Monday, October 23, 2006

Pondering Our “Energy Straightjacket”

I capped off a very busy week at Flowserve Technology’s latest annual energy summit in Kalamazoo, Michigan. I shared my Energy Management: What’s in it for You” presentation, which immediately followed a brilliant speech by Neal Elliott of DC-based ACEEE. One of his major take-away concepts is that of the “Energy Straightjacket” that increasingly explains today’s rising electricity costs. Here’s how it works: With electricity demand reaching all-time highs, power generators can’t take full advantage of America’s abundant coal resources. Why? There’s not enough rail stock (in the right places at the right time) to move coal from the mines to power generating plants. There are also periodic shortages of replacement tires for the huge mine-hauler trucks that move coal out of strip mines. Why? Key ingredients in the manufacture of those tires are various petroleum distillates. Those ingredients become scarce when our limited petroleum refining capacity is tied up in making gas and diesel commodities. With a shortage of coal, our electricity generators turn to natural gas. But, as we saw in the aftermath of the 2005 hurricane season, natural gas prices are subject to price spikes when production capacity is disturbed. In sum, energy markets suffer not so much from a lack of supply, but from critical bottlenecks in supply infrastructure… hence the straightjacket.



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