On 2014 April 22 as this year’s president of the National Capital Area Chapter (NCAC) of the U.S. Association for Energy Economics (USAEE), I will preside over NCAC’s 18th Energy Policy Conference, which this year has the title “Disruptive Technologies Shock All Energy Sectors.” These disruptive technologies will require additional infrastructures, such as pipelines, wires, refineries, and generators. And, since we operate a free market economy in the United States, we will need dynamic markets to handle the effects of these disruptive technologies as we see a change in the way energy flows in North America.
Wind pockets in the Great Plains and West Texas need high capacity lines to transport the energy across space to areas where the need for electricity is greater. We need ways to pay for those transmission lines. In response to the intermittency associated with wind, we will need fast response generators and ways to pay those generators to operate only a small fraction of the year.
Some fast response generators will be storage devices. A high price for storage devices providing electricity for a small fraction of the year will be meaningless unless there are low prices during the portion of the year that the storage devices are being recharged. This will move electricity across time, using cheap electricity during periods of fat to provide electricity during later periods of lean.
Oil production areas in North Dakota and Montana need pipelines and rail cars to move oil across space to market. For years, the availability of low cost oil pipelines has reduced the price differential across the U.S. The lack of sufficient pipeline capacity has depressed the well head price of oil in the Bakken fields, reflecting the higher cost of rail transportation to refineries. New oil pipelines will reduce this price differential.
The natural gas system has many storage fields. I mentioned earlier electricity’s growing need for storage. And petroleum and its refined products also need storage. During January 2014, there was not enough propane in storage in the Midwest and prices soared. The shortage could have been handled by more refined products pipeline capacity, but additional storage would also have been an option, perhaps a cheaper option.
Though the conference is about technological disruptions, the shortage of propane in January can be thought of as a weather disruption. Some people say that we are experiencing climate change. My first experience with a claim of climate change was in 1990, when Edith Corliss, a physicist with the National Institute of Standards and Technology, a bureau of the U.S. Department of Commerce, told me was that the weather at that time more variable than weather had been since the time of Christ. Our summers were alternately either (A) hotter and dryer or (B) cooler and wetter. Or to put it mathematically, we were seeing a greater statistical variance and standard deviation in the measured temperature and the measured rainfall. The el Niños were getting more intense, as were the la Niñas. We were not having more of one and fewer of the other, just seeing more intensity in each.
I am reminded of the stage musical “Joseph And The Amazing Technicolor Dreamcoat.” The DreamCoat refers to a vision by the pharaoh that Joseph interpreted as a climate disruption. There were to be seven years of fat followed by seven years of famine. Joseph then created a physical system and a market to handle this insider knowledge. He stored grain during the years of fat and used the grain sparingly through the end of the years of famine. In commercial parlance he bought low and sold high. In legal parlance, he traded on insider information and made a killing.
We need new infrastructure to handle the growing disruptions created by technological changes. But we also need dynamic markets and new market mechanisms in our free market economy. At least that is my Technicolor dream.
 See the conference notice at WWW.NCAC-USAEE.org