January 5, 2012 • Current Events, Electricity, Energy Generation, Energy's Lighter Side, Natural Gas

2011: The year in energy (Part 2: Nature)

by Eric Bickel

Global energy markets in 2011 were plagued by something more devastating than economic malaise: nature. With weather being in the lap of the gods, and as nature takes its course, some scenarios are impossible to predict. And 2011 had its fair share of outliers.

First, let’s take a look at the extremes of nature from a global point of view. Without a doubt, when you consider the hardest-hitting natural disaster in the last year, the first one that comes to mind is the devastation of the Tohoku earthquake in Japan, the subsequent tsunami, and the ensuing nuclear meltdown in Fukushima. The result was nothing less than devastation on a grand scale.

Furthermore, the impact has had a broad reach across the world, as many countries have re-evaluated their stances on nuclear generation. Germany has perhaps taken the hardest line and is looking to scrap the entire industry by 2022, replacing it with renewable energy; natural gas is likely to be the bridging fuel in the years to come while this transition is under way. Other countries have taken a less severe stance but certainly became more cautious in 2011 as a result of the disaster in Japan.

Now, let’s take a look at the U.S., where we started out the year with solid bout of cold weather. In fact, it was so cold that we lost a sizeable chunk of gas production because of it. Not only that, but the great state of Texas (that one’s for you, Dallas and Houston offices) witnessed blackouts as generators scrambled to meet demand, and a heavy burden was placed on natural gas to meet the demand. The irony of this will be made apparent below.

In spring (which is a season Texas apparently doesn’t experience), the U.S. witnessed an unusually pronounced nuclear maintenance season, no doubt spurred by Tohuko. Then, in April the U.S. experienced the most devastating tornado season in history, with tornadoes ravaging entire cities – without sparing existing nuclear infrastructure. As a result, nuclear generation hit record lows, forcing the hand of natural gas once again.

Summer brought record-breaking heat. As I promised above, the irony in Texas’ freezing winter conditions (and blackouts) was that they experienced record-breaking heat just a few months later. Once again, the heat tested the limits of the local grid, forcing generators to turn to none other than natural gas to meet the demand.

Then came winter here in the U.S., and with it came unseasonably warm weather. We witnessed plummeting demand for natural gas, as it posted ridiculously huge storage injections (meaning more supply than demand), and ultimately ended the year with a record supply overhand.

To recap, three out of the four seasons in 2011 posted sizeable demand levels for the natural gas market in the U.S. due to unnatural natural conditions, but we still ended the year with prices hitting below $3 for the first time in three years, all thanks to above-normal conditions in the last season.

So, it goes without saying that nature is unpredictable. What is predictable, however, is that it will impact energy. While you have everyone from NOAA to the Mayans to tell you what to expect from nature in 2012, be thankful that you have Summit Energy to worry about the rest.

© 2011 Summit Energy Services. All rights reserved.