ENERGY CRISIS 2001

By: Paul M. Feine

E&P/FACS NewsBackgrounder


When the term “energy crisis” was coined in 1973, members of the media were caught in an unenviable situation: their public, and their editors, were demanding reliable information about energy in general and about the impact of the Arab oil embargo in particular. Few journalists had the requisite background, contacts, or experience to put the energy situation in a useful context for their readers. The result was extensive confusion – and the spread of partial information at best and erroneous information at worst.

Reporters learned quickly how to separate scare tactics from concrete data about the production, use, regulation, and economics of energy. Many of those same reporters were still on the energy beat six years later when the second energy crisis hit, and the quality of reporting in 1979 was noticeably more informative than it had been in 1973.

Now, as the United States faces yet another energy crisis, a new generation of reporters needs to be brought up to speed quickly on what the energy business is all about, and how they can do their jobs efficiently, effectively, and completely. Today, reporters are challenged by editors to come up with stories that provide a unique take on the generic concept of the “energy crisis.”

The rapid escalation of prices for natural gas, oil, and electric power has focused public attention on the nation’s energy supplies, their security, and why they cost what they do. The task for reporters is to take the facts surrounding an immediate story, for instance this winter’s significant increases in energy costs faced by homeowners, and put them in context with the national and international energy picture. The goal is to inform readerships about how energy gets from its source to the point of use, and what is involved in that process.

This winter, two energy commodities have taken center stage in the public perception: natural gas and electric power. The most common questions among consumers are: “Why is my gas (or power) bill so high?” and “Why has it gone up so much?” In the case of the recent aberrations that have affected the California electric-power market and, equally important, the public perceptions that have accompanied the price increases there, the easy answer is neither the right one nor the most informative.

Historically, when bad economic news occurs, the public is tempted to shoot the messenger instead of seeking out the real, and often complicated, reasons involved. This syndrome is evident in statements attributed to politicians and consumers in this latest manifestation of the ongoing “energy crisis.”

Who deserves blame for the California power crisis? Is it the electric utility industry, or the federal government, or state officials, or the public itself? The flip answer is “Yes.” The more comprehensive answer is that there is more than enough “blame” for the current electric-power problems, in California and elsewhere, to go around.

Power generation

A thorough understanding of how electric power is generated and eventually supplied to industries, commercial establishments, and homes requires a basic knowledge of what actually goes into the generation, transmission, and distribution of power, as well as the economics involved in each of those steps.

To begin with, electric utilities typically operate as state-regulated monopolies, under the jurisdiction of regulatory commissions in each state and the District of Columbia. These bodies establish rates for providing electric power or natural gas to consumers at “just and reasonable” levels.

The utilities themselves, in exchange for their exclusive franchises to distribute energy in specific areas, agree to provide that service reliably and in accordance with the rules of state regulatory bodies. These relationships have been in place for much of the past century.

Consumers often feel that they have a “right” to receive electricity, natural gas, fuel oil, gasoline, coal, or any other energy-oriented commodity at low cost. To most of them, that means a cost sufficiently low that it does not adversely affect their other purchasing decisions. With rare exceptions, few consumers have a realistic idea of what it takes to find and produce energy and supply it to them. As a result, many people believe that energy in all its forms occurs naturally, and thus must be inexpensive to provide.

Little thought is given to what it costs to make energy available. Electric wires are seen occasionally, but natural-gas pipelines and mains are almost entirely unseen, as are oil pipelines. As a result, the public largely believes, erroneously, that energy more or less appears at their point of use, with scant understanding of the chain of delivery that brings a gallon of gasoline, a kilowatt-hour of power, or a cubic foot of gas to their homes and vehicles for use.

The historical development of the U.S. energy economy and its current state are difficult to understand comprehensively even for highly trained and well-intentioned policy-makers. Recurrent calls by politicians for strict regulation of the energy industries exhibit a disregard for the basic laws of supply-and-demand economics. In essence, if producers of anything, energy included, can supply their product to willing buyers and make a reasonable profit, they will do so. If not, they won’t.

The road to here

In the aftermath of the 1973 and 1979 energy crises, oil prices trended downward in real terms, and the public was lulled into complacency. “Gas lines” disappeared, and it was easy and convenient to “fill ‘er up.”

Producers of natural gas began to explore for gas in newer areas, often at higher cost than production in more traditional areas such as Texas and Louisiana. Simultaneously, new technologies improved the efficiency of gas use. Environmental concerns increased interest in the use of gas, based on that fuel’s “clean” image and its largely invisible delivery system.

As gas became more popular and gas use became more efficient economically, electric utilities turned increasingly to gas for power generation. New, highly efficient gas turbines were developed by major turbine manufacturers, and gas steadily increased its penetration of the power generation market.

A number of factors have come together to magnify the problems facing the U.S. energy industries today. Among these are a rapid increase in demand for energy commodities, a not-so-rapid increase in production of energy from new sources (given the lead times needed to develop new production), a rapid rise in the price of natural gas and petroleum (and a coming rapid escalation of residential consumer bills), a rapid and continuing increase in the popularity of new gas-fired electric-power-generating facilities, and a rapid proliferation of environmental rules affecting the use of some energy commodities and the relative importance of others.

The combination has set the stage for the next energy crisis. This winter has already seen critical shortages of electric power in California, followed by federal intervention to force utilities to continue supplying energy even if they lose money by doing so. The Golden State’s major electric utilities have moved closer to bankruptcy, caught between extraordinarily high costs and slow reaction by state regulators to the incipient crisis.

Meanwhile, the costs of natural gas on the spot market have risen to record levels, just as traditional electric utilities and independent power producers turn increasingly to gas as a generating fuel.

What can be done – and when?

New drilling for natural gas and oil increased dramatically last year, with new gas wells in particular hitting record levels. Consumers reading this news tend to believe that more gas should be available quickly, without taking into account the fact that a gas well drilled may not be ready to sell gas into the interstate pipeline system for as long as two years.

New gas-fired combustion turbines and combined-cycle units make more efficient use of gas, and can be constructed more quickly than large-scale centralized power plants, but even they take as long as two years to site and build. Development of technologies to enhance the use of energy has improved, but incrementally, with dramatic new efficiencies unlikely in the immediate future. The prospects for getting “more bang for the buck” are good in the long term, but not in the near term.

Problems over the long haul

The use of coal, the most abundant U.S. energy resource, continues to be frustrated by the fuel’s “dirty” image and the fact that large coal-fired plants are difficult to site in many areas. Although coal can now be burned more cleanly than in the past, public resistance to the use of coal continues, and coal transportation from mine to generating plant is highly visible on the landscape.

Imports of oil and natural gas carry with them the implicit risk of supply cutoffs reminiscent of the embargoes of the 1970s, with the attendant risks for national security. These risks have been tempered in the intervening years by a greater proliferation of supply sources, but they will persist for the foreseeable future, as the United States remains dependent on other countries for a large share of its energy needs.

Governments at the federal and state level are institutionally incapable of rapid reaction to quick changes in economic conditions. The current California situation is a prime example. Past regulatory processes did not keep pace with the changing nature of the power and natural-gas businesses, and are unable to adapt quickly to the needs of the energy marketplace.

Problems over the short haul

For this winter, the most immediate problem is the inevitability of dramatically higher energy costs for U.S. consumers. The vast majority of the public does not understand the economics of energy supply and demand, and is likely to blame the energy industries for the situation.

Political bodies – such as state and federal legislatures and, to a lesser extent, regulatory authorities – are by their nature susceptible to public opinion and perceptions. If the public clamors for regressive “re-regulation” of energy companies, politicians are likely to respond with what they believe will give the public what it appears to want in the near term, regardless of the long-term implications.

The challenge for journalists

Providing accurate yet concise information on the current energy situation and its likely future course can be a daunting task for reporters working under tight deadlines and trying to develop a specialized perspective that will appeal to their readerships. Perhaps the biggest challenge is to separate accurate and useful information from the wealth of misinformation propounded by many groups.

The best course for a journalist who wants to achieve balance and accuracy in an article or broadcast report is to take “facts” presented by all sides with the proverbial grain of salt. If a piece of information looks too good or too bad to be true, it may be exactly that and worth checking before it is used. As with most such instances, the best journalism involves considering all points of view regarding any issue and deciding which have the best supporting data from reliable experts.

The energy situation will generate increasing interest to the public for some time. Giving the public the best and most understandable information on that subject can bring credit to any news organization and its reporters.



Paul M. Feine, energy editor for FACSNET (http://www.facsnet.org),
is associate editor of Electricity Daily, a fax news service.
He also has written for The Oil Daily, The Energy Daily,
Natural Gas Week, Electricity Journal, and Coal Industry
News, as well as the Financial Times.



Copyright 2001, Editor & Publisher.

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