Fuel sources, and our love for them, face constant change

Contributing writerDecember 2, 2012 

Sightings of gas prices in the Puget Sound region as low as $3.20 a gallon have some motorists giddy with anticipation of stations finding out if their electronic signboards can still display the numeral 2 to the left of the decimal point.

Maybe that’s too much to hope for. This is a low point in the driving season, demand is still sluggish because of the economy, the Middle East could blow up (again) at any moment ... you know, the usual litany of reasons for the volatility of gas prices.

But maybe it’s not so dreamily optimistic, if not this year perhaps in coming years, as we figure out what the surge in domestic oil and natural gas production really means.

There’s always reason to exercise skepticism that the Next Big Thing is really such a big deal. In the case of American oil-and-gas production, it is.

True, energy has long been a big deal in American economic life, ever since we started running short of the stuff and paying a lot more for what we did have. Now we’re contemplating what it means to have a resurgent American oil-and-gas sector.

As John Gillie reported in his story last Sunday, the effects already are being seen here, with increased rail traffic bringing oil from North Dakota to local refineries, and companies here enjoying increased order books for the pipe, tools and equipment needed in the oil-and-gas patch.

That’s just part of the story.

Natural gas in particular has shaken up the energy sector. The abundance of cheap gas as a fuel for electric power generation has pushed utilities to shelve plans for new nuclear plants and accelerate retirement plans for coal-fired plants. It also makes the case for more expensive, less reliable renewables, primarily wind, much less compelling.

In a perverse twist, cheap natural gas might make electricity in the Northwest more expensive. Utilities in this region make money selling surplus hydropower to California and other states outside this region. But with gas-fired generators helping to drive down market prices for power, utilities don’t get as much revenue from those outside sales. Thus they’ve got to make up for the lost income in other ways – including rate hikes for customers.

Beyond that, cheap natural gas as an energy source, production fuel and feedstock is providing a competitive boost to American manufacturing. It’s renewing interest in natural gas as a car and truck fuel.

And now comes the prospect of abundant domestically produced oil (which, in theory, should drive down its price too). If so, then what? Does that mean permanent prosperity for the energy-producing states (which Washington, at least in oil and gas, is not), and sustainable business for the companies supplying them? Do we have the rail and pipeline capacity to move crude to refinery and products to market, and if not is that another source of economic activity? Will we see sustained $2.50 a gallon gasoline prices (or even less), not the $5 a gallon gas we recently feared? Does American taste in cars swing back to SUVs? What happens to the push for electric cars?

That’s just a sampling of the potential questions. The long list of questions includes many about whether the reality of the oil and gas boom will prove to far outstrip the promises. Visions of a glut of oil could be erased by political limitations and environmental fights.

A lot of uncertainty – except for this: How dramatically and quickly even seemingly inevitable and irreversible trends can change. A decade ago, would you have been expecting the big questions on energy to be how low the price of oil and gas might go – and what to do with all the oil and gas we’d have?

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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