Nuclear Energy Growth Might Turn Promises of Low Natural Gas Prices Into a Reality

Just yesterday, I wrote a lengthy piece talking about how natural gas suppliers are working hard to market their product to both gas customers and to politicians who are making large impact energy policy decisions. One of the marketing bullets being used is that natural gas is newly abundant and can thus be considered a reliable, long term energy option.

I indicated that I was skeptical about that scenario since the “abundance” of gas is something that can quickly disappear if demand picks up and as reduced drilling activity changes the amount of gas that is actually extracted from deep underground tight gas formations (classified now as proven reserves) each month.

I neglected to include another large factor in my previous discussion. Part of my motivation for talking about the possibility that the natural gas marketers are going to be proven to be liars when it comes to supply abundance is that I am certain that nuclear energy is a better long term solution. It is one that should not be pushed off just because gas looks cheap – as long as you can forget the fact that it was selling for about three times as much as today’s price just 15 months ago.

However, I am not the only energy industry observer who understands the interrelationships between various fuel choices. If, in fact, people in positions to make major decisions about energy policy follow my advice and reduce the barriers that currently slow down nuclear power plant construction, one of the effects of that might be to make it seem like the natural gas salesmen were correct in their promises of abundant supplies. As more nuclear power plants come on line, their output would displace power that is currently being produced by burning natural gas. Their output might even be enough to drive down electrical power prices to a level that would make all-electric home and commercial heating and cooling systems an economical choice. That would also free up more gas and lower the prices of that newly abundant fuel – an abundance produced by falling demand instead of by a growing supply.

That effect would be very similar to the way the market behaved for well over a decade after the last rapid build out of nuclear power plants. From 1985-2000, natural gas prices all over the world were quite low – Russia was selling gas to favored customers for about $50 per 1000 cubic meters (roughly $1.40 per thousand cubic feet) while US prices hovered around $2 per million BTU (which is also very close to $2 per thousand cubic feet). Though some might disagree, it is hard to overlook the fact that those low prices followed an era where nuclear energy production increased rapidly. That era of low gas prices made investors in nuclear generation facilities look a little silly while the people who built simple gas turbines and burned cheap gas looked like sage energy price prediction geniuses.

That era did not end in Europe and the US until there had been a focused effort to halt new nuclear power plant construction and until growth in energy demand finally caught up to available supply. From 2000 on, the view was different – entities that owned operating nuclear power plants needed ever larger trucks to carry their annual profits to the bank while entities like Calpine and the entire state of California that banked on a continuation of low gas prices fell deeper and deeper into debt to their suppliers.

This morning I read IEA: Low-carbon plans to cause gas glut, which is a summary post on BusinessGreen.com. It describes a draft of International Energy Agency’s the soon to be released World Energy Outlook. Included in that prediction for future energy uses is a discussion on the future of gas demand versus supply in various parts of the world. According to this article, the IEA: World Energy Outlook will show that gas prices will be under increased downward pressure due a reduction in demand that comes from an increase in the amount of energy being produced by “low-carbon” energy sources, a description that includes new nuclear power plants.

Here is a quote:

It predicted that even with the projected economic recovery, European demand for gas will not recover to 2008 levels of 542 billion cubic metres (bcm) until 2020 before then dropping back to 525bcm by 2030.

As a result, gas is likely to become oversupplied and prices are predicted to fall, reducing Europe’s reliance on Russia as its major supplier.

I wonder how Gazprom feels about that? More expansively, I wonder how Gazprom, ExxonMobil, Shell, Total, Qatar, Russia, Iran, Saudi Arabia, Norway, and all of the other entities whose prosperity is tied to increased gas demand and increased gas prices are going to react to the idea that a new nuclear power plant building program will directly impact their bottom line? Here is another quote from a Financial Times article titled Supply glut and lower prices forecast: (Note: The Financial Times, a publication that is widely read by many top decision makers, has an entire series of articles about the implications of the World Energy Outlook that are based on reading a leaked copy of the report, which is not due to be released until November 10, 2009.)

The oversupply of gas will be even greater if countries push ahead with plans to save energy and develop more renewable electricity and nuclear power.

In the draft report, the IEA expects overcapacity of gas pipelines and liquefied natural gas terminals to reach at least 250bn cubic metres by 2015, more than four times the spare capacity in 2007.

For the US, the gas glut will force companies to scrap plans for new LNG import terminals and mean that much of its existing capacity will be underused.

The draft of the report states: “Projected global demand points to significant underutilisation of inter-regional pipeline and LNG capacity around the world.

“This looming glut could have far-reaching effects on gas pricing.”

My guess is that the entities that will lose market share due to an increase in reliable production from “low-carbon” energy sources understand quite clearly that the ONLY source that actually meets that classification and threatens their prosperity is nuclear energy from new and expanded facilities. My prediction is that those entities are not going to be open about their desire to slow down and hamstring their competition, but I am certain that they will be actively working their networks of important people to try to do all they can to remain relevant and prosperous. My prescription for people who like to use low-cost, clean energy is that they should get together with those who like the ability to make decisions and act without asking the permission of fuel suppliers. That combination would be a formidable block compared to the fossil fuel energy pushers. They should support those of us who passionately believe that fission is a better choice for the planet than continued dominance by the fossil fuel industry.

Fission cannot always replace combustion. There will be a need to burn a certain amount of fossil fuel, but we are burning far more than our generational share of that valuable material. We should not be aiming to leave our grandchildren – literally just a generation or two from now – a world that has
been depleted of millions of years worth of stored solar energy in the form of coal, oil and gas. It would be far better to bequeath them the technological tools necessary to turn the immensely larger resources of uranium and thorium into useful work.

(Note: I am thinking more and more along these lines as the birthday of my future granddaughter rapidly approaches.)