By Nick Cunningham
Hurricane Irma has left millions of people without power in Florida, a critical situation that could take a painfully long period of time to sort out.
Estimates vary, but some 9 million people lost power during Hurricane Irma, according to the CEO of Florida Power & Light, the state’s largest utility. As of Monday, an additional 1 million people lost power in Georgia and South Carolina as the remains of Irma moved north. Florida Power & Light has already begun restoring power, but as of Monday, there were more than 3.6 million customers still offline.
Utilities in other parts of the country are sending legions of workers to Florida in an aggressive effort to rebuild and restore service. The CEO of Southern Company, another crucial utility in the U.S. Southeast, said that the mess will likely require 50,000 to 60,000 additional utility workers from out of state to help in the recovery.
It could have been a lot worse, as the track of the hurricane ended up moving west of Miami but east of Tampa Bay, avoiding a direct hit on any major city. Plus, Florida’s electricity grid has been improved in recent years, which could help get things back to normal more quickly. Florida Power & Light, for example, has spent $3 billion since the nasty storms of 2004 and 2005 to fortify its system and minimize damage from storms.
“The effort is to see how fast we can get back online. That is the definition in the industry now of ‘resilience’. It is to figure how to get things back together as soon as possible,” Christine Tezak, managing director at ClearView Energy Partners, told CNBC.
She also argued that Florida’s multi-billion-dollar investments to harden the electricity grid over the past decade—investments made in light of a previous round of destructive hurricanes in the mid-2000s—have paid off. For example, rather than having to put in new wooden poles for power lines destroyed during a hurricane, Florida’s utilities, will simply have to restring power lines to the new and stronger concrete pillars they have installed in many areas.
Nevertheless, outright destruction of power lines and other infrastructure is widespread. "'Restore' may not capture the full sense of where we are. For the very hard impacted areas, I think you're in a 'rebuild' area," Southern Company’s CEO Thomas Fanning told CNBC. "That's a big deal. People need to understand this is going to take perhaps weeks, not days, in some areas," he said.
While most attention has been paid to how the hurricane would affect oil and gasoline markets, particularly after Hurricane Harvey devastated Gulf Coast refineries two weeks ago, the massive power outages could also result in some disruptions in other energy markets.
For example, about two-thirds of Florida’s electricity is generated from natural gas, and the outages could cause a dip in natural gas consumption. Just like how millions of people not driving in their cars after the hurricane could lead to a temporary decline in gasoline consumption, the millions of people without power for a period of time could cause some natural gas supplies to build up.
Florida’s natural gas demand “fell from 4.43 Bcf/d on 9/7 to 2.74 Bcf/d on Monday (Sept. 11), a drop of 1.69 Bcf/d,” according to Genscape Inc., reported on by Natural Gas Intelligence. Taken together, the gas demand in Florida, Georgia and South Carolina plunged by a third between Thursday and Sunday from 9.47 Bcf/d to 6.21 Bcf/d. Most of the reduction was because of the electricity outages.
The U.S. natural gas market has been sleepy since the end of last winter, with prices stuck around the $3 per MMBtu mark. Gas inventories have tracked within the five-year range for the better part of a year, after the extraordinary buildup in 2015 and 2016. A dip in gas production last year helped erase a bit of the glut, and the market stabilized this year as output rebounded and kept pace with demand.
Florida’s power outages probably won’t knock the markets off course, but they could lead to a sharper-than-average gain in inventories a few months ahead of the start of winter season.