I ran across an end of the year post about energy worth sharing Counting Down Top 12 Energy Facts of 2012: 3, 2 & 1. It appears on a blog titled John Hanger’s Facts of the Day.
Mr. Hanger claims to be “an expert on energy, environment, green economy, competitive electric markets, and utility regulation with unique experience in and out of government.” He is clearly concerned with influencing public opinion and has political aspirations in the State of Pennsylvania.
Here is a quote from the blog entry that caught my attention:
The low natural gas price caused a substantial shift from coal-fired generation to natural gas power plants this year and slashed carbon emissions and toxic air pollution. It boggles the mind why anyone who wants to reduce carbon emissions right now would oppose shale gas production. Nothing has cut US emissions more than low natural gas prices made possible by the shale gas boom.
And the US has lead the world in cutting carbon emissions since 2006. Indeed, in Europe and Asia, where there is still no shale gas production, natural gas prices are 3 to 5 times US levels, and coal consumption and carbon emissions are soaring.
The rest of the world so far has said no to shale gas and keeps saying yes to more and more coal. In fact, as the war against shale gas continues, the IEA now projects that coal will soon surge pass oil as the world’s leading source of energy.
Since I am quite interested in energy and in the competition between coal, gas and nuclear energy, I thought it was worth my time to respond to Mr. Hanger’s unflinching support for a fuel source that, while good, is not perfect. I also thought it was worth pointing out that today’s price might not reflect long term conditions. (I am pretty sure that it doesn’t, but that position makes me a bit of a far out minority – at least in the non-specialist world.)
Rod Adams said…
I love low natural gas prices and the positive impact they are having on the North American economy. It is terrific that they are lowering the cost of living and, in effect, giving all consumers a rebate that enables them to spend more money in just about all other areas of the economy.
It’s obvious, however, that natural gas suppliers are NOT as happy with the low market prices for the commodity that they produce. The number of drilling rigs focusing on gas production has dropped by more than 50% from the peak in 2009 or 2010. ExxonMobil keeps telling its analysts that the XTO purchase was a good long term investment; they promise that will be proven when (not if) gas prices recover as a result of demand increasing and supply failing to keep up.
There might be as much as 90 years worth of CURRENT consumption left in the ground in the United States, but that does not mean that suppliers are willing to extract those resources so fast that they over supply the market. They have no incentive to maintain a price that is 25% of the price of competitive distillate fuels on a “per unit energy” basis. It is unlikely that they will keep drilling and pumping fast enough to keep prices less than 1/3 of the prevailing price in Europe and less than 1/5 of the price in Japan.
It is especially unlikely that anyone will continue providing the required financing if the sales prices are not high enough to pay back the borrowed money used to drill recent wells.
It is good for the climate if natural gas replaces old coal, but it is not good if temporarily cheap natural gas is used as an excuse not to invest in new nuclear plants or if cheap natural gas results in a company like Dominion deciding to close a well operated and well maintained nuclear plant like Kewaunee.
Publisher, Atomic Insights
It would be a wonderful thing if natural gas suppliers decided to keep on drilling and producing their product just to spite me and prove me wrong. However, I think it is unlikely that they would give up billions in revenue to prove that an individual in Virginia was a nut case when he pointed to classic economic theory to say that prices will rise when demand exceeds supply and that existing suppliers have an incentive for constraining supplies in order to achieve a rate of return goal that requires higher prices.