Debating a natural gas booster about nuclear competition

My discussion with Robert Bradley at Master Resource regarding the relative value of investments in natural gas generation versus nuclear generation continues to result in some interesting exchanges worth additional visibility and comment. Here are some of the recent posts:


Robert Bradley { 12.03.11 at 9:47 pm }

Rod:

$4/MMBtu natural gas–how can nuclear compete against gas plants for additional generation?


Rod Adams { 12.04.11 at 3:50 am }

@Robert – I do not assume that natural gas will remain at $4 per million BTU. What would keep prices that low when the world market price for natural gas is closer to $15 per million BTU and there is a substantial amount of LNG capacity in the world? What will keep gas prices at $4 per million BTU as regulations are tightened as a result of the damage being caused by short-cuts in hydraulic fracturing? What will keep gas at $4 per million BTU if the economy recovers?

What will keep gas at $4 per million BTU if the rate of consumption increases for power generation to replace shuttered coal plants being forced out of the market by Chesapeake funded “Coal is filthy” campaigns and nuclear plants like Indian Point, Oyster Creek, Vermont Yankee and Pilgrim that are all under significant pressure by natural gas funded opposition groups?

I am sure that you are well versed in the law of supply and demand and can find the charts that show the history of natural gas price volatility.

One more thing – in many of the places where coal plants are being forced out of the market, there is NO cheap natural gas available because no one ever built any gas pipelines to supply areas that had plenty of cheap coal. The American Public Power Association has computed that they would need about $700-800 billion in infrastructure investments for pipelines and new transmission lines to replace coal generation with natural gas.

http://atomicinsights.com/2010/07/appa-detailed-study-on-effects-of-switching-from-coal-to-natural-gas-for-electricity-generation-not-a-bridge-fuel-strategy.html

Quite a few of the owners of those facilities are interested in small modular reactors (<300 MWe/unit) that do not need an extensive fuel infrastructure in order to operate in the same place as the old coal plants. That kind of siting would allow the nuclear plants to make use of existing water resources and transmission corridors.


Robert Bradley { 12.04.11 at 9:56 am }

Rod:

I am thinking in terms of North America–and I am thinking in terms of what is the best deal for market participants.

$4/MMBtu natural gas is the result of a technological boom, and the gas industry is desperately trying to get transporation demand for natural gas (NAT GAS ACT) to increase prices. One can get long-term fixed gas prices to lock-in, say, $5-$6 gas to show the banks for financing. Yes, new infrastructure is needed to complete the drilling boom, but that is happening too.

Nuclear is just not competitive to gas whatever way you slice it. Are you willing to eliminate the loan guarantees that Obama is pushing for nuclear (yes, the $18 billion is his deal now) and let the market decide? Anyone willing to build a ‘spec’ nuclear plant based on natural gas being expensive in the future?


Rod Adams { 12.05.11 at 4:58 am }

@Robert

Yes, I am willing to eliminate the nuclear loan guarantees. They are unlikely to do anything to reduce the financing cost of nuclear projects and they add a huge lever for the fossil fuel-funded opposition to nuclear energy. At least one of the two remaining projects has already declared that it has no real interest in getting a loan guarantee.

SCANA is building VC Summer without any financial support from the federal government. Instead, it is paying $272 for every NRC regulator hour expended in the often delayed process of obtaining its construction and operating license.

No money has been provided to nuclear energy projects as a result of the highly touted loan guarantee program that was established by the Energy Policy Act of 2005. There has been a tremendous amount of sound and publicity about the $8.3 billion associated with the Vogtle 3 & 4 project. That amount, talked about since the highly public announcement in the spring of 2010, was just a promise, contingent upon the issuance of a construction and operating license by the Nuclear Regulatory Commission.

Even though the NRC staff finished their evaluation well over a month ago, the Harry Reid protege who is now the Chairman of the Nuclear Regulatory Commission has yet to schedule a commission meeting to approve the AP1000 design certification and the Vogtle COL that depends on that design certification.

I have analyzed the annual report of ExxonMobil, the largest single natural gas producer in the US after its purchase of XTO. At current prices, it is reporting virtually no net income from that $41 billion purchase. The computed ROI for 2010 was 1.1% per year.

http://atomicinsights.com/2011/02/exxonmobil-earnings-9300-million-for-qtr-just-36-million-from-xto-production.html

Energy market participants like ExxonMobil, however, will get a huge return on their investment if they can convince people that gas will be so cheap for so long that it would be better to avoid investing in nuclear power. There is a very long delay time associated with building nuclear plants. When projects are derailed, it takes a long time to restore them. Qualified nuclear plant designers are generally bright and highly educated people who can always find plenty of other work. They will be difficult to attract back into a business that has a history of layoffs.

If natural gas has no nuclear competition, there will be nothing to restrain future price increases. History has demonstrated that natural gas price increases driven by supply/demand imbalances are not gentle rises but sharp and sustained price increases. They harm everyone except the producers and the people that financed that production.

I do not expect that the lights would go out if US demand exceeds US supply. The multinational petroleum companies who are spending so much money touting natural gas and claiming a 100-year supply (even though the real number is closer to 90 years) are ready and willing to bring in LNG at international prices. They have invested hundreds of billions in LNG projects during the past couple of years and really want to put that capital investment to use.

No wonder “Wall Street” and natural gas cheerleaders do not like nuclear energy and prefer to damn it with faint praise.


On a related, but separate note, there is an interesting article in the New York Times about Congressman Dan Boren from Oklahoma titled As Gas Riches Remake Plains, Lawmaker Shares in Bounty. It details his financial interests in promoting the expanded use of natural gas. Here is a quote from Congressman Boren that illustrates how natural gas promoters often damn nuclear energy with faint praise that sounds like support.

Rep. Dan Boren, the state congressional delegation’s only Democrat, also expressed continued support for nuclear power.

“But I will say that with this tragedy I think a lot of people will be looking at natural gas, since we have such a large supply,” Boren said.

He also backed the re-examination of existing plants, as well as a review of disaster prevention systems.

“We need backups to the backups,” Boren said, noting that an once-in-lifetime event – a historic earthquake and a related tsunami – caused backup systems for nuclear plants in Japan to fail.

About Rod Adams

8 Responses to “Debating a natural gas booster about nuclear competition”

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  1. PD says:

    By and large, natural gas boosters seem to rely on market arguments for why natural gas is a preferred fuel. However, these boosters demonstrate a shockingly naive view of the market. Natural gas SPOT prices are $4/MMBtu (actually, I’m clocking them at $3.50 today). However, natural gas FUTURES prices show a significant increase in price over time. My quote of January 2016 futures is about $5.50/MMBtu, and January 2020 is $6.40/MMBtu. And the decision of whether to build a nuclear plant obviously involves comparing cost of electricity about 5 years out, not today. The market clearly expects that natural gas prices will increase, and Rod makes a good case for why even the market is overly optimistic.

  2. Joel Riddle says:

    So, he goes from arguing that nuclear can’t compete with $4/MMBtu gas in one comment to stating in the very next comment that there are people trying to increase natural gas demand to increase prices and that $5-6/MMBtu contracts can be had.

    Sounds to me like he basically made Rod’s point for him.

  3. Jeff S says:

    (Off-topic)

    Just wanted to give you a heads up that the NYT is printing more poorly researched and ill-explained FUD pieces about leaking water at F-D:

    http://www.nytimes.com/2011/12/05/world/asia/more-leaks-from-fukushima-daiichi-nuclear-plant.html?_r=1

    Which is being picked up by other news outlets:

    http://www.npr.org/blogs/thetwo-way/2011/12/05/143146028/crippled-japanese-nuclear-plant-continues-to-leak-radioactive-water?ft=1&f=1001

  4. EdF says:

    Much of this nuclear-gas debate would seem to revolve around future costs of natural gas. If solely concentrating on the market for the next, oh, 3-7 years, then Bradley might have a point — one that seems to be taken by most utilities, especially those in competitive markets.

    Rod, your point takes in a longer time frame, and that seems to be a key difference between you and him. Of course, many people will straight-line today’s gas costs well into the future, but they seem to be setting themselves up for a possible fall. The expiration of drill-it-or-lose it leases, upcoming final EPA and state fracking rules, and the sheer lack of money to made in drilling and selling gas domestically in the short-term almost guarantee that gas drilling (which won’t be as cheap as it has been) will decline and that more gas players ultimately will move on to something else, such as shale oil.

    Beyond that, it’s odd that utilities — even those in competitive markets — don’t seem to worry about pursuing fuel diversity for the longer term, at least as a hedge. And it that diversity entails high reliability and low carbon, nuclear would seem a no-brainer — except for the daunting up-front capital costs associated with GW-scale projects. And hopefully that’s where the work of your company and its Pennsylvania and Oregon competitors will begin to make a difference.

  5. PSS says:

    I guess I’m lukewarm on the long-term/short-term approach to this debate because it seems like anyone with an ox to gore can find a series of metrics that is convenient for their argument to straight-line. You can’t straight-line natural gas prices, or solar cell efficiency, or the cost per kWH of wind power.

    To me, the elephant in the room of this debate is that natural gas – like every other other carbon-based fuel – fails to bundle its externalities into the unit price. I sense Rod is trying to be on his best behavior with Robert, because ‘fracking shortcuts’ is an overly polite understatement about the damage being done upstream in the natural gas energy cycle. Even if you’re a climate change dead-ender like Robert appears to be, for gas to ‘work’, you have to ignore the horrendous environmental impact of getting it out of the ground. But of course, if you attempt to make *that* argument, too many people turn off…as if somehow 50 additional cases of juvenile leukemia in the town next to the fracking site / coal plant(or name your own slow-motion disaster) doesn’t translate into actual dollars that actual people have to spend.

    Keep fighting the good fight Rod. Someday they’ll figure it out.

  6. Cal Abel says:

    There is a considerable pressure for domestic natural gas producers to invest in LNG terminals with domestic prices being $4/MMBtu and international prices being $15/MMBtu. The international market is much larger and elastic than domestic consumption so the real price of natural gas is somewhere around the $15/MMBtu.

    The question comes in what is the cost of the infrastructure investment needed to produce LNG (cleaning, compressing and drying). Has anybody seen a number on this? The next number is the cost of transportation of a LNG tanker to Europe, which is where the demand will perhaps be the largest (maybe Japan if they are foolish enough to abandon nuclear power).

    Thus three large LNG terminals (Boston and somewhere on the West Coast, and the Gulf Coast) would handle the capacity. What would be the cost of a dedicated pipelines to do this? Henry Hub probably has the capacity. Not sure about New England, it would have to get gas from Pennsylvania and maybe New York to Boston. I’d love to see that fight! Massachusetts Democrats screaming for the jobs it would bring and the environmentalists protesting the environmental damage and rational people arguing against the very real safety risks! I love democracy!

    Short end of it the payback on the infrastructure investment for LNG exportation compared to building domestic consumption will provide a much faster and higher payoff for domestic natural gas.

    It is from this standpoint that I don’t see why the natural gas bubbas don’t like nuclear. If we power home with nuclear and hock natural gas to the rest of the world we can make a great deal of money. Nuclear and natural gas are not incompatible. They are actually very compatible form a market perspective.

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