Hearthlist Digest #555 - Sunday, January 28, 2001 Re: Energy Crisis by "John Gulland" <[email protected]> energy by "Jake Hanson" <[email protected]>
(back) Subject: Re: Energy Crisis From: "John Gulland" <[email protected]> Date: Sun, 28 Jan 2001 15:13:45 -0500 The present turbulence in energy pricing and supply, if more than a = temporary blip, would be a good thing to factor into your company planning and = projection efforts. For some insight into the underlying mechanics of the mess in California and elsewhere, you might find this article by Brian Fleay = useful: http://www.gulland.ca/depletion/fleay.htm Brian Fleay's diagnosis: "The present thrust of economic development in the USA has hit an energy = supply ceiling" His prescription: "The only immediate solution for the US is to systematically reduce = consumption of electric power" Americans should not feel lonely in dealing with this problem. The rest = of the world is about to join you in falling off the fossil fuel band-wagon. = More on the big picture here: http://www.gulland.ca/depletion/depletion.htm I believe it was respected oil geologist Colin J. Campbell who said: "I am not a pessimist. I just have better information." Regards, John Gulland
(back) Subject: energy From: "Jake Hanson" <[email protected]> Date: Sun, 28 Jan 2001 15:15:00 -0500 Energy Talk at the Ax We have been blessed with some of the smartest customers around and conversations with them the last month have been very revealing. Here are their comments. This energy crisis really has deep roots. In retrospect it was predictable just like most things. The natural gas system ten years ago experienced a window of three to four months every summer when pipeline flows exceeded consumption. That allowed the filling of underground storage reservoirs, which then buffered uneven demand through the balance of the year and created steady supply and steady prices. About ten years ago we began the process of dismantling nuclear plants and stopped building coal-fired plants for environmental reasons. It made perfect sense to shift to natural gas turbines to generate power in a cleaner and more environmentally friendly way. The only problem was that year round demand for power then began to close the window in the summer for gas pipelines to fill the reservoirs. Each year the window closed a little more and this year it shut. The problem isn=92t a lack of gas it=92s a lack of delivered gas. Building infrastructure will take longer than drilling. With terrible weather we had very low flows at hydro plants and significant demand for natural gas for heating. The reservoirs that previously buffered and held prices stable were empty and spot prices skyrocketed. At the same time oil was in a relatively high price range. Because of natural gas pricing electricity also became volatile. Business and industry began to convert to propane as a cheaper source of energy to generate electricity and fuel plants. Propane naturally rose in price as demand increased. Propane shortages stressed an industry that never expected the demand from natural gas consumers. In a short two-month interval dozens of facts and assumptions became invalid. Never in twenty-eight years of selling alternative energy have we ever conceived that it would be possible to create power cheaper than grid power by running internal combustion fossil fueled engines. Today, in Missoula, Stone Container is burning 16,000 gallons of diesel a day in leased Caterpillar gensets and saving $80,000.00 a day. A number of businesses have found it more profitable to close shop and sell their power contracts on the open market. In all our years we would have thought it insane for a natural gas customer to switch to propane. Industry is doing it at breakneck speed. The Hearth Products industry announced the death of wood pellet stoves three years ago and most major manufacturers discontinued them. In a short three months this product has risen like Lazarus from the grave and dominates discussions in the hearth products industry. Ironically 2001 is bringing the paradigm shifts many expected from the year 2000. As one good friend so succinctly put it =96 Atlas shrugged. BPA entered into seven long-term low cost contracts a few years ago. Three of those utilities are western Montana utilities who are banking on ten years of 4 to 5 cent/KW power while the rest of the world is paying 50 cents/KW at the spot rate. There are already attorneys researching the =93fairness=94 of below cost sales and trying to set aside those contracts. In this supercharged atmosphere anything is possible. What is deregulations role in this drama? Will un-deregulating help ? Regulation was designed to guarantee a reasonable profit to utilities for their actual investment and costs incurred. It always allowed prices increases in response to cost increases. Residential consumers in Montana are not insulated from the actual increased cost of BPA power and they never can be. Deregulation does allows price gouging and profiteering but it did not create the crisis that it is profiting from. One problem in trying to go backwards in regulation is that MPC=92s sale of assets has capitalized the value of easements and intangibles that MPC didn=92t pay for themselves. MPC basis for rate purposes was much less than the new buyers basis would be because they paid for a huge accumulation of increased values. BPA announced on 1/25/01 that we could expect a minimum 60% rate hike in the next five years. They obviously aren=92t counting on a quick fix. How will this witches brew manifest itself in western Montana=92s economy? Both of Montana=92s two large concrete plants have been shut down due to fuel costs. Refineries are operating at reduced rates due to fuel costs. A number of Montana industries have announced curtailments and some of those curtailments have started to look more permanent than temporary. Columbia Falls Aluminum will be shut down the entire year of 2001. They are going to pay their employees full salary, give 60 million dollars back to BPA, and still build a nest egg of savings by allowing BPA to resell the power they are contracted for in the year 2001. If they have a deal like this cut for the entire year does anyone really think this problem will be over soon? Snow pack is 30% below last year=92s level throughout western Montana and forecasters do not expect relief. If this year is drier than last year what is the potential for fires this summer? We still have 98% of the forest left. Loggers are finally hard at work again cleaning up last year=92s burn. By March the final provisions of NAFTA will be in effect and predictions are for a flood of cheap Canadian forest products to hit the US market. US wood pellet producers would seem to be in the best position for years. Demand for fuel is rising fast as consumer=92s switch in mass to pellet heat. Three problems remain on the horizon for pellet producers. First there is a lot of energy used in the production of pellet fuel. One regional mill idled their plant in December when spot natural gas rates would have made their finished costs $249.00/ton. This is fuel with a going wholesale of $95.00/ton. They are now in the process of converting that plant to burn waste oil to try to get costs back in line. The second factor is the demise of sawmills that has forced many pellet producers to truck raw materials from surviving mills. They also compete with industrial hog fuel burners for the price of that material and we know those users will be willing to pay more as they view there alternatives. The last potential problem is the Canadian equation. They have ample low cost energy, abundant raw materials, government help, and NAFTA. That could spell tough competition. Where is the opportunity? Wood stoves and chimneys will recover in rural areas. Pellet stoves will continue to boom in the East and more urban areas. Fuel availability will be the limiting factor. Waste Oil as a business and commercial fuel will be the bargain. Ask about our Kagi waste oil furnaces =96 almost free heat! Standby generator sales should be brisk this year with the probability of actually using them increasing. Oh, and don=92t forget the fire fighting pumps! Guy [email protected] 406-543-5316 fax _________________________________________________________________ Get your FREE download of MSN Explorer at http://explorer.msn.com