Will a Gulf in Energy Services Become the Next Digital Divide?

by Bob Shively, Enerdynamics President and Lead Instructor

Concerns over the Digital Divide are widespread. As described by Internet World Stats:

“The Digital Divide, or the digital split, is a social issue referring to the differing amount ofiStock_000016130151_Large information between those who have access to the Internet (especially broadband access) and those who do not have access.”[1]

Similarly, significant attention has been paid to the lack of access to reliable grid power in certain regions of the world. [2] But here in the United States, another divide may be coming — the gulf between energy services available in competitive retail markets as compared to utility services available in markets where the utility company is the only retail provider.

There was a time when phone service — local, long distance, and hardware — was provided by the Bell Service monopoly, colloquially known as “Ma Bell.” Imagine if today’s smart phones, texting, apps, and other services we depend on were all delivered by just one regulated monopoly company. Would such choices and “extras” even exist? Now look at this map showing where competitive electric retail services are open to customers in the United States and Canada:

To all of you living in blue areas on the map, will you soon feel like a 20th century Ma Bell customer surrounded by states and provinces with 21st century technology and services?

But, you might argue, electricity is electricity and all that matters is price and basic reliability, right? Wrong. Already electric retailers in some states are offering various interesting services to entice and better serve customers. Examples include:

  • Direct Energy offers various rewards programs to their customers
  • Comcast and NRG’s Energy Plus retailers are concluding a test program in Pittsburgh that bundles services such as cable TV, electricity, and home automation with perks like free HBO or Showtime and free gift cards for signing up
  • NRG offers eVgo, which provides various electric vehicle charging services to residential and business customers
  • Numerous retailers in the Northeast offer demand-response related programs
  • Green Mountain Energy offers various renewable programs including solar installation, buy-back of excess solar generation, and solar community projects with bill credits

Over the next decade, the potential for more sophisticated services is likely to explode. We have started to see this as both utilities and retailers are creating services around Google’s Nest thermostat. Soon our homes will be inhabited by the “Internet of Things,” meaning that almost all our device and appliances will be connected.

According to the website DataFloq.com the number of smart devices on the planet will increase from two billion in 2006 to 200 billion by 2020. This is equivalent to 26 smart devices for every person on the planet![3]

Electricity’s future may lie in smart devices each bidding to buy power from a competitive marketplace only when the form of power one desires is available. That might be low-priced power, green power, or some other product related to what one personally values. And it is likely that the future will offer ways to increase efficiency that will result in many new ways of using electricity with little impact on one’s total monthly bill.

Of course, utilities can offer such services, too. But with no profit motivation, the often stifling effect of regulation, and the lack of competition to drive innovation, it is hard to imagine how utilities will keep pace. Perhaps the utilities will find a way to open their systems to third-party service providers without giving up the supply function, but this seems much harder than simply having open retail competition.

So the question remains, will we soon see a new push for retail competition, or will we simply become a country with a wide gulf in energy service availability?


Footnotes:

[1] The Digital Divide, ICT and the 50×15 Initiative, http://www.internetworldstats.com/links10.htm

[2] Modern Energy for All, http://www.worldenergyoutlook.org/resources/energydevelopment/

[3] See https://datafloq.com/read/internet-of-things-will-make-our-world-smart-infographic/302

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Shale Gas Roils Gas Markets

by Bob Shively, Enerdynamics President and Lead Instructor

If there’s one thing certain about natural gas markets it’s that they are always subject to change. In the last decade, the shift in the U.S. supply-and-demand mix with the influx of screen_marketsshale gas has been widely discussed. But less discussed is how the locational change in gas production is fundamentally altering the gas marketplace. Let’s explore this transformation and some of its key impacts.

As noted in a recent Reuters article[1], Henry Hub trading volumes on the Intercontinental Exchange (ICE) have shrunk by 70% in the last five years while trading in regional hubs has grown significantly. Notable changes include:

  • Trading in the Dominion South Hub, the largest hub in the Marcellus shale gas region, is now almost double the Henry Hub volume. This reflects changes in gas production.
  • Gulf of Mexico production has shrunk from 20% to 4% of U.S. production.
  • Production in the Marcellus region has risen to 20% of U.S. production and is expected to continue its growth this winter.

As is expected, such shifts are causing fundamental changes to the gas marketplace:

  • Gas flows are dramatically evolving. The mid-Atlantic and Northeast states were traditionally fed mainly by Gulf supply with additional supplies from Canada. This winter, production from the Marcellus region is expected to be sufficient to serve all of Pennsylvania, West Virginia, New York, New Jersey, Delaware, Maryland, and Virginia demand.
  • Gas prices in the mid-Atlantic and Northeast states have dropped dramatically and are likely to remain low except during very high-demand days when pipeline capacity is insufficient. The long suffering consumers in these regions may suddenly become favored.
  • For many regions, it no longer makes sense to price or hedge off Henry Hub since prices are being driven by local production relative to local demand. Perhaps Henry Hub will no longer be viewed as the continental pricing point.
  • Gas pipeline construction is racing ahead to move gas from the Marcellus region to other markets, including moving gas south to Henry Hub and the Southeast. Henry Hub appears poised for another gas price battle between supplies from the Marcellus, Permian, Anadarko, Barnett, and Gulf regions. In the short term, prices may fall well below the recent $4 averages.
  • Low prices will boost ongoing demand growth with additional gas-fired power generation, large industrial facilities, and LNG export projects.

What does this mean for the longer term? One scenario is that producers — hit by low gas prices and maybe also low oil prices — will dramatically cut back drilling and exploration. Then, later in the decade just as all the new demand projects come on line, production could drop and lead to a significant price increase. This would be similar to the numerous boom-bust cycles I have seen in my 30 years in the energy business. Whether shale production will make it different this time remains to be seen.


Footnotes: 

[1] See Henry Hub, King of U.S. Natural Gas Trade, Losing Crown to Marcellus, September 25, 2014.

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Energy Infographics for You to Use and Share

By John Ferrare, Enerdynamics CEO

Happy New Year from Enerdynamics! As we look ahead to 2015, we are excited to continue the momentum that our online training products and custom in-house energy seminars enjoyed in 2014.

We are always looking for new and easier ways to help make the often-complex world of electricity and natural gas more understandable. For example, our design team has experimented with creating energy infographics (see, for example, our Q3 2013 issue of Energy Insider). The positive response from the few infographics we’ve produced has sparked us to create and incorporate more infographics into our training materials and presentations. Our latest infographic shows U.S. energy consumption by source and sector:

We invite you to use this free infographic in your own educational or training materials, presentations, or newsletters and simply ask you include Enerdynamics’ logo as it appears in the original file. Download the infographic now.

We appreciate your readership, and invite you to contact us anytime at jferrare@enerdynamics.com or 866-765-5432 ext. 700 if you have a question or want to discuss your energy-related training needs.

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Will the Party for Natural Gas Consumers Continue?

by Bob Shively, Enerdynamics President and Lead Instructor 

They say a picture, or in this case a graph, is worth a thousand words. Take a look at the change in U.S. natural gas reserves:

gas reserves in tcfSource: EIA.gov

Without looking at it, it is hard to imagine the flabbergasting growth in U.S. natural gas reserves in the last five years. And, even more amazing, this growth has occurred in a time of falling prices.

wellhead price in $ per MMBtu

Source: EIA.gov

It’s common industry knowledge that this situation is a result of the dramatic impact of shale gas resource development driven by new hydraulic fracturing (a.k.a. fracking) techniques. This has created significant benefit for consumers of  natural gas and electricity as lower gas prices have driven down electric generation costs.

So can the party continue? Or will the seemingly inevitable bust hit the markets? Let’s consider a few fundamental factors:

1. Will demand grow enough to suck up the excess supply resulting in price increases?Growing power plant demand seems certain, and, with a number of large industrial facilities under construction, growing industrial demand also seems likely. And liquefied natural gas (LNG) exports will soon become reality. This could be enough to change the supply/demand balance. Here is the current Energy Information Administration (EIA) forecast for U.S. natural gas demand net of imports/exports:

US natural gas demand net of imports and exports in Tcf
Source: EIA.gov

This shows steadily increasing demand over time, which, if the forecast is correct, suggests that prices should rise. But there is nothing here to show demand growing with anywhere near the dramatic increase we have seen in reserves. So while this might move prices up a bit, it seems it should not result in huge price increases like we saw in the mid to late 2000s.

2. Can producers restrict production by reducing drilling (i.e. leave reserves in the ground) thus causing prices to rise? To address this question, look at this graph from the EIA website that plots the monthly number of natural gas rigs in operation:


rotary rigs in operation

 

We see a graph that should look hopeful for producers seeking higher prices since the number of rigs has fallen significantly. But then we realize that gas is often found in conjunction with oil and the number of oil rigs has increased dramatically:

 

crude oil rotary rigs in operation

 

And the fact remains that most producers need cash flow, so there is only so much they can do to restrict supply.

Given these facts, it is hard to see the party for gas consumers ending at least in the near-term. But, as we all know, the gas industry has been boom-bust for many years, and there may be unexpected twists lying in wait.

 

 

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Will the Actions of Six Countries Determine the Future of Carbon Emissions?

by Bob Shively, Enerdynamics President and Lead Instructor 

In a 2010 article in Wired Magazine, then Secretary of the Department of Energy Stephen Chu suggested that for the world to make progress on carbon emissions, it was most important to create a deal between China and the U.S. Once that occurred, Chu believed that other nations would follow suit[1].  Recently China and the U.S. did announce an agreement on reducing carbon emissions[2], although further action will be required to move to the strong agreements envisioned by Chu.

Since 60% of the world’s carbon emissions come from just six countries, we thought it would be useful to take a look at these countries and see where the possibilities may lie for future carbon emissions[3].

2013 global carbon emissions 1

2013 global carbon emissions 2

Let’s take a quick look on what each country is doing:

China: According to the International Energy Agency, China is expected to double emissions by 2040. But in the recent agreement with the U.S., China agreed to halt growth of carbon emissions by 2030 and has begun to discuss a cap on the total amount of coal power in the country. It is implementing pilot carbon cap-and-trade programs in limited regions and also is the largest developer of renewable and nuclear power in the world.

United States: The U.S. is on pace to meet the Obama administration pledge to reduce emissions from 2005 levels by 17% by 2020. It is committed in the China deal to cut 26-28% from 2005 levels by 2025.  Actions for the U.S. to achieve targets are likely to meet strong opposition in the new Congress. Cap-and-trade programs are being implemented in California and nine Northeast states.

 India: Emissions in India are expected to double by 2030, but the country has made a voluntary commitment to cut emissions by 20-25% relative to 2005 output with targets adjusted relative to economic growth.

Russia: Has reduced emissions relative to 1990 by 35% due to decline in economic activity since the fall of the Soviet Union.  Has plans for enhancing energy efficiency.  Emissions are likely to grow in the future.

Japan: Initial more aggressive plans to reduce emissions were stalled by the loss of nuclear power following the 2011 Fukushima disaster. Japan recently announced a goal to trim emissions 3.8% from 2005 levels by 2020, and it implemented a carbon tax in 2012.

 Germany: Relative to 1990 levels, Germany has reduced carbon emissions by about 25% with a goal to reduce these by 40% by 2020. But emissions have recently started to increase due to substitution of coal for shuttered nuclear units. Germany participates in the European Union Emissions Trading Scheme.

The world will get additional insight into where these six countries are going with carbon emissions during the U.N. Climate Change Conference to be held in Paris in December 2015.

Footnotes:

[1] http://www.wired.com/2010/04/ff_stevenchu/

[2] http://www.scientificamerican.com/article/everything-you-need-to-know-about-the-u-s-china-climate-change-agreement/

[3] See http://www.huffingtonpost.com/2014/12/05/a-handful-of-countries-co_n_6274064.html for more discussion

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Midwest States Respond to Change in Electric Deregulation Environment

By Bill Malcolm*, Guest Author

Are we beginning to see states backtrack on competitive electric markets, or are we simply in a period of transition? Developments in the complex 15-year history of electric deregulation in states like Ohio continue to unfold. future and past

The most recent changes have been sparked by:

  • falling or flat power demands
  • low-cost wind and natural gas power plants becoming a more viable option than traditional coal and nuclear plants
  • low wholesale power prices
  • a recognition of more stable (and lucrative) returns in the regulated sector of the electric industry

Let’s look at Ohio’s approach to the changing industry landscape:

FirstEnergy filed a plan requiring ratepayers — even those buying from another supplier — to pay for power from some of its deregulated generation plants. In Ohio in early August, FirstEnergy filed an Electric Security Plan (ESP) (Case 14-1297-EL-SSO) that would establish electric rates for customers from June 1, 2016 through May 31, 2019.  

As part of the filing, the company proposed its 15-year economic stability plan called “Powering Ohio’s Progress.” The company said in a press release that the proposed plan will freeze distribution rates while helping keep “critical base load power plants available to serve Ohio customers.”

The program entails a purchased power agreement among the Davis-Besse Nuclear Power Station in Oak Harbor, Ohio; W.H. Sammis Plant in Stratton, Ohio; and Ohio Valley Electric Corporation (OVEC) units in Gallipolis, Ohio, and Madison, Ind. 

FirstEnergy’s Ohio utilities would purchase the output of these (deregulated) facilities and sell it into the wholesale energy and capacity markets. As power prices increase as projected over time, proceeds from the market sales that exceed costs from the purchased power agreement will be applied as credits on retail customers’ electric bills to mitigate volatility and address rising retail prices.  

First Energy told media sources that the plan ensures reliability by keeping large coal and nuclear plants in Ohio running and will provide $1 billion in statewide economic benefits with 3,000 direct and indirect jobs. Critics charge the company has already been compensated for the stranded cost of its generation.

 Stated Scott Gerfen, Ohio Consumers Counsel spokesperson:

 “1.9 million consumers paid billions of dollars to FirstEnergy for its transition to deregulated power plants, under a 1999 Ohio law. Fifteen years later, FirstEnergy is again asking consumers to pay charges related to the power plants. FirstEnergy’s requests include asking the government (the PUCO) to guarantee profits for what are deregulated power plants whose profits should instead be determined by the electricity market. Needless to say, we are concerned for consumers…”

 The Sierra Club’s Dan Sawmiller agreed and criticized similar requests from Duke and AEP: 

“These proposals from Ohio’s utilities are nothing more than a request to have Ohio’s electricity customers spend their money to bail out dirty old, obsolete power plants. These power plants are expensive and are being replaced in the market by cheaper, cleaner sources of generation, and we should not bail these corporations out now that they are unable to compete.”  

It is hoped that these new developments will help states like Ohio avoid scenarios similar to that in Wisconsin when Dominion closed the Kewaunee nuclear plant (which had just been re-licensed) due to economic pressures. 

Needless to say, the deregulation story continues to evolve, and recent developments in Midwest states like Ohio are an interesting and ongoing chapter worth following.

*About the author: Bill Malcolm is an Indianapolis-based energy and transit analyst who has worked in the energy industry since 1977. He worked at Seattle City Light (as an intern), Pacific Power, PG&E, and ANR Pipeline. He was one of the first employees of MISO, the nation’s first FERC-approved RTO, where he helped create the state regulatory relations program. For the last two years he has written the Commission Corner column for The Cruthirds Report, a Houston-based energy newsletter. He is also the editor of All Aboard Indiana. He can be reached at billmalcolm@gmail.com.

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Federal Measures Taken to Increase Pipeline Safety Post-San Bruno

by Christina Nagy-McKenna, Enerdynamics Instructor

Pipeline safety is a growing concern and top priority for all sectors of the natural gas industry (upstream, midstream, downstream, and additional stakeholders). As discussed Safetyin my last post, Pipeline Safety: Top Concern for All Segments of Natural Gas Industry, the tragic 2010 rupture of PG&E’s gas transmission Line 132 in San Bruno, Calif., instigated numerous changes in California in relation to pipeline safety. But what about on a federal level? Certainly pipeline safety is a national concern with  2.6 million miles of gas and liquid transportation pipelines in the U.S. (93 percent of which are used to transport natural gas).

Three years ago, federal regulators also took action in response to the San Bruno explosion. U.S. Transportation Secretary Ray Lahood together with the PHMSA issued a “Call to Action” to the regulatory agencies and natural gas pipeline operators to step up the repair and replacement of infrastructure that is considered highest-risk.

At the same time that the California Public Utilities Commission (CPUC) strengthened rules in California, Congress passed the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011, which was signed by the President in January 2012. Among its objectives, the Act:

  • reauthorized the Department of Transportation Pipeline and Hazardous Materials Safety Administration’s (PHMSA) federal pipeline safety programs through 2015
  • strengthened safety regulations
  • increased civil penalties for violations
  • provided for follow-up surveys and reports on safety concerns including the management and replacement of cast iron natural gas pipelines 

Despite the new regulations, tragic incidents continue to occur. In March of this year, a gas leak and subsequent explosion leveled two tenements in Harlem and took the lives of eight people. The investigation of this accident is ongoing, but residents reported smelling gas in the days prior to the explosion, and the gas main line to the tenement was an old cast iron pipe – again raising questions about aging infrastructure. 

During 2005-2013 approximately 2.5 percent of the gas distribution mains in the U.S. were made of cast iron, but 10.5 percent of incidents on gas distribution mains involved cast iron mains. And, in proportion to overall cast iron main mileage, the rate of incidents on cast iron main lines was more than four times that of mains made of other materials.

In February natural gas was the cause of an explosion in Chicago, which injured two women, as well as a fire in Kentucky that injured two people and destroyed two homes. Thus far in 2014, PHMSA, the agency that oversees pipeline safety in the United States,  has recorded 73 incidents on gas transmission systems, and 62 occurrences on gas distribution systems.  These events have resulted in 14 fatalities and 78 injuries. Data for recent years are equally grim: A five-year average from 2009 to 2013 for fatalities on the gas transmission system is two while on the gas distribution system it is 10. 

Thus, it is not surprising that the natural gas industry’s top concern is safety. While there have been fewer gas distribution incidents in the past two years, the number of injuries and fatalities is still high. Additionally, the number of gas transmission accidents has not diminished since 2009. While the investigation of the accident in Harlem is ongoing, it is clear that the industry needs to accelerate maintenance and replacement of infrastructure that is old and, in some cases, simply obsolete in technology and engineering.

For example, during 2005-2013 approximately 2.5 percent of the gas distribution mains in the U.S. were made of cast iron, but 10.5 percent of incidents on gas distribution mains involved cast iron mains. And, in proportion to overall cast iron main mileage, the rate of incidents on cast iron main lines was more than four times that of mains made of other materials.

Since San Bruno, many positive steps have been taken to increase pipeline safety. However, given the slow rate of reduction of actual number of annual incidents and steady aging of the U.S. natural gas pipeline system, it is clear the industry still has a great deal of work ahead.

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