Natural gas prices are at all time highs. California can’t glow for Christmas because of power shortages. Summer gasoline prices set records highs. Oil imports are at record levels. These all have a common thread – environmentalism run amok through the auspices of creeping socialism.
Natural gas – 90% of the power (electric) generating capacity increases brought on line in the past 10 years has been fueled by natural gas. The reasons are many, including some solid economics in many cases. However, in most cases the reasons are more political than economic (and naturally the economics are affected by the politics). Gas turbine based generating plants are fairly low profile and are the lowest emissions fossil fuel power generating option. However, the reliance on them as an electric source has strained the gas recovery and distribution system to where prices have doubled in the past year. Gas turbine had previously been used for peak generation demand. They now carry base load. You can get a gas-fired plant permitted and built in about two years. Five years is more likely for a coal fired plant. The reasons are environmental regulations. Coal can be clean but the activist chant has moved from NIMBY to BANANA (Not In My Back Yard … Build Almost Nothing Anywhere Near Anything).
So now your lights are powered by the same stuff you need to heat your home. Supply and demand. Only gas-fired plants can get permits (from the states) so you get to pay much more for heat. The sure answer that comes next will be some call for price controls.
California – Most news articles on this subject manage to mention deregulation as part of the reason why California is facing very tight power supply to demand margins. What they don’t mention is why there is a connection. California, being the sunny side of socialism did not really deregulate the power industry. It made it possible for consumers to choose their supplier and even set up a market for power to be traded. However, they couldn’t just trust the market, they capped the price anyone could pay for electricity. Even better, they capped it at a rate that is low enough that it is not worth doing the back flips through flaming hoops that is required to get a permit to build generating capacity in the state. As with any commodity, electricity supply only gets increased when there is a likely return on an investment. By setting stringent environmental requirements, the cost to build and operate a generating plant is raised. The price cap assures would-be investors that they can do better building incremental capacity elsewhere with less uncertainty in the permitting process. Voila, Californians have to plot the next revolution in the dark.
Gas prices – As with power plants in California, nobody is building refinery capacity because the cost and uncertainty of changing environmental rules make other investments more profitable (or the capital required for expansion is being sucked up meeting new regulations). Add to that mix various environmental requirements for various gasoline blends in different parts of the country and you get local shortages and run right back into that ^%$# supply and demand stuff.
In each of these cases, there are conflicts between capitalism meeting a demand and environmental requirements either increasing the cost of production, or the uncertainty of investment return or both. Utilities have been sued by the EPA for performing maintenance on their assets that made them last longer than was expected – even though no laws or regulations put a sunset on grandfather clauses. California consciously limited the supply of new generation by virtue of their emissions requirements and then installed price controls to limit the effects. EPA forced refineries to make more expensive gasoline for a limited market for a limited portion of the year but expected no increase in prices.
Even I do not suggest we return to the days of belching smokestacks. Instead, what is needed are scientifically based regulations applied consistently and predictably and free markets for producers who meet those regulations. We need to recognize the principles of economics 101 in energy policies.
Or we could just nationalize the whole shebang, roll it up with the Tennessee Valley Authority and Bonneville Power Authority and let the gubmit run it all. Oops, EPA even filed papers on TVA.