EC An Expensive, Greenish Energy Strategy

Most of the U.S. has been unseasonably cold – enduring twelve consecutive days of sub-freezing highs in New Jersey while owning a home in SW Florida is your blogger’s self-inflicted wound. The pain is only slightly ameliorated by news of record natural gas consumption of over 140 Billion Cubic Feet (BCF), almost twice the annual daily average.

You’d think that would be enough to satisfy demand, but the extended cold weather has exposed gaps in New England’s energy strategy. The region’s desire to increase its use of natural gas for electricity production is not matched by enthusiasm for infrastructure to get it there. Consequently, prices reached $35 per Thousand Cubic Feet (MCF) recently, roughly ten times the benchmark. Even at that price sufficient quantities weren’t available where needed, with the consequence that burning oil was the biggest source of electricity generation during this period.

In many cases, environmentalists’ views on natural gas are self-defeating. As a replacement for coal it surely reduces harmful emissions, and the widespread switching of coal-burning power plants for gas-burning ones represents a great success for environmentalists — for all of us. U.S. electricity generation is cleaner than in Germany (see It’s Not Easy Being Green). The New England Independent System Operator (ISO) has increased natural gas usage from 15% of electricity generation in 2000 to where it’s the most used fuel (other than very recently). They correctly note that natural gas supports increased use of renewables, since wind and solar power are intermittent.

It should be a good story, except that the ISO’s increasing reliance on natural gas is opposed by environmentalists blocking the necessary additional infrastructure. In the last couple of years Kinder Morgan (KMI) and Enbridge (ENB) both cancelled projects that would have improved natural gas distribution and storage in the region. This was because of adverse court rulings, and regulations that dis-incentivize utility customers from making the necessary long term purchase commitments, without which infrastructure doesn’t get built.