Aesop’s Fable of The Ant and the Grasshopper
In a field one summer’s day a Grasshopper was hopping about, chirping and singing to its heart’s content. An Ant passed by, bearing along with great toil an ear of corn he was taking to the nest.
“Why not come and chat with me,” said the Grasshopper, “instead of toiling and moiling in that way?”
“I am helping to lay up food for the winter,” said the Ant, “and recommend you to do the same.”
“Why bother about winter?” said the Grasshopper; “We have got plenty of food at present.” But the Ant went on its way and continued its toil.
When the winter came the Grasshopper had no food and found itself dying of hunger – while it saw the ants distributing every day corn and grain from the stores they had collected in the summer. Then the Grasshopper knew: It is best to prepare for days of need.
Children are told this story and given the moral truth that warm summer days (good times) don’t last and wise people “make hay while the sun shines.” In the longer version of the story, the starving grasshopper begs for food from the ants and is turned away.
Today we are seeing climate alarmists in the role of grasshoppers. They presume future warming is certain and want to stop anyone from storing energy reserves. A post yesterday (NIMBY Wars) reported on west coast grasshoppers in Oregon and British Columbia acting against fossil fuel transport and storage. Today is a report on New England’s energy outlook facing the return of normal winters.
Dean Foreman wrote A Deeper Dive into New England’s Self-Imposed Pipeline Capacity Problem in Energy Tomorrow. Excerpts below with my bolds.
U.S. infrastructure promises to be a top priority for the Trump administration in 2018. In his State of American Energy keynote address, API President and CEO Jack Gerard highlighted how resistance to infrastructure development has left New Englanders with some of the highest electricity costs in the nation, particularly so through extreme winters.
In December and early January, New England’s wholesale electricity prices averaged nearly three times those of equally-frigid Chicago. Over the past four years, New England’s wholesale electricity prices averaged 24 percent higher than those in Chicago and were nearly three times more volatile.
While price volatility provides signals that are important to the efficiency of wholesale energy markets, the disproportionate rise of the region’s winter prices stems from New York’s beggar-thy-neighbor policies, which blocked planned, much needed and federally approved new pipeline capacity. Politics and policies that accentuate high and volatile natural gas and electricity prices, not only in New York but also in New England, harm consumers and undermine regional investment, jobs and competitiveness. It is high time that New York and New England take a collective and collaborative approach to solve the problems with permitting and incentives that utilities have to contract longer-term for natural gas.
In the first week of January, contrasting headlines proclaimed natural gas got bomb-cycloned in the new year with daily New York (Transco Zone 6) prices spiking as high as $140 per million BTU (MMBtu). Yet the U.S. Energy Information Administration (EIA) reduced its 2018 price forecast to $2.88/MMBtu at Henry Hub, Louisiana. The low Henry Hub price represents a major natural gas production region and liquid trading hub. By contrast, the high New York City price reflects a major natural gas production region that could have ample low-cost natural gas, except that it is stymied by a lack of effective political and regulatory mechanisms to enable responsible resource and infrastructure development.
The rise in natural gas prices has reverberated through electricity markets. For example, the chart below compares wholesale electricity prices for December through early January between Boston and equally-frigid Chicago. Chicago is amply supplied by natural gas pipelines that flow from the U.S. Gulf Coast, Appalachia, and Rockies regions plus Canada. Based on data from Bloomberg, wholesale electricity prices between Dec. 1 and Jan. 8 averaged $31.31/MWh and had a standard deviation of more than $35/MWh. By comparison, Boston’s prices averaged $85.36/MWh with a standard deviation of $67.64/MWh over the same period. New England utilities thus paid more than twice as much for electricity and experienced about twice the price volatility.
The region’s relatively high and volatile energy prices are rooted in the inadequacy of natural gas infrastructure to meet peak seasonal demand and, to a lesser extent, the long-standing shift in market incentives toward utilities’ reliance mainly on spot markets and very short-term contracts for gas. Specifically, natural gas-fired generators set the region’s electricity price about 75 percent of the time. Gas-fired power generation in the Northeast census region rose by 53 percent between 2007 and 2017, according to the EIA short-term energy outlook. Natural gas-fired generation contributed 38.6 percent of the region’s electricity in 2017, compared with 24.3 percent in 2007, and gained market share due to its abundance, low cost and efficient and clean-burning environmental properties.
However, natural gas pipeline constraints have hampered utilization at peak times. For example, ISO New England recently highlighted that four gigawatts of natural gas-fired generation capacity – 24% of the region’s gas-fired net winter capacity – was at risk of not being able to get fuel when needed. Much of the constraint is due to New York state’s blocking the Constitution and Northern Access Pipeline projects, among others.
To compensate for New York’s un-neighborly policies, ISO New England performed triage for the past five years with its Winter Reliability Program, which has been paying as much as $32 million per year for reserves of oil and liquified natural gas (LNG) as back-up fuels. Beginning this year, ISO New England will change to a Pay for Performance plan that alters how a generation resource’s capacity payments are calculated. These costly plans might not be needed if economic rationality and the overall region’s welfare were top of the New York state of mind.
New York and New England must take a collective and collaborative approach to solve the problems with permitting and incentives that utilities have to contract longer-term for natural gas. Given policy alternatives that provide positive incentives and enable investment and infrastructure development, lower prices, and lessen price volatility, it should be a dominant strategy for the region to pursue outcomes that are less risky, better facilitate market operations and ultimately provide a win for the region’s consumers and economy.
The Bigger Picture: Energy and Human Development
At Forbes, Jude Clemente adds this perspective: More Oil And Natural Gas Invalidates ‘Keep It In The Ground’ Movement
There is a destructive “keep it in the ground” movement arising from environmental groups to block oil and natural gas development and the pipelines required to transport them. The center of this is New York and the New England states, where numerous policymakers seek to artificially constrain energy supply. Yet, despite producing none themselves, their reliance on gas electricity has surged. ISO New England now gets about 50% of its power from gas, versus 10-15% a decade ago. New York sits in the same boat: gas now generates ~45% of the state’s electricity, doubling its market share since 2005.
It’s no wonder then that blocking energy development and pipelines has established home power rates in New England and New York that are at least 50% higher than the national average. Industrial rates are more than double, and encourages companies to leave the area. This is unfortunate and illogical since U.S. natural gas prices have been at historic lows.
Policies intended to reduce oil and gas consumption are dubious: even if they work in the short-term, over time they just lower oil and gas prices and encourage more usage. I’ve already clearly explained it. Oil and gas are so obviously ingrained in the U.S. and global economies, supplying over 60% of all energy. In the real world, this means that more economic growth ultimately means more oil and gas demand. That’s why year after year demand continues to grow. There is no significant substitute for oil whatsoever. And know that natural gas power plants don’t get retired with more wind and solar power, but get built even more because gas is flexible backup required.
This is also why more oil and gas pipelines are so crucial, not just the most economical way to transport energy but also the safest. The Trump administration calls for a bill that gets at least $1.5 trillion for the new infrastructure investment that our country so desperately needs. It’s safe to assume that much of that would include provisions for oil and gas infrastructure. But it’s increasingly obvious that the approval process for pipelines needs expedited, now taking an average of four years for permits to be issued.
Climatists are fixated on future warming and blaming fossil fuels, the very energy which society needs to face cold or stormy weather. It is not only New York state at fault, but also obstructionists in states like Massachusetts and Connecticut. Climate change is not the problem, it’s climate policies that threaten our collective security.