Lights out on US energy policy

Aug. 15, 2003
The massive North American power outage Aug. 14 could have long-lasting repercussions for US energy policy.

Where were you when the lights went out?

If you were in much of the Northeast and Upper Midwest US and Canada Aug. 14, you might have been dealing with the thundering hordes spilling out of office buildings and stores, getting frustrated over lost productivity, and seeking relief from the August heat.

In this writer's case, the biggest blackout in North American history was a situation to observe via TV and PC while toiling away in the refrigerated comfort of one of the giant iceboxes Houstonians call homes and offices most of the year. From the vantage point of a state that has a comfortable surplus of electricity even as its millions of air conditioners work overtime in triple-digit temperatures. To observe, and to ponder what all this means for North American energy markets.

There were, in fact, immediate impacts on the petroleum industry.

For one, there was a loss of about 700,000 b/d of refining capacity in the US Midwest and Canada. Crude oil and gasoline prices rallied briefly a bit, probably in response to the temporary refinery outages. And the related shutdown of a string of nuclear power plants no doubt meant a brief surge in demand for natural gas (and probably fuel oil) in some areas, because that always happens with nuclear outages.

But these impacts were transient and minor.

Long-term impacts

Much more important are the long-term impacts rooted in how people will respond to the event. And that poses interesting possibilities for energy market watchers.

That by-now-famous newspaper photograph of thousands of New Yorkers walking en masse across the Brookyn Bridge in the sweltering August afternoon could well become the poster for a revived interest in energy policy in the US.

Within a day, Washington, DC, politicians had jumped to the fore in response to the crisis, as Washington Editor Maureen Lorenzetti details elsewhere in this issue. Some decried the lack of a coherent national energy policy. Leading the attack were those politicians most comfortable with the Bush administration's approach to energy policy, which focuses more on development of domestic energy supply than many Democrats and environmental groups would like. There was an immediate epidemic of finger-pointing as efforts were made to pinpoint exactly where the weak link was in this vast chain of electricity. Millions of Americans and Canadians suddenly became aware just how fragile the chain really is.

Especially unsettling was the fear, no doubt felt most keenly by New Yorkers, that the outage was the result of a terrorist attack. Already the post-Sept. 11, 2001, reflexive spasm of fear has become ingrained, much like Londoners during the World War II Blitz. Sudden massive power outages are no longer just inconvenient; to many now, they're terrifying. Now electricity and terrorist attack have become fused together in the American psyche. And, no doubt, that thought is not lost on the potential terrorists themselves.

It's been said that politicians can handle only two things: growth and catastrophes. One of the cornerstones of the Bush energy policy was its call for rebuilding the nation's energy infrastructure. Another was its emphasis on doing more to develop domestic energy supply. You will hear both mantras repeated often in the coming election-year months, much more so because of the Big Blackout of 2003.

If nothing else, the Aug. 14 power outage may have meant a few steps toward the demise of the NIMBY (not in my back yard) monster that is the culprit in many areas where the US energy infrastructure has become decrepit; a beast slain not soon enough.

Specifically, the crisis could spur efforts not only to expedite construction of more power capacity that the nation needs but also more capacity that the nation doesn't use except when it's needed. You can't have a cushion without extra capacity. Just ask the Saudis.

Much has been discussed about the 30 tcf natural gas economy in the US industry; some now speculate that the recent slowdown in gas-fired power plant construction will put that day off awhile. True, early signs point to underinvestment in electric transmission infrastructure, not in power generation, as the Aug.14 culprit. But a boom in transmission investment could in turn resuscitate the boom in gas-fired power generation. And we're back on track to a 30 tcf economy. Then all we have to do is find some more gas, and . . .

Wait. Now I get it.

(Author's e-mail: [email protected])

OGJ HOTLINE MARKET PULSE

Latest Prices as of Aug. 15, 2003

Some Aug. 14 data unavailable because of the power outage

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