90 Billion Dollars Worth of Motive to Discourage Investments in Nuclear Power By Developers of "Clean" Liquified Natural Gas
I noticed a headline a couple of days ago that really got my attention – $90bn natural gas deal with Japan. For the last couple of days, I have been thinking about how to explain why that particular headline means so much to me and to the rest of the world as we discuss and plan our energy future. For me, it illustrates why it is so important to “follow the money” in order to understand the words that flow from all directions when it comes to energy supply issues and prescriptions.
Even though I deal in big numbers on a regular basis in my day job, that is truly an astounding figure to associate with a single deal. It is roughly 2/3 of the entire US Navy budget for a year. That budget pays more than a million salaries, operates about 283 ships, dozens of bases, purchases dozens of complex aircraft and pays to build 8-12 ships.
There must be tens of thousands of stakeholders associated with a $90 billion deal that have major incentives for ensuring that it goes through as planned, with as few hurdles and detours as possible. The inevitable result of efforts to bring this deal to fruition is a stronger, multi-front effort to discourage the use of nuclear energy instead of burning natural gas.
Please read the following excerpt from the article announcing the deal before you dismiss my theory. If you have ever been involved in any kind of large project sales effort, or if you are part of a company that tallies sales wins and losses, or if you simply have an understanding of human behavior, this should help to convince you that I have a reason for making that claim.
Managing director of Chevron Australia, Roy Krzywosinski, said the contract — the largest LNG supply agreement yet made in the Australian market — was a milestone in the Wheatstone project, as it underpinned demand for production.
“For Wheatstone it’s all good news — we’ve got the gas, we’ve now got the market and we’ve got partner alignment to move the project forward,” he said.
“TepCo is among the most experienced LNG buyers in the world, and its willingness to commit to such significant offtake volumes demonstrates its confidence that the Wheatstone project is moving forward.”
Mr Krzywosinski said the deal was a boost for the Wheatstone project, which was set to go to the Chevron board for final development approval in 2011 ahead of production starting in 2016.
TepCo is the biggest consumer of LNG in Japan, accounting for about one-third of the country’s imports, and bought 20 million tonnes of LNG over the 12 months to the end of March.
Japan imports most of its energy needs and has been ramping up its use of natural gas for power generation following the 2007 closure of the Kashiwazaki Kariwa nuclear power plant, the world’s largest nuclear electricity generator. (Emphasis added.)
Chevron, ExxonMobil, and Royal Dutch Shell are all working hard to develop large natural gas fields that are not connected to the world’s major energy consumers via pipelines. In order to get this gas from the source to the market, the companies are making huge bets on the complex and energy intensive technology required to turn the gas into a liquid that can be transported in ships. The economics of these projects only work when the developers can sign up credit worthy customers for long term contracts. Those contracts specify a certain pace of LNG deliveries and payments that will be large enough to support the repayment of the invested capital equipment that must be erected.
The physical capital equipment required to establish LNG fuel delivery systems include on and off shore drilling rigs, local gathering pipelines, refrigeration trains, storage tanks, port facilities, tankers, and reception ports with regasification systems. I recently wrote about a single LNG project that ExxonMobil is developing in Qatar that has a total quoted cost of $30 Billion. I thought that was huge, until I learned about this $90 BILLION Chevron project. The Wheatston project, located north Western Australia, will be an onshore gathering site for several off-shore and on-shore gas fields.
The key to the initial development of any massive capital investment is convincing lenders that you have a steady stream of income that will enable you to pay back the loan. Therefore part of the initial effort to develop a major project like Wheatstone is to establish the basic attractiveness of the product being sold and to convince customers that it is absolutely the best solution for their ongoing needs.
If you have not heard that natural gas is a “clean”, “low-carbon”, “abundant”, “reliable” energy source that can be burned in relatively inexpensive equipment, then you have been living in a bubble, isolated from the drumbeat of advertising and public relations efforts of the oil/gas industry. If you have not heard that gas is a lot easier, quicker and cheaper than building nuclear power plants you have not been listening to cheerleaders like Al Gore, Tim Wirth, John Podesta, Joe Romm, Amory Lovins, or Big Gav (a prolific blogger who often writes anti-nuclear pieces that appear on The Energy Collective, but who also writes a lot about the economic development potential from projects aimed at exploiting abundant gas resources in his native Australia.)
Please ask yourself – would a project like this even be considered if there was less fear about nuclear energy? The earthquake that led to the shutdown at Kashiwazaki-Kariwa did little damage, but all seven reactors were shutdown for nearly two years because of the difficulty inherent in proving a negative to “conservative regulators”. The first unit to be restored, Unit 7, started up 22 months after the quake. Even today, about 30 months after the earthquake, five of the Kashiwazaki-Kariwa reactors are still shutdown while inspections are being completed. Just imagine how difficult it must be to prove that nothing happened to the miles of piping and wiring, thousands of tons of building materials and thousands of components that make up seven large nuclear power plants. (Note: this paragraph was updated on December 11 after I received a comment that provided more complete information about the status of the Kashiwazaki-Kariwa station.)
No oil or gas processing facility shaken by an earthquake, despite the fact that they also are composed of high temperature, high pressure piping carrying potentially hazardous material, would have to prove that every component was in perfect condition before being allowed to return to productive operation. Instead, the owners would do an inspection, looking for obvious damage that might affect safety. Following that inspection, which might take a few days or even a week or two, the operator would start up the plant using normal procedures, perhaps supplemented by some additional inspections.
The only reason that nuclear energy is treated differently is because people are unreasonably afraid.
People do not fear things that they do not understand unless they have been carefully taught to be afraid. Teaching fear takes repetition over many years, an effort that requires a substantial amount of patience and financial support. I think that effort to teach people to fear nuclear power has been at least partially motivated by the amount of money that would either be lost or not made in the first place if more customers decided that it is better suited for meeting energy needs than other options like natural gas.
Of course, it is not enough to simply establish your product as an initially attractive solution. Even after the project gets financed the developer needs to undertake continuing effort to prevent customers from determining that there are better ways to meet their needs; defection is always a risk even if there are early termination fees involved. That effort will involve a multi-pronged approach to keeping the deal attractive, part of which will involve efforts to ensure that the competition continues to look less attractive.
Take a hard look at some of the current advertising campaigns between Verizon and AT&T with regard to cellular phone networks and then go and read some political, journalistic and web discussions on the issue. You will learn a lot about the powerful and emotional arguments that are often based on carefully selected “facts”. Those arguments are an almost inevitable result when there is a lot of money and market share at stake. The same concepts apply to the energy industry, except for the fact that the stakes are far higher.
The effort to retain customers whose purchases have provided the basis for a $90 billion investment will be intense. If the income flow supporting capital repayment gets interrupted or reduced because of competitive options, many negative things can begin to happen. Most fiscally responsible people understand that calculus and know how stressful it can be if the source of income supporting a major debt falls or completely dries up before the debts are repaid.
It is clear to me WHY those who sell the gas have a strong motive for making it as difficult as possible for their customers to be wooed by energy supply competitors who can offer a zero carbon, vice “low-carbon” fuel choice. The difference in cost and effort between operating a nuclear power plant that only needs a couple of truckloads of fuel every 18-24 months and operating a natural gas fired power plant that might require one third of a BILLION cubic feet of gas every day is very clear; the only way to sell the gas is to make it as hard and as costly as possible to build and operate an atomic fission alternative that would replace the need to buy natural gas.
interesting info. I am fairly neutral when it comes to alternative forms low carbon energy. One issue i am struggling with on the nuclear front is the amount of uranium available. My facts are that over half of the current uranium suppy are coming from the decommisioning of nuclear war heads, so current mining / production supplies only half of the demand!! If more nuclear power plants are built, which they are, how on earth could the uranium industry fill that gap? Please, i am not bashng nuclear at all, just merely trying to get all my facts right so that a genuine and rational choice can be made for the sake of our planet.
Simon – The fact that half of our current commercial nuclear fuel supply comes from former weapons material is a huge good news story. The program was specifically designed by people who were worried about the potential for the refined weapons material to get into the wrong hands, especially in that unstable transition period after the Berlin Wall came down.
They determined that the only way to permanently destroy the material was to fission it in a controlled reactor. We have been working our way through that inventory for about 17 years and there is still a lot of material left to destroy – though the first phase of the program is nearing is initially planned expiration.
The uranium mining industry has NOT welcomed the loss of market share that has resulted from the program. It has cost them a lot of money, though there were some provisions in the agreement to lessen the economic pain. The industry has a large quantity of shut in capacity and is making plans to expand to recover the sales that it gave up to allow the megatons to megawatts program work.
Over the long term, the answer will be to begin recycling the used fuel that is accumulating. It still contains 95% of its initial potential energy. That step will not be necessary for a long time, but we already have some good processes that have been implemented at an industrial scale in both the US and in other countries.
We’ve got another smoking gun. Natural gas is the new Bunker #6. Turn up the fear to maximum, and DRILL, BABY, DRILL!
I’d find living next to an LNG tank a far more fearful experience than living next to a NPP – especially for a densely populated nation like Japan. You would never know what the Japanese Red Army, North Korean saboteurs, or even a cult like Aum Shirinkoyo could do, for instance. Well, you couldn’t know what they were going to do, at least, until they do it.
If I were the Japanese, perhaps Kashwazaki-Kariwa would be open for business while the LNG tanks of the nation were “shut down for inspection”.
I know that LNG is one of the reasons Korea went heavily nuclear in the 80s and 90s while the US expanded natural gas use (US & Canada had cheap pipeline gas). LNG is still more expensive than nuclear on a life cycle cost basis (especially with new plants having initial operating lives of 60 years).
My guess is that expansion of nuclear will continue in the Asian countries due to cost and energy security concerns with LNG. LNG expansion may move forward, but so will additional nuclear units.
The US hopefully will not follow the “cheap natural gas” siren song again. However, I am used to disappointment in this area. 😉
2 little pieces of “anti-natural gas” info/news.
1. Gas prices at the Henry Hub did dip below $2 per million Btu in early-to-mid September, but as of today are at $5.10. That’s a 250% price spike in a 3 month time span. That kind of price volatility is absurd. Smart power planners surely consider this a negative in relation to natural gas electricity generation. Long-term contracts to purchase large quantities of LNG could mitigate some of the volatility, but the fuel cost situation is still practically infinitely better for nuclear fission.
2. This is a rather sad story. A family’s house exploded last night in Knoxville, TN.
http://www.whnt.com/news/sns-ap-tn–houseexplodes,0,6477840.story
The explosion was a natural gas explosion. When I did my google news search, I expected this particular incident to take up most of the results, but apparently this is a somewhat common occurrence. Much more common than the occurrence of ZERO deaths resulting from nuclear power plant accidents in the United States (and maybe entire western world).
A major part of the world is short of energy. The nuclear power is very important but it should not be basically advocated as a replacement of another source.Nuclear energy could be very useful for gasification of coal or hydrocarbons where they are difficult to extract. Liquid fueled machinery is as useful in uranium mining as in mining of any other fuel.
Kashiwazaki-Kariwa reactor 7 was producing electricity a few months before the two years were up, about 22 months after the earthquake. Reactor 6 is also up and reactors 5 and 1 look like they’re getting close to restart. Tepco is definitely restarting all seven reactors, so the LNG deal is for electricity above and beyond what KK can deliver. However, if the regulations were a little further from strangulation, new reactors would be built instead of taking on the massive LNG contract.
Your point that the work undertaken to prove KK’s safety was excessive is well taken. If I thought that the microscopically detailed inspection of the reactors and turbines would avoid future contention, I might be happy, but it won’t, will it.
Unfortunately it is going to take a Chernobyl/Bhopal level disaster at a LNG terminal to wake the public up to the dangers of this fuel in this form.
It’s just a matter of time before one happens.
I live near several oil refinery plants. Over the years there have been many accidents, some of which killed some workers but no one in the general public to my knowledge. The incidents always create a least a local stir but everyone’s memory fades away fairly quickly. I don’t think natural gas is any safer. A quick youtube search will reveal many fire accidents caused by natural gas. People are killed in their own homes by natural gas all the time. Somehow this dangerous regularity makes little impression on people.
Jagdish,
Scarcity is very much the name of the game for large fossil fuel operators. Scarcity is the key to profits and power. That’s why actors in the fossil fuel business must fight nuclear at all costs. Otherwise, their business model, their profits, their power go up in smoke.
Scarcity is not a bug. It’s a feature. They want scarcity. They need scarcity. Scarcity is their business.
Jason wrote:
I live near several oil refinery plants. Over the years there have been many accidents, some of which killed some workers but no one in the general public to my knowledge. The incidents always create a least a local stir but everyone’s memory fades away fairly quickly. I don’t think natural gas is any safer. A quick youtube search will reveal many fire accidents caused by natural gas. People are killed in their own homes by natural gas all the time. Somehow this dangerous regularity makes little impression on people.
These kinds of stories will often appear in local news media, but because there is no organized effort to keep the story in the news, it follows the path of most local interest stories that have a large impact on those few people who are either personally affected or their friends and family. It is not the fault of journalists; people tend to read newspapers and watch the local news to find out what IS happening rather than what happened several weeks ago.
In many cases, the particular company involved has a strong motive for using PR techniques to tamp down the interest in the story. Those companies that deal in useful, but potentially hazardous materials like fossil fuels are skilled at PR out of necessity. Those utilities who use nuclear fission are better at PR for their fossil plants than they are for their nukes, but they also have public reporting requirements that are not really their fault.
We are also cursed by the “dog bites man” assumption – rare events tend to be more newsworthy than those that happen with depressing regularity.
Whenever a stubborn anti tries to use shorthand like “Chernobyl” or “TMI” as proof that we need to abandon nuclear energy, I try to lengthen the discussion to show how the fact that everyone remembers some details about events that occurred 23 and 30 years ago respectively is a GOOD NEWS story about nuclear safety. If I have not completely lost people’s attention, I then bring up two natural gas accidents – one in the US that occurred on August 19, 2000 and one that occurred in China on December 23, 2003. Both are far more recent, far more deadly. The first killed 12 people who were just camping and fishing, but happened to be near a pipeline that exploded. The second killed more than 240 people and hospitalized more than 9,000 who were exposed to a deadly mixture of methane and byproduct gas (hydrogen sulfide) at a well that blew out.
Both have good information on the web, but are generally unknown.
Jason Ribeiro wrote:
People are killed in their own homes by natural gas all the time. Somehow this dangerous regularity makes little impression on people.
To be fair, people are also killed by electric shock and electrically caused fires. Bringing energy into the home, wheather natural gas, electricity, or firewood brings some associated hazard. Of course, freezing in the dark is also dangerous.
As for me, I plan to keep my all-electric home all-electric. If my heat pump should die, I plan to replace it with a newer, more efficient version (ground-source heat pumps are really interesting to me).
I just want more of my power to come from nuclear reactors.
I just think how funny it is that people’s eyes pop when they hear about a $90 billion cost for Yucca mountain or the possible construction of a $20 billion reprocessing plant.
A 1 GWe nuke plant produces about $500 million worth of electricity a year, so we’re talking about a $50 B/year industry. $90B for waste disposal is about 2 years worth of production, which isn’t crazy. However, to see all $90B in one place and out of context makes most people think “expensive boondoggle”.
Good point Paul. The sidestream of almost $1billion per year explicitly for waste means that NP has already paid for commerical waste, though. When and how that point can be used in debate is another matter. Perhaps an anology: Suppose I already paid the city to collect my garbage every week from the street outside my house. But they didn’t collect and they wouldn’t let me deal with it myself. Whose fault is it that my garage is getting full of black bags?
Rod, please correct your mis-statement that the KK NPP was completely closed for two years and the implication that it still is, as per my previous comment. The truth is quite bad enough without embellishment (and the potential for future error by those quoting your words).
@donb, you make a good point, electricity can be dangerous and we could add car exhaust to that list too. But to add some perspective, the measures of shielding, distance and time given to radioactive materials for nuclear power plants has kept the public safe and unharmed. Now I have to add the obligatory ‘in the USA’ qualifier to that but instead of praise for doing such a great job, I think people are rather ungrateful to nuclear power for doing such a good job and producing more clean energy than any other source (in the USA). It’s ironic how the safest and cleanest energy source gets the least respect.
Joffan – done – sorry about my delay in making the correction. Thank you for the additional information. Someday I am going to fire my fact checker. Wait, that would never do, there would not be any more Atomic Insights posts!
Jason – it is not that people are ungrateful. It is that the industry has not done a good job of repetitively telling consumers why they should be grateful. I have had a number of conversations with utility company PR experts – they tell me that they have been officially discouraged from making any comparisons among the various sources of power in their grid. I also know that most traditional utilities are completely wedded to the cost of service regulation model; they honestly do not understand why it is so damaging to their long term health when the first thing they do after they have completed a new plant is to go to the PUC and demand a rate increase.
What that tells consumers, not in direct words, but in actions is – “Look what I have done for you. I have built a brand new plant. It will provide you better service. Now I want to raise your monthly bill.” Here is a reasonable consumer response to that action – “Why should I pay more for the same amount of electricity that I was receiving before you completed the plant? Did you make a new, improved product? I can’t tell the difference. Give me back the old product. We cannot trust you, all you want to do is raise our rates.”
Rod, thanks, those are excellent points as always. Though I really didn’t have the average rate paying customer in mind when I wrote that comment, I was thinking more of the active opponents of nuclear energy that I see everyday on the web. I have yet to read or hear any of these many opponents say something to the effect that nuclear deserves some credit for providing the most abundant clean energy or any other aspect of giving credits where they are due to nuclear. To the extent this leaks into popular consciousness it hurts nuclear energy. Many people are not apt to question hearsay much less identify it. Though I think some of the trend against nuclear is definitely beginning to change, though government is very slow to react and support that positive trend.
So true. My toast tastes no better whether the electricity comes from coal or nuclear. My guess in today’s political climate, if new plants are needed for growth then the “new people” should bear ALL the costs.
I often wonder if the strongest appeals to the public for new nuclear relate to energy security, better jobs, and a healthier environment (in that order).
Jason Ribeiro wrote:
@donb, you make a good point, electricity can be dangerous and we could add car exhaust to that list too. But to add some perspective,…
Jason, no disagreement with you that nuclear is the safest source of energy. I want to see more of it. The point I was trying to make is that the use of any type of energy in the home is not risk free. Makes me wonder if there is some study comparing risk per unit of delivered heating for electricity, natural gas, and fire wood.
I might add that simply noting large scale LNG programs in Australia doesn’t make me a “cheerleader” for the gas industry.
I note all large projects in the energy sector in Oz – even coal to liquids proposals, which I view as even worse than nuclear power – it doesn’t mean I support them.
So for the record, I think the “gas is a transitional fuel to a low carbon future” idea that constantly gets floated by the gas industry is utter rubbish.
Big Gav – thank you for the clarification. I apologize for misunderstanding your position, but most of the posts on your blog are mainly quotes from articles that appear to boost the economic prospects of the projects without giving any commentary indicating your feelings – one way or the other.
I try to make my position when I quote others clear – sometimes that effort fails, but not for lack of trying. Can you clarify your position – what is your judgement about energy sources that can meet customer needs with a low external cost?