Sunday, January 20, 2008

How the coming home heating crisis could threaten the grid

Canadians think about heat a lot more than most people do for obvious reasons. And, since so many Canadians rely on natural gas to heat their homes, assuring adequate supplies of the stuff is understandably critical to them. This fact was highlighted on a recent trip to Canada where I met with members of Post Carbon Toronto who detailed their concerns about natural gas supplies in North America, concerns which the Canadian government, their fellow Canadians and the largest importer of Canadian natural gas, the United States, seem only too happy to ignore.

The crux of the matter is that North American natural gas production has been stuck on a plateau fluctuating between 26 and 27 trillion cubic feet of production annually since 1998. But, it's not for lack of trying. From a low in early 1999 of 397 active gas drilling rigs in Canada and the United States combined, the count has vaulted to 1,753 active gas rigs for the week just ended. And, the high rig count is not just a recent phenomenon. Combined gas rig counts first reached 1,000 in the year 2000 and fluctuated between about 700 and 1,300 from then until mid-2005. At that point they broke through the 1,300 level and never looked back. The simple fact is that natural gas in North America is getting harder to find; and when we do find it, it is coming in smaller quantities that flow at slower rates than in the past. That's why we are having to drill so many wells just to run in place.

All of this might not seem so desperate were it not all but certain that at some point natural gas production will start to fall, perhaps precipitously so. Oil fields over their lifetime generally exhibit gradually rising and falling production which looks like a bell curve on a graph. However, gas fields quickly reach a plateau in production (usually determined by what a pipeline can carry), remain on the plateau for a time, and then fall off very quickly once the decline starts. The plateau pattern is followed by what can only be described as a cliff.

(Even before gas production begins to fall, North America's limited natural gas storage capacity could result in a winter heating crisis. Natural gas is now extensively used to generate electricity for which demand peaks during the air conditioning season. Therefore, it is conceivable that a hot summer followed by an unusually cold winter could bring storage down to dangerously low levels. Another peril is a strong hurricane in the Gulf of Mexico that does extensive damage to the natural gas infrastructure there.)

Resource economist Douglas Reynolds, a specialist on North American natural gas, has told me that once the natural gas decline begins, he expects a 5 percent per year drop-off in total production. Reynolds believes such a drop could begin as soon as this year. While imports of liquid natural gas (LNG) could ease the situation, the U. S. currently has only five such ports, and Canada does not anticipate opening any until 2011.

The members of Post Carbon Toronto have little faith that LNG will come fast enough and in quantities large enough to make much of a difference. (For why, see my piece entitled "If we build it, will they come?") And, planned pipelines from Alaska and northern Canada will not arrive anytime soon. So, the question, of course, is this: What will people who rely on natural gas for home heating--and that includes a huge number of people in the United States--do when the crisis hits?

One Post Carbon Toronto member feels certain that they will turn to electricity in a big way to heat their homes. The main problem will not be that natural gas is unavailable since home heating will get first priority (even if it means businesses and public buildings must be shut down). The main problem will be the skyrocketing price of natural gas. In a scramble to find affordable heat, people will turn to the grid via electric space heaters. Those who can will turn to wood. But in large cities such as Toronto (and Chicago and Detroit and Cleveland, for that matter) it will not be practical to do this because most homes do not have wood stoves and because supplies of firewood will be limited. And, although kerosene heaters will certainly be available, kerosene is a petroleum derivative and therefore may not ultimately be any cheaper to heat with than natural gas. Beyond this many apartment and high-rise dwellers will find that building rules or local ordinances prohibit the use of kerosene heaters in their units. All of this points to electricity as a backstop for cash-strapped Canadians and Americans faced with a natural gas shortage in winter.

So, this raises a second question: Will there be enough electricity for all those who want it? The short answer from Toronto is "no." Based on my admittedly rough calculations for the United States, the answer may be "no" here as well. If Americans who heat with natural gas substituted electricity for a mere quarter of their home heating, they would add about 6 percent to total electrical demand. Doesn't sound like much, does it? However, that 6 percent would not be added continuously throughout the year, but concentrated in the coldest months. That could cause a pronounced spike in demand, especially during deep freezes. Add to this the fact that about 20 percent of U. S. electricity is generated from natural gas-fired power plants that will be competing with homeowners for the same dwindling supplies of natural gas.

Right now the American electrical grid has about a 16 percent excess capacity margin. With all the additional demand coming during the winter and with supplies for natural-gas power plants in jeopardy as well, it seems plausible that my rather modest scenario could result in problems for the electrical grid. Keep in mind that this example involves replacing only a modest portion of home heating for homes warmed by natural gas. It takes into account neither the actions of those who own businesses or commercial buildings, nor the actions of homeowners who have gas appliances other than furnaces such as stoves and clothes dryers.

The likely response of the electric utilities, according to my informed Torontonian, will be to raise rates drastically to curtail electric use. Unless they can get some people to turn off their electric heaters, the utilities will risk major power outages and possibly damage to the grid. While rate rises in the middle of winter levied on a desperately cold population will probably not go down well with the public or their elected officials, it may be the only way in the short run to curtail demand and protect the grid.

Given that neither the U. S. nor the Canadian government seems to understand the seriousness of the natural gas predicament in North America, it is no surprise that they haven't thought through the implications for electrical demand once a crisis hits. While the probability of running low on natural gas by itself ought to scare the two governments into instituting emergency conservation programs, the possibility that the electricity might go out in mid-winter at the same time ought to positively terrify them.

Unfortunately, given the current inaction on both sides of the border, this horror movie may soon be coming to a town near you--or possibly even to your own town.

17 comments:

Anonymous said...

I'm simply not able to process this completely. Something in me says, "this can't be, it doesn't compute."

How can it be?

You're telling me that you, Mr Cobb, know of this natural gas crisis, but that either the government doesn't know it, or it doesn't care about it, or it isn't telling us what it knows about it?

How can things be this dysfunctional?

I have family in the Midwest who live entirely dependent on N.G. for EVERYTHING: heating, cooking, hot water, electricity, driers.

But I'm afraid to send this column out to them. I'll just look like a kook to them.

If this is true, WTF are we supposed to DO?

Mike.

Kurt Cobb said...

Mike,

There is some indication that the Federal Energy Regulatory Commission has an inkling of the situation since it is trying to enlarge underground storage for natural gas in the United States. But this is hardly a permanent solution. You can't store what you don't extract!

Just so you don't have to take my word for it that we face such a crisis, you need only go to the U. S. Energy Information Agency site and look up North American production since 1998. It's a nice, virtually flat plateau. Also, Julian Darley has written a whole book about it called "High Noon for Natural Gas" which deals with the approaching worldwide peak in natural gas though I think that peak is a bit further off than Darley indicates.

As to why neither the Canadian nor the American governments have done anything about this impending crisis, I think you need look no further than the ideologies of the current administrations in both countries. They both believe that the marketplace can solve everything. Once natural gas prices get high enough, we'll simply go out and find more gas.

Well, they are right about one thing. High prices have encouraged drillers to look for more gas in a big way. But high prices cannot create gas under the ground. Unfortunately, neither administration understands much about the natural world and how it actually works. They are hostages to cornucopian magical thinking that tells them that high prices always bring forth more of a resource or its nearest substitute. Here, of course, the most ready substitute, electricity isn't such a great substitute. And, it's hard to see what else might work in a natural gas furnace without a retrofit of some kind. What they don't like to talk about is sometimes there is what is politely referred to as demand destruction. In the case of natural gas in North America that will mean people get cold or poorer or both.

The only thing that has saved us from an acute crisis so far are mild winters, temperate summers and that fact that more than half of the American nitrogen fertilizer industry has moved offshore. (Natural gas is a primary feedstock for such fertilizer and high prices are in the process of destroying a whole industry in North America.)

As for what to do about it, I can only say that in the short run there are only emergency preparations, i.e. warm blankets, alternate means of heat if possible, food that can be prepared and eaten without electricity, in other words, the usual suspects.

Once the crisis has passed, many industries using natural gas will substitute other fuels in place of natural gas (probably coal) and some will simply go out of business. The market will balance, but at a terrible cost. The economic effects will be staggering.

At that point even the most pigheaded of ideologues will be forced to call for and enforce conservation.

I suspect that in the long run people will return to coal for home heating and this, of course, will be an air pollution and global warming disaster. There other ways to heat a house. But people will gravitate toward what they can afford and coal remains cheap.

Unplanner said...

Been a while since I posted but I do have a few comments on this. The incremental demand shouldnt be great enough to destabilize the grids, especially in areas used to much higher summer loads and where natural gas is not a fuel of choice for the utilities. I seriously doubt areas served by cheap and abundant hydro (PacNW and Quebec) or by a coal/nuke mix + mild winters (the SE US) will have this problem. I could see the concern in the midwest and industrialized great lakes/NE with their severe winters, though.

But here is another way natural gas crisis could affect the grid, probably more concerning. Many areas either through deregulation or the way the utility system was set up in the first place have NG fired generation that is NOT on any sort of contractual arrangement to be supplied with gas. In an emergency, they would be cut off. Equally concerning during periods of high fuel costs (but no bone fide shortage) these generators do not have any contractual obligation to generate. In otherwords, they could simply shut down, sell their gas futures to a higher bidder or just wait it out until the price falls again. This is a real problem if your grid is overloaded and your peakers are offline due to the fact the owners are selling their gas to someone else. Its even more worrying where the baseload generation IS gas and no real good long term contracts exists.

Just somethign to consider.

Kurt Cobb said...

Unplanner,

Thanks for your insightful comments. As I thought about this problem further, I realized that different areas of U. S. have different capacity margins and, of course, different fuel mixes for electricity as you point out. So, you are surely correct that the effects will be concentrated in certain regions, most notably mine in the Midwest and Great Lakes region where natural gas heating is all but universal. (The northeast is, for example, largely dependent on heating oil.) Of course, the south is unlikely to be hit very hard at all.

On one point I did get some information from my hosts in Toronto about hydro power in Quebec. They indicated that Quebec Hydro is obligated under an agreement signed in the '70s to ship two-thirds of its electricity to the United States. Abundant power, yes. Available in the amounts that both the U. S. and Canada will need at the point of the crisis? I wonder.

AlanfromBigEasy said...

There is, maybe, a way out.

In 2007, the USA in stalled a surprising 5.25 GW of new wind turbines. Minnesota + Iowa are now larger than California. Texas is leading the pack, with substitution of natural gas fired electricity driving the change.

Ontario has VERY good winter wind (load factors above 40%) and this wind can save some of their hydropower and NG for calm, cold nights.

Ontario now plans to build 1.6 GW of wind turbines and then "pull back". Aggressive expansion seems a better choice.

Ontario is also spending almost a billion $ improving and expanding Niagara Falls generation (adding 200 MW to over 2 GW and reducing friction losses) and reducing the % of time that water is allowed over the falls unused from 60% to 15%. Other hydropower is also being expanded. But wind has greater room for expansion.

Anonymous said...

Mike, I just wanted to point out in response to your wariness that the government also didn't tell us about the financial disaster that is wreaking havoc in the U.S. right now. All we heard was that everything was rosy and good, and even when things started to go downhill they said it wouldn't last and recovery was on its way. Not until billions of dollars of losses and the stock market tanking made it obvious that we are in trouble did they say, "Hey, we may have a recession in the making." (You THINK???).

Anyway, there were lots of financially savvy people out there who saw it coming and tried to warn people. I followed these people's articles and tried to warn family and friends and they all said, "No, the government (and even mainstream economists) say everything's fine, it's just a local problem confined to certain areas." So yes, there are situations where the govt. doesn't tell you there is a crisis in the making and yet lots of other people know there are.

Follow the common sense of their logic.

Dunc said...

Many areas either through deregulation or the way the utility system was set up in the first place have NG fired generation that is NOT on any sort of contractual arrangement to be supplied with gas.

This is exactly the situation in the UK too. About 60% (iirc) of our electricity generation is from NG, and it's also the number 1 home heating fuel. In the case of shortages, domestic users are prioritised.

I think you need look no further than the ideologies of the current administrations in both countries. They both believe that the marketplace can solve everything.

Indeed - witness the current rush to build LNG regassification capacity in many NG-importing nations. I was horrified to read on The Oil Drum that the world's LNG regassification capacity is currently twice the world's LNG liquefaction capacity, and there is no sign of the balance being redressed. It seems that everyone is assuming they'll be able to buy all the LNG they need, without worrying about who else might be trying to do the same.

Anonymous said...

Hi, this is Mike again.

Everyday folks don't usually read blogs like this, so my comments & questions were geared to represent those point of view that never make it here--like my family and friends back in Ohio. Their situation looks dire.

Your answers were splendid, by the way.

Would that more people (esp. in the Midwest U.S.) would read blogs like this!

Mike

Rice Farmer said...

This is a very real threat, and (although this comment is a bit delayed), just a few days after reading it, I saw a relevant event right close to home. Here in Japan, many farmers turn to heated greenhouse operations in the winter. Until now this has been profitable, but starting this year the high price of crude has sent their fuel bills skyrocketing. For some, the fuel subsidies now in the works came too late, and they have shut down operations. Farmers are trying various means to cut fuel bills, such as by insulating more, and one "solution" has been to turn to electric heat.

Last year and this year, the high cost of kerosene (for residential space heating) has induced many consumers to switch from kerosene to electricity space heating. Electric space heaters are selling well.

Although Japan's grid appears to be well maintained, I don't know how much excess capacity it has. And generating capacity itself is sometimes strained, which is why the electric company often exhorts us to conserve. Further, there will be a big hike in electricity rates in April.

So this turn away from kerosene and heating oil to electricity can't be good.

Kurt Cobb said...

For a preview of what we face, look at this post now up on The Oil Drum. Natural gas AND electricity shortages are hitting elsewhere as a particularly cold winter sweeps through Europe and Asia.

Anonymous said...

Mike,

You need to read this site:

lifeaftertheoilcrash.net

cheers,

Dermot.

Nancy said...

Why on Earth don't we create natural gas from sewage?
This sort of thing can be done with existing technology and there is no shortage of raw material!

Andy said...

Hi Kurt,

Scary post. A family member just gave me some money to update my natural gas heater with. Quite frankly, I don't want to "bet on the wrong horse" so to speak. If you were in my shoes, what sort of heating system would you go with?

Thanks!

Kurt Cobb said...

Andy,

Probably you've examined the following or done them already: extra insulation and passive solar elements added to your existing home. There's always a wood stove and some of them can be very efficient in their fuel use. But, of course, if everybody decided to heat with wood, our remaining forests would quickly disappear. You get similar problems with stoves that run on other biomass such as corn or wood pellets both of which are getting more expensive.

I predict that some people will start returning to coal. I'm not an advocate of that. I think it will be a disaster from a pollution and global warming standpoint.

Having an efficient natural gas furnace will certainly keep your costs down, and I actually think that natural gas will remain available to home users for some time. I think the transition will occur mostly with businesses. Perhaps we will get some re-regulation of the natural gas market that will favor home users. I can see this happening for political reasons.

If you are in areas that have plentiful electricity, and the Unplanner above suggests which areas those are, you can add some electric space heat for emergencies or for keeping certain zones warm while the rest of the house isn't in use. (I disagree with Unplanner about electric heat being a good choice in Quebec. For why see my comments above.)

In truth, there isn't any good solution for the existing housing stock. If we could rebuild everything superinsulated and with passive solar design, we could probably get what little extra heat we need at least partly from electric heaters (which ought to get their electricity from wind, solar, hydro and nuclear) and from biomass. But simply being more efficient with natural gas--however virtuous and appropriate it may be--only delays the day of reckoning. It doesn't really solve anything.

Anonymous said...

Hi Folks,

This is my first time commenting. With the price of oil now over $12.00 per barrel people in NY are freaking out about the high price of home heating oil (now $4.20 per gallon. Local metropolitan utilitieis realize our fears and are offering free NG furnaces to get us to convert from oil to gas.

My knee jerk response was initially to rush to make such a conversion before I learned of the cost of conversion, which for me would be over $5,000.00 (and I already have a NH water heater.)

At the current cost of $4.20 per gallon of oil I commute it would save approximately 70 cents per gallon if I make the conversion, but that is if NG prices do not increase.

Simple logic tells me if more people panic and rush to NG the price of NG will go up and oil might even drop.

I'm thinking maybe I should just stay with oil but my furnace and burner are 19 years old and tank is 16 years old and it is just a matter of time before I have a make a major investment in any case.

Any recommendations other than moving to Florida?

Bullwinkle said...

It's funny how things change. Now it looks like we have a potential oversupply problem for natgas in North America. We need to build an LNG export capability in order to take advantage of the massive spread between US and European natgas prices, but this takes a lot of time and money.

AK said...

HI - I like your site. I thought your readers may be interested in the site I just launched - www.lowermyheat.com. It offers a free test to determine if our system thinks someone is paying too much for home oil or propane.

Best,
Arik Keller
arikkeller@gmail.com