB coal rose from about $4 per ton to $14 per ton. Rising prices reflect increases in the “stripping ratio ,” a key measure of ore quality, encountered by mine operators. The stripping ratio indicates the number of tons of rock that must be moved to obtain a ton of coal. It is prudent to expect the stripping ratio of PBR coal to increase as the largest and most accessible mines become played out and mine operators shift to newer mines with deeper overburdens and thinner coal seams.

(http://www.cleanenergyaction.org/sites/default/files/Coal_Supply_Constraints_CEA_021209.pdf, p. 47.)
For example, the average overburden on the existing Antelope Mine is 122 feet thick and the coal seam is 86 feet thick. Antelope’s operator has applied to expand the coal mine to the west. While there is plenty of recoverable coal at Antelope II, it will be less productive than the original mine, because of the combination of thinner coal seams (50-60 feet thick) and average overburden depths (260 to 280 feet). Thus, the stripping ratio of Antelope II will be significantly higher, as will production costs.
(http://www.blm.gov/pgdata/content/wy/en/info/NEPA/documents/cfo/West_Antelope_II.html)

It’s worth pointing out that the U.S. coal market does not operate in isolation of overseas trends and events, which lately have been propelling coal costs higher. One well-reported trend is increasing demand from China, which has moved from an exporter to an importer of coal. The New York Times (NYT) reported in November 2009 that the volume of Chinese coal imports will hit all-time highs going into 2011. (http://www.nytimes.com/2010/11/30/business/energy-environment/30utilities.html?_r=1&scp=1&sq=breaking%20away%20from%20coal&st=cse)
The catastrophic flooding in northeast Australia earlier this month is certain to apply upward pressure on coal prices globally. Torrential rains incapacitated 75% of the operating coal mines in Queensland, the world’s largest coal-producing region. Much of the coal there is exported to other Asian markets. It will take many months if not years to dewater the mines and restore them to active operation. Though Queensland’s mines supply coking coal for the most part, the damage inflicted to the mines, roads, railways and bridges will ripple through the thermal coal markets as well and lift prices in that sector. (http://www.energydigital.com/sectors/mining-and-aggregates/queensland-flooding-washes-away-millions-coal-revenue

In addition, electric utilities have not been able to lock in low cost coal prices over long-term contracts. A review of recent coal shipments to Wisconsin power stations reveals that most supply contracts will expire between now and January 2013. (EIA-423 available at http://www.eia.doe.gov/cneaf/electricity/page/eia423.html)
The emergence of shorter-term contracts, coupled with the increasing tendency among Wisconsin utilities to rely on the spot market, increases the exposure of ratepayers to rising coal prices caused by (1) higher diesel fuel prices, (2) increased coal exports from North America to China, (3) the ongoing transition to lower-quality domestic coal sources, and (4) natural disasters and other perturbations in global supplies.
It should be noted that the current glut of generating capacity provides no insulation against rising fuel prices. The coal still has to be mined, loaded into unit cars, and transported across the Great Plains and the Mississippi River to reach Wisconsin generating units. Even if utility demand for coal diminishes incrementally during the planning period, whatever moderating effects that trend would induce are likely to be dwarfed by global factors, not least of which is Asia’s ravenous demand for coal, which domestic coal companies such as Peabody will be only too happy to feed.

With these challenges looming in plain sight, it will take a minor miracle to keep coal prices from rising above the 7% annualized rate of the previous 10 years.

Given the degree to which Wisconsin utilities are reliant on PBR coal supplies, RENEW recommends that the PSC track and monitor the emerging supply and cost issues associated with that resource. In their comments on the draft SEA, Citizens Utility Board and Clean Wisconsin recommend that the SEA include historic annual average fuel costs for all combustible fuels (including coal) and a projected annual average fuel cost for each year (including coal) for each year during the SEA period. RENEW supports that recommendation.

RENEW appreciates the opportunity to provide the Commission with these comments and recommendations. RENEW continues to believe in the wisdom of comprehensive long range planning of demand, supply and transmission resources to best meet Wisconsin’s electricity needs while balancing cost, reliability, environmental, risk and other factors.

Draining Canada First

Petroleum and Natural Gas Watch, Vol. 5, Number 8
by Michael Vickerman, RENEW Wisconsin
November 2, 2006

Sating America’s prodigious energy appetite depends on the continued availability of Canadian energy sources. About 25% of the crude oil and 80% of the natural gas imported into the United States come from our very accommodating neighbor to the north. More than half of the fuel pumped out of Canadian wells heads south to keep us Yankees warm and happily tooling about on our highways.

Even though the Canadian economy is no less dependent on hydrocarbon energy than ours, Canada has been drilling as many wells as necessary to keep the high-maintenance American economy humming. If this pedal-to-the-metal production policy were applied to a non-strategic product like, say, maple syrup, few people would care about the consequences. But there is nothing on the horizon to replace the nonrenewable high-density energy sources that Canada so generously sends our way.

This begs the question: how long can Canada go on behaving like America’s most compliant energy colony?

Not very long, according to David Hughes, a petroleum geologist with the Geological Survey of Canada. Speaking before the World Peak Oil Conference held in Boston last week, Hughes painted a remarkably pessimistic picture of Canada’s energy future, especially regarding natural gas.

Despite record drilling activity, natural gas extraction volumes have slipped from the peak set in 2002, and output per well is now declining at an annual rate of 28%. Put another way, just to keep the output from declining this decade, producers must complete nearly one-third more wells in 2007 than in this year, and then repeat that achievement in 2008, 2009 and 2010.

That would be a daunting challenge even if there were rigs and drilling crews standing by. As it now stands, there is no spare capacity of this sort anywhere in North America.

With only eight years of proven reserves left in Canada, Hughes suspects that natural gas output is about to fall off a cliff. Barring a miracle or two, Canada will soon experience challenges in providing for its own citizens, let alone producing surplus volumes bound for American furnaces.

A potentially wrenching resource conflict is now brewing on our continent, thanks to the North American Free Trade Agreement (NAFTA), under which Canada effectively gave up sovereignty over its fossil energy inheritance. As a signatory, Canada is prohibited from cutting back energy exports, even in the event of a domestic supply crunch. But how long would Canada honor its obligations under NAFTA if doing so resulted in its citizens freezing to death? American policymakers would be wise to explore how that scenario might play out.

If that weren’t enough, natural gas is also the key to expanding the production of oil from the tar sands of northern Alberta, the only oil-producing region left in North America that can increase output. It is the only available fuel for producing the pressurized steam needed to separate bitumen, a low-grade oil, from sand. Shrinking natural gas supplies would quickly reduce the flow of bitumen into the U.S., further complicating Canada’s energy dilemma.

The irony of sacrificing a premium energy source to make more low-grade fuel for export was not lost on Hughes, who closed with a quote from a Canadian energy executive. “Using natural gas to produce oil from tar sands is akin to turning gold into lead.”

Vickerman is executive director of RENEW Wisconsin, a nonprofit organization promoting conservation and renewable energy sources.

Sources:

Energy Information Agency, October 2006 Monthly Energy Review http://www.eia.doe.gov/emeu/mer/contents.html.com.

Hughes, David: "North American Natural Gas Production Trend and Implications for Canadian Tar Sands Production,” 2006 Boston World Oil Conference, Boston University, October 2006. http://www.aspousa.org

Petroleum and Natural Gas Watch is a RENEW Wisconsin initiative tracking the
supply demand equation for these fossil fuels, and analyzing its effects on prices,
consumption levels, and the development of energy conservation strategies and renewable energy alternatives. For more information on the global and national petroleum and natural gas supply picture, visit "The End of Cheap Oil" section in RENEW Wisconsin's web site: www.renewwisconsin.org.

Fossil Fuel Watch: The Eye Between the Storms

by Michael Vickerman, RENEW Wisconsin
Petroleum and Natural Gas Watch, Vol. 4, Number 1
September 21, 2005

On its way toward the Gulf Coast states of Louisiana and Mississippi, Hurricane Katrina cut a swath through a hydrocarbon-rich zone of the Gulf of Mexico, the largest domestic source of petroleum and natural gas. When fully operational, this offshore oil and natural gas complex accounts for about 30% of domestic oil supplies and 20% of domestic natural gas supplies.

Fueled by exceptionally warm waters, this Category 4 storm KO’ed nearly 50 production platforms and four drilling rigs. Extensive damage was reported at 20 platforms and nine drillings rigs. The force of the winds and the waves tore six rigs loose from their moorings and sent them adrift; one rig in Plaquemines Parish was found beached on Alabama’s Dauphin Island. At the storm’s peak, on August 29, more than 90% of the Gulf’s oil extraction capacity and nearly 90% of its natural gas extraction capacity was off-line.

The storm’s devastation extended beyond structures protruding above the water’s surface. Parts of the underwater piping network that collect the raw fuel and carry it to onshore processing facilities need to be rebuilt. Mobilizing all the boats, helicopters, divers, and steel needed to repair this infrastructure will be a monumental undertaking. However, until these pipelines become operational again, many of the undamaged wells will remain idle, with no place to pump the oil to.

Onshore facilities like shipyards and refineries were also hit hard. The Mineral Management Service, which issues daily bulletins tracking Katrina’s impact on the Gulf of Mexico’s hydrocarbon complex, estimates that “35% of shut-in oil is due to onshore infrastructure problems.” The rebuilding effort is bound to be slow and costly, but absolutely necessary as this region is one of the few remaining centers of (real) wealth-production in the nation.

Three weeks have now passed since Katrina landed her roundhouse blows to our energy underbelly, and more than 55% of the region’s oil capacity and about one-third of the natural gas capacity still remain off-line. So far, the reduction in output amounts to about 1.5% of expected U.S. crude oil production this year. Also off-line are four refineries with a combined daily capacity of nearly one million barrels, about 4% of total U.S. refining capacity. Expectations are that these facilities, especially the 400,000 barrel per day Pascagoula unit, are three to six months away from being restarted. In an industry where production volumes lately have averaged between 90 and 95 per cent of capacity, making up a 4% loss shapes up to be an impossible challenge. This is very bad news indeed to a country that was, before Hurricane Katrina, not producing enough gasoline to keep pace with this summer’s driving demands.

In an effort to calm panicky oil markets, the Bush Administration has pledged to tap the Strategic Petroleum Reserve for as much as 30 million barrels of crude oil, an amount the Unites States consumes in 36 hours. Though gasoline prices have fallen 10% from the Labor Day weekend, releasing reserve oil is nothing more than a symbolic gesture when there is no spare capacity available to crack the crude into jet fuel, gasoline and diesel fuel. The nation has no choice but to import greater volumes of gasoline for the duration of this year. Even so, the supply-demand equation looks precarious. Only a nationwide slowdown in driving will keep fuel prices from heading higher. Nothing short of that will suffice.

Katrina’s path took it through the oil-heavy eastern half of the Gulf’s hydrocarbon complex. The natural gas production platforms that populate the western half were spared the flattening winds and 20-foot storm surges visited upon Bay St. Louis and Biloxi. Even so, the accumulated reduction in output so far represents 0.7% of U.S. extraction volumes expected this year. This deceptively puny number spells real trouble for Americans residing in colder climates, for unlike crude oil and its refined products, natural gas cannot be easily shipped across oceans. There are only four operating terminals in the United States where specialized tankers bearing liquefied natural gas (LNG) can offload their contents, and they are operating pretty much at full capacity right now.

Unless natural gas output from the Gulf of Mexico can be revved up to pre-Katrina levels in the next week or two, the likelihood that the United States can scramble its way out of a slow-motion supply squeeze this winter is poor. Earlier this year, several investment banking services that track energy supply-demand trends projected lower output from domestic sources this year. If the monthly production results reported by the Texas Railroad Commission are reliable guides, extraction volumes are already tailing off, compared with previous years’ results. The injection rate of gas into storage for winter use has slowed as well.

When one stops to consider all the factors at play here—a still booming housing sector, more gas-fired power stations on-line (including four new ones in Wisconsin this year), a declining resource base in North America (including Canada and Mexico), and insufficient infrastructure for importing more than 5% of domestic consumption through 2008—it’s not difficult to imagine natural gas prices, now at $12/MMBtu, ratcheting up towards the $20/MMBtu level this winter. And to think that only six months ago one could have bought a January 2006 gas contract for under $7/MMBtu.

The prospects for a rapid recovery became dimmer when a storm named Rita crossed the Florida Keys heading west toward Texas. The abnormally warm waters on which Katrina fed can easily transform Rita into a tempest of similar intensity. For the moment the very best outcome one can expect from Rita’s menacing presence in the gulf is a production interruption that lasts five to seven days followed by a full resumption of extraction activity. But if it strengthens as Katrina did, it is likely to cause even greater damage than Katrina wrought, due to its more westerly track. Texas and its coastal waters, it should be remembered, account for fully one-third of domestic natural gas output. Another hit to Gulf of Mexico hydrocarbon complex and natural gas futures will warp out of orbit.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Even more amazing than the destructive capacity of these hurricanes is the degree to which we as a nation are totally unprepared for dealing with their aftermath. The default assumption among policymakers is that the U.S. economy will grow in an uninterrupted fashion, and that high quality energy sources will magically appear in time to sustain this expansion. But how can this outcome be guaranteed when the U.S. government cannot control either the actions of foreign countries or the weather? In fact, the country does not appear able to exercise even the slightest hint of discipline or restraint over its own appetite for energy. As the nation’s energy infrastructure contracted relative to the domestic economy, the federal government’s ability to shape our energy future atrophied along with it. All of the planning functions that a healthy government is typically responsible for have been ceded to the marketplace. And the marketplace has one very powerful mechanism for allocating scarce but essential resources to a society’s constituents. It’s called price.


Author’s note: Given Hurricane Rita’s potential to add to the devastation caused by Katrina, I plan to update this article in one to two weeks.


Sources:

Center for Energy Efficiency and Resource Efficiency (CEERT), Risky Diet 2005: Global Energy Resource Adequacy. http://www.ceert.org

Minerals Management Service (U.S. Department of the Interior)
http://www.mms.gov/ooc/press/2005/press0916a.htm. See MMS web site also for daily shut-in statistics reports.

Simmons and Company: Outlook for Natural Gas: 2005 and Beyond
http://www.simmonsco-intl.com/research.aspx?Type=researchreports)

“Texas Monthly Oil and Gas Production by Year,” Texas Railroad Commission
http://www.rrc.state.tx.us/divisions/og/information-data/stats/ogismcon.html),

The Oil Drum: A Community Discussion About Peak Oil. Numerous postings on the web site from August 29 – September 21, 2005.. http://www.theoildrum.com/



Petroleum and Natural Gas Watch is a RENEW Wisconsin initiative tracking the
supply demand equation for these fossil fuels, and analyzing its effects on prices,
consumption levels, and the development of energy conservation strategies and renewable energy alternatives. For more information on the global and national petroleum and natural gas supply picture, visit "The End of Cheap Oil" section in RENEW Wisconsin's web site: www.renewwisconsin.org