Energy & Power Generation

One of my Least-Favorite Politicians

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…out of a wide range of potential choices, is Rep Jan Schakowsky (D-IL). I first became aware of this reprehensible individual after seeing the incredibly arrogant letter that she wrote to Kathleen Fasanella (of the blog Fashion Incubator) in response to Kathleen’s attempts to call attention to the harm being done to many small manufacturers by the ill-thought-out CPSIA legislation.

There are lots of reasons to dislike Schakowsky (see this, for example)—another such reason made its appearance Wednesday with her assertion, in an attempt to defend Obama’s suppression of the Keystone Pipeline project, that “Twenty thousand jobs is really not that many jobs, and investing in green technologies will produce that and more.”

Twenty thousand jobs is really not that many jobs?

There is of course a huge difference between a project funded with private money that will act to reduce America’s energy costs and increase its industrial competitiveness, and one funded with taxpayer money (much of it undoubtedly going to politically-well-connected corporations) which would quite likely act to increase America’s energy costs and thereby reduce its industrial competitivness. Perusal of Schakowsky’s bio reveals no experience at all working in the private sector, of course.

Whatever one thinks of the Pipeline and of various “alternative energy” options, surely it should be obvious to all that this CongressCreature’s cavalier dismissal of twenty thousand jobs should be considered unacceptable arrogance on the part of any American officeholder. It is a level of arrogance that, unfortunately, has become far too common among the government classes.

Assorted Links, or, I wish I could think up a better title for this post….

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The US could be almost self-sufficent for energy by 2030, while the EU will be the most vulnerable region for energy security, BP said on Wednesday.
 
Growth in shale oil and gas production would mean the US needed few imports, while North America as a whole could be self-sufficient, BP forecast at its Global Energy Outlook 2030.
 
BP forecast that Eurasia could also become self-sufficient, based on the prediction that Europe would being a net importer of energy, and the former Soviet Union countries net exporters by a similar amount.
 
In practice, this would leave the EU the most vulnerable region for energy security.

– The Telegraph

Friends, I have no particular knowledge of this subject. If you have anything to add in comments, I’d love to hear it.

Ah, age. One of the most daring aspects of this novel is that Lively is concerned with the hearts and problems of older characters. Her major players are well past their youth, and a boyish up-and-coming historian (the snake in Lord Henry’s mansion) doesn’t become important until much of the novel has passed. “How much remains when youth is gone?” Lively seems to be asking. And the answer is, “An abundance.” Here middle and old age are times of blossoming identity and possibility, miraculous bursts of sunshine.

– The New York Times reviews Penelope Lively’s novel, How it All Began.

Even as a twenty-something, I was fascinated with literary representations of middle age. An odd one, that’s me.

Natural Gas

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In a post about interest rates I wrote about being a little kid and over-hearing my grandfather (who was actually “grandfathered” in as a CPA because he was a practicing accountant before they had the exam) talk in the early 1980s saying that he thought interest rates “would never go below 10%”. At the time inflation was rampant (as Volker came in) and interest rates were in the 20% or so range, so this seemed like a valid observation. As we all know, interest rates have fallen to near-zero right now and even a “ceiling” of 10% (rather than a floor) seems far away.

Along the same lines, when I started in the energy business in the early 1990s, the “rule of thumb” of what a utility would pay for natural gas was about $2 / unit. The price would rise in the winter during the peak heating season and fall in the summer as utilities re-filled their storage, and it would vary around the $2 / unit mark, but not deviate too significantly. At the time there wasn’t a lot of vision forward on prices that I was aware of, but if you mentioned anything like the $14 / unit peak that was hit in 2005-6, you would have been laughed out of the room.

Today natural gas, propelled by innovation and “fracking”, has dropped to a price level that no one would have foreseen back in 2005-6. Per Bloomberg:

Supplies may reach a seasonal record of 2.4 trillion cubic feet in March, which is when heating demand usually ends and producers begin piping more gas into storage, Cooper said. Unless production falls or cold weather bolsters demand, prices will drop to $2.40 per million Btu, and perhaps below $2, as gas overflows storage caverns and clogs pipelines, he said.

To think that natural gas would return to 1990 price levels is amazing. Even using the government’s figures, which I think understate inflation dramatically, in the 21 years from 1990 to 2011, inflation makes the $2 in 1990 the equivalent of $3.51 today, per this inflation calculator.

What happened? Free enterprise and capital markets happened. Fracking and innovation allowed new natural gas deposits to be found in our country which brought forth huge reserves of US energy and drove down costs even while usage soared.

This low price for natural gas is not a short-term phenomenon. These reserves are significant and since natural gas is often found alongside oil, with oil at $100 / barrel the fact that natural gas is at a low price won’t impact it as much as you’d think because anything the driller gets is just profit on top of the huge profits for US sourced oil. The largest “threat” to low prices for natural gas in the US is actually the “high” price of natural gas overseas, because US drillers and pipelines can ship it to foreign countries in a liquefied (LNG) format if their high prices make it economical. Per this WSJ article:

(T)he current low natural gas prices are attracting market demand from around the world. There are already federal permits for 3 trillion cubic feet per year of natural gas exports, Apt said. “Will we export that bounty, and if we do, will that drive up U.S. prices,” he said. Natural gas sells for about $8 in Europe and $14 in Japan, but less than $4 here.

The real longer-term issue is whether other countries in Europe and Asia will also find large reserves of natural gas in shale just like they did in the US, and whether they will drill for it or avoid drilling out of environmental concerns. The French have already banned “fracking” but my (unproven) opinion is that this really says more about the power of the nuclear lobby in France, since the low price of natural gas has really been the final nail in the coffin of nuclear energy (along with the obvious issue of Japan) because it makes the plants un-economic to build. Likely the Ukrainians (smarting from Russia’s bullying over natural gas pricing), the Poles, and the Chinese will take up this technology in earnest and change the overall economics, even if countries like France are content to wait idly by.

As far as the US electricity industry, natural gas is causing coal plants to be mothballed or their owners to choose to not spend money on costly “scrubbers” to comply with EPA guidelines, changing the long term footprint of the US market. Since the nuclear boom was a “mirage” anyways (basically we will get a plant out of Southern Company and one in South Carolina, which won’t even keep up with likely decommissioning of units), this lower priced power is killing the market for new plants entirely.

For heavily indebted companies like Energy Futures Holdings (which bought up TXU assets in Texas), the low price of natural gas spells difficulties, since gas fired “peakers” set the “market price” for energy and with the price of gas at $2 / unit, not $8 or $10 / unit, they will make less money on their “base load” coal and nuclear plants which need to run all the time. Some of these utilities had a great summer in 2011 with high temperatures (especially in Texas) which helped to offset the increasing competitiveness of gas-fired generation.

The other key item to keep in mind is that when we buy US produced energy, we enrich our OWN country rather than sending wealth overseas, often to countries that despise us (and even if we don’t buy directly from Iran, the high cost of oil overall benefits them just the same whether or not we buy or someone else). The new innovative technologies have enormously benefited the United States, making us more competitive in business and reducing energy bills for tens of millions of households. And while energy companies do have “breaks” in the tax code to some extent, this innovation was not part of a government program and is in stark contrast to the failures of the Energy Department’s “research” and political backing of “green” energy which is likely to be a major campaign issue in 2012.

If only they’d unleash our oil companies in the US we would likely be able to dramatically increase our production and further reduce our dependence on foreign energy producers, while enriching our own country. The parable of natural gas is plain for all to see, which is that markets work if you let them, and that government intervention is usually far more harmful than inaction.

Cross posted at LITGM

Wind, Water, Electricity, and Bureaucracy

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The Federal Energy Regulatory Commission has ruled against the Bonneville Power Administration, which is itself a creature of the Federal Government. The case provides an interesting microcosm of the difficulties encountered in doing any kind of large-scale productive work in the increasingly rule-driven environment of contemporary America.

BPA’s mission is to provide electrical generation and transmission services in the Pacific Northwest. In May-July of this year, the agency suffered from an embarrassment of riches: owing to weather conditions, vast amounts of both water power and wind power were available. Storing large amounts of electricity, though, is not a very practical proposition: in most cases, supply and demand needs to be balanced on an instant-by-instant basis. Hence BPA needed to cut either its hydroelectric generation or its wind generation, the latter of which comes in substantial part from independent businesses which sell their output to the BPA. The only alternative was to engage in “negative pricing”–ie, paying various entities–either customers or other power providers–to take its excess electricity.

The agency did not believe it could legally cut the hydropower generation below a certain level: routing excess water over spillways causes it to pick up nitrogen, which is believed to be harmful to salmon, and hence in BPA’s interpretation would be in violation of the Clean Water Act and the Endangered Species Act. What BPA did instead was to tell the the wind operators that during this time period it didn’t need or want all of their output–100,000 megawatt-hours of potential generation was turned away. The wind operators, unsurprisingly, filed a complaint, and FERC sided with the operators. So next time there is an oversupply situation in the Pacific Northwest, BPA will be paying to give its power away–ultimately resulting, of course, in higher electricity bills for its customers.

Various technical fixes for problems of this kind are being discussed, such as the remote control of water-heater thermostats in homes and businesses (which would allow excess electricity to be stored in the form of heat) and the interconnection of power grids across wider geographies. But basically, operating a power grid reliably and economically is already a difficult problem. Adding substantial amounts of relatively-unpredictable capacity such as wind makes it harder still, and each additional regulatory constraint makes it even more so.

The continuing proliferation of rules, many of them adopted without any deep consideration of their implications, makes increasingly difficult the running of productive activities of any kind.

Related: Frankly, my dear, I do need a dam

Virginity of global warming activist questioned.

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During all the argument about global warming that has gone on over the past decade, warming activists have questioned the motives of defenders of traditional energy sources, implying they are all funded by fossil fuel companies. The motives of those warning of the risks of global warming have rarely been questioned, implying they are only worried about the planet and nothing so crass as accepting money for their efforts.

Now, it seems, they had normal acquisitive instincts, as well. And some of them have done quite well, I might add.

NASA records released to resolve litigation filed by the American Tradition Institute reveal that Dr. James E. Hansen, an astronomer, received approximately $1.6 million in outside, direct cash income in the past five years for work related to — and, according to his benefactors, often expressly for — his public service as a global warming activist within NASA.

This does not include six-figure income over that period in travel expenses to fly around the world to receive money from outside interests. As specifically detailed below, Hansen failed to report tens of thousands of dollars in global travel provided to him by outside parties — including to London, Paris, Rome, Oslo, Tokyo, the Austrian Alps, Bilbao, California, Australia and elsewhere, often business or first-class and also often paying for his wife as well — to receive honoraria to speak about the topic of his taxpayer-funded employment, or get cash awards for his activism and even for his past testimony and other work for NASA.

Oh, Oh. Normal instincts after all. This will set the sainthood movement back a few years. We already know about Al Gore, of course.