The Big Chill
A winter fuel crisis of high prices and shortages could darken homes and factories
Falling gasoline prices make it easy to believe the nation has seen the last of the energy woes that swept in behind this year's Gulf Coast hurricanes. But they don't fool an unemployed woman on the Crow Indian Reservation, using the electric oven to warm her house on increasingly crisp Montana nights because her natural-gas heat has been cut off. For brickyard workers in Mill Hall, Pa., unemployment looms after the holidays, because it will be too expensive to fire the clay kilns this winter. And one retiree in a mobile home in Millinocket plans to take her asthma medication once daily instead of three times as prescribed, to save money to pay the kerosene bills that will soar in Maine's bitter cold.
With the season's first snowfall hitting the Northeast last week, it is becoming apparent that Hurricanes Katrina and Rita did far more to the nation's energy equation than spoil Labor Day vacation drives. The storms upset the already precarious balance of the nation's supply and demand for fuel. So much Gulf of Mexico oil and natural gas production remains in disarray that even with a mild winter, Americans face a Big Chill: astronomical heating bills--on average, 38 percent higher than last year's record costs for natural gas and 21 percent higher for oil.
Triple threat. That means hundreds of closed factories and enormous hardship for low-income and working poor families, who can expect scant federal government help. And if bitter cold rides in on Mother Nature's coattails, extraordinary measures will be needed to keep energy flowing, particularly in the Northeast, as natural-gas shortages spill over into oil and electricity supplies. "We pray for warm weather. We have a prayer chain going," says Diane Munns, an Iowa regulator who is president of the National Association of Regulatory Utility Commissioners. "People are talking not just about high prices but actual shortages."
Adds Matthew Simmons, a prominent Houston energy investment banker, who has warned of a new era of scarcity: "We're headed into a winter that could be a real winter of discontent."
It is not just about money. Damage to rigs, pipelines, and processing facilities means a shortage of natural gas, the fuel that heats 52 percent of U.S. homes. The industry says 2.3 billion cubic feet per day, or 23 percent of the Gulf of Mexico's natural-gas production, will be offline through March. But even before the deadly storms struck, the country was consuming more natural gas than it produced and prices were at record highs. Demand grew nearly 16 percent from 1990 through 2004, driven mainly by the companies that generate electric power. Policymakers viewed natural gas as cleaner than coal and more palatable than nuclear, so it was easy to get required government approvals to build much-needed electric power plants that run on natural gas. And everyone bet heavily--and incorrectly--that prices would stay cheap. The United States now relies on Canadian imports by pipeline and has begun to call on a new source, tankers from Africa and the Middle East filled with liquefied natural gas, or LNG. But the imports haven't been enough. "The hurricanes--they hit a sick patient," says Roger Cooper, executive vice president of the American Gas Association, representing utilities. "We're vulnerable. If we were hit in the 1990s, we would not have been in this situation. But when you are consuming 100 percent of your supply, there's not much room to maneuver."