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US faces crisis over energy policy

By Hillary Durgin

Published: December 5 2000 21:04GMT | Last Updated: December 5 2000 21:27GMT

The alarm in world energy markets triggered by the halt in Iraqi crude oil exports at the weekend is the latest sign that the new administration - whoever leads it - will have to make US energy policy a top priority.

Even as the outcome of the presidential election has hung in the balance over the last few weeks, energy industry officials have argued that the new president will have to address problems not just in oil, but in the natural gas and power sectors that reached crisis levels over the past year.

The cut-off of Iraqi crude could have serious repercussions for the US, the world's largest oil consumer, particularly at a time of exceptionally low inventories in the world oil markets and shortage in spare production capacity within the Organisation of Petroleum Exporting Countries. That situation could easily reach crisis proportions for the US if other circumstances, ranging from unrest among Nigerian oil workers to cold winter weather across the country, affect supplies.

"For the new administration, this whole event is going to raise the question of energy security and US energy policy to the very top of the docket," said Amy Jaffe, senior energy analyst with the James A. Baker III Institute of Public Policy at Rice University in Houston.

The Baker institute is working with the Council on Foreign Relations, a New York-based think tank, to form a taskforce on US energy policy. "Whenever the new president takes office, he is going to have to cope with whatever the economic fallout is of this and the economic fallout is going to be huge," Ms Jaffe predicted.

Opec has only between 1m to 2m barrels per day of spare production capacity - far less than it has had during previous oil crises. Put in perspective, in the winter of 1989, colder than normal weather boosted US oil demand by 1.5m barrels per day.

For the first time in more than two decades, energy has become a focus of public debate. As energy shortages and high prices stunned the public following a long period of adequate supplies and cheap prices, these issues became a political rallying point and figured prominently in the elections.

"There is a direct correlation between interest in energy policy and prices, and energy prices are high, so interest in energy policy is high," said Robin West, chairman of the Petroleum Finance Company, a Washington DC-based energy consultant.

The position of energy secretary has generally been regarded as weak and has often been occupied by someone with little knowledge of the industry. Whoever becomes the next secretary must have a good understanding of the industry and be able to explain the complexities of the regulatory structures and markets to Congress, Mr West said.

Over the past two years, power shortages and skyrocketing prices have become more commonplace. The underlying problem, industry executives say, is the lack of a uniform, national policy to provide competitive, open access to the nation's electricity power grid.

Current regulations, for example, tend to favour regional power authorities and utilities in certain regions so that competitors have a harder time getting power onto the grid and transmitting it. In 1998 that problem triggered, for example, prices of $7,500 per megawatt-hour in Ohio compared with neighbouring states where they were one-fortieth of that level.

Another problem is the difficulty of obtaining permits to site and build plants in certain states. In California, for example, where shortages have become a serious problem and the state imports 25 per cent of its power on days of peak demand, 11,000 megawatts of new power has been proposed but can't get sited.

"The biggest energy policy issue we have is electricity," said Steven Kean, executive vice-president and chief of staff at Houston-based Enron, the country's largest merchant of natural gas and power. "Natural gas is not even close. Oil is not even close." Enron is pushing for legislation to ensure open, competitive access on the power grid and initiatives that would enable new power generation capacity to be developed faster and easier.

Closely tied to the problem of power is that of natural gas, which is the feedstock for virtually all new power generation capacity in the US. Prices, which are now above $6 per thousand cubic feet, hit a record high this week - three times the price of a year ago - as the energy industry has been unable to keep pace with demand.

Many in the industry are concerned about how the US will be able to meet future power demands unless more gas is developed. Yet while companies are busy drilling, they have been hard pressed to increase production.

Companies such as UK-based BP Amoco and Calgary-based Nexen, which have gas reserves in Alaska and Canada, are hoping that the high prices will make development and transport of those reserves profitable, but such projects are probably five years away.

At the top of the energy industry's agenda in accessing more oil and gas are efforts to reopen more federal lands to drilling. In addition, they would like to have equal access to oil reserves overseas in places such as Iran and Libya where sanctions prevent US companies from doing business.

The industry knows that forging a new energy policy will not be easy. But it realises it must push it to the top of the new administration's agenda.

"It will be a priority," said Chuck Watson, chairman and chief executive officer of Houston-based Dynegy, a leading energy merchant with large holdings in the natural gas and power sectors. "It has to happen, if they don't want $5 natural gas and $40 crude and $50 power."

-- (in@energy.news), December 05, 2000

Answers

US Northwest power prices soar, traders fear bankruptcies

http://hv.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=004Bvu

-- (in@energy.news), December 06, 2000.

"US faces crisis over energy policy".

What energy policy? Bubba and Robo Al's "energy policy" consists of draining the SPR to make it easier for the Chinese.

-- J (Y2J@home.comm), December 06, 2000.

12/06 09:09 Natural Gas Soars to Record on Forecast for Frigid U.S. Weather By Bradley Keoun

New York, Dec. 6 (Bloomberg) -- Natural Gas futures blew past a record high set just this week, surging as much as 14 percent on mounting fear that frigid weather will drain already low inventories of the heating fuel.

Lows overnight ranged from 10 degrees Fahrenheit (minus 12 Celsius) in Chicago to 17 below zero in Fargo, North Dakota, both well below normal for this time of year. An arctic air mass this weekend will bring even colder weather, forecasters said. The cold comes as analysts expect natural gas inventories, already below year-ago levels, to fall further in an industry report today.

``It looks like December is going to come out being much colder than normal, and that's very bullish for natural gas,'' said Kyle Cooper, an energy analyst with Salomon Smith Barney in Houston. ``As long as you continue to get these kinds of forecasts, it's going to continue to drive the market higher.''

Natural gas for January delivery rose as much as $1.066 to $8.45 per million British thermal units in electronic trading on the New York Mercantile Exchange. It was the first time in 10 years of natural gas futures trading that prices rose above $8 per million Btu.

Prices have more than tripled in the past year and have been at or close to record highs since June on concern that inventories are too low to avoid spot shortages of gas during the winter heating season, when demand peaks.

This week's weather ``is a precursor, the baby, of a much stronger low pressure system that will enter the Rockies and Western Plains during the late weekend,'' said Joel Burgio, a meteorologist at Weather Services Corp. of Lexington, Massachusetts. That weather ``will gradually sock most of the U.S.,'' he said.

Some forecasters now are gaining confidence that temperatures will stay below normal during the week of Dec. 18, Cooper said.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Energy%20News&s1=blk&tp=ad _topright_topfin&refer=topsum&T=markets_bfgcgi_content99.ht&s2=blk&bt= ad_position1_topfin&middle=ad_frame2_topfin&s=AOi5IqRYATmF0dXJh

-- Cave Man (caves@are.us), December 06, 2000.

California governor considers Banning Electricity to other states

http://hv.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=004C9d

-- (in@energy.news), December 06, 2000.

Breaking News: Topping $39, Spot Gas Prices Reach New Highs Wednesday posted 2:40 PM (CST) Dec 6, 2000 Spot prices this morning for Thursday delivery broke the all-time record high of $39 at the Chicago citygate, set in Feb. 2, 1996 trading. A marketing firm reported a deal for $39.75 at the Southern California border. Other deals at the border ranged as low as $30 in tremendously volatile trading. All West Coast prices continued to skyrocket as the region braces for a siege of arctic cold that could severely challenge the western power grid before the weekend.

http://intelligencepress.com/

-- Cave Man (caves@are.us), December 06, 2000.

Power Grinch could steal California's bright Christmas

December 6, 2000 Web posted at: 1:16 p.m. EST (1816 GMT)

SAN FRANCISCO, California -- California was under a power emergency for a third consecutive day Wednesday, as the prospect of a traditional brightly lit Christmas dimmed a bit.

Power industry officials declared a Stage Two emergency Wednesday morning, as they had on Monday and Tuesday. A Stage Two emergency means the state is down to its last 5 percent of power, and suppliers are allowed to cut power to commercial customers whose contracts allow for interruptions.

"The supply conditions in California have not changed significantly from Tuesday," said Patrick Dorinson, a spokesman for the California Independent System Operator (ISO), which oversees operation of about 75 percent of the state's power grid. He said the situation would probably improve later Wednesday, as emergency supplies are tapped from both in and out of the state.

Officials have asked residents to keep outdoor holiday lights off, keep thermostats set at 68 degrees and turn off computers and lights when not in use. Los Angeles is not hooked into the ISO, and has enough power for all uses, including holiday lighting.

Christmas unplugged

At the state Capitol in Sacramento Tuesday, the power crunch imposed on the Christmas spirit. Gov. Gray Davis lit the state Christmas tree, but pulled the plug five minutes later to save energy. The 56-foot white fir was illuminated again about two and a half hours later, after the peak of the day's electrical demand.

"In some parts of California, people are going without power," Davis said. "I would love to keep the lights on. But it's important that we all pull together to reduce the strain on the grid."

California came close Tuesday to a Stage Three emergency, which would trigger rotating blackouts to prevent the entire grid from failing. There has never been a statewide Stage Three emergency.

The problem has been complicated by the fact that several of California's state's power plants are shut down for maintenance. Demand could increase later this week, as colder weather moves in.

The natural gas connection

Pacific Gas and Electric Co. customers face an average bill of $77 this December, compared with an average of $50 a year ago.

Part of the problem is a decreasing supply of natural gas nationwide, said Claudia Chandler, assistant executive director of the California Energy Commission.

Low natural gas prices over the past few years led to a decline in drilling and production. That is now picking up, but the products of those efforts will not hit the market for up to two years.

The high price of electricity and petroleum also is driving up the cost because much of the natural gas supply goes to the production of electricity.

The Associated Press and Reuters contributed to this report.

http://www.cnn.com/2000/US/12/06/cal.energy.01/index.html

-- Cave Man (caves@are.us), December 06, 2000.