1. @Rod: I think you are misinterpreting particular market signals here. Something to consider is that the natural gas market is inherently not like oil, in that it is not as easily fungible (i.e., as you indicate, liquefaction is required for export). As a result, natural gas markets are highly regional.

    Thus, the conclusion I draw from this is that natural gas producers like Cheniere applying to construct liquefaction facilities – and others, like those in Ed Markey’s district looking to apply for export licenses from one of the only natural gas terminals in the U.S. (incidentally, which Markey opposes and which I believe you have covered in the past) – indicate that the natural gas producers are looking to exploit arbitrage. That is, taking natural gas which is very cheap right here and exporting it to markets where it is rare and in high demand (i.e., Japan & Europe).

    I suppose if your really want to make the case that natural gas prices won’t remain low, you can argue that prices will rise as the focus moves to exports. But I don’t see how a massive buildup of export capacity inherently means producers are betting prices will substantially rise at home – in fact, it would appear to imply the opposite belief.

    1. Steve,

      I think in a way that Rod is essentially saying that he would bet on Exxon Mobil’s (XOM’s) purchase of XTO (domestic producer of NG) eventually being a more profitable investment than Cheniere’s project to develop LNG export infrastructure at Sabine Pass.

      XOM definitely has an immensely superior track record of profitability than Cheniere.

    2. If you remove supply from a low-price market to export to a high-price market then prices will shift toward equality. Seems pretty straightforward.

  2. When exactly did this revival of manufacturing in the US occur? I seem to have missed it.

  3. Natural gas has a lot of people cheering for it. If you follow the money, it is easy to see why. I saw a comment on one blog (perhaps here?) stating that on a heat basis, the royalties alone to government on the sales of natural gas are higher than the price of uranium for reactor fuel. And there are plenty of others (corporate officers, employees of gas companies, stockholders) also getting a slice of the pie. That pie is large per unit of heat. It is set to get larger, as the pull of world market prices makes natural gas fungible via the construction of liquefaction plants at existing natural gas import terminals.

  4. Brian,
    Don’t worry the revival came and is leaving:

    There is a national security and foreign policy argument to be made for the exporting of natural gas along with a domestic case for increased price stability.

    Our allies, NATO and OECD are making decisions to move away from nuclear power and are importing significant quantities of natural gas from places such as Russia for Europe and the Middle East for Japan.

    The Russian gas is giving an avenue for Russia to advance its policy agenda of containing NATO, something they have been doing for a long time and failed to do as the Soviet Union. By making Germany more dependent on Russian gas, they hold the German economy hostage to supplies that they alone control, evidence this past winter. Russia has a policy goal of preventing missile defense in Europe. With control over Germany’s energy supply Russia can exert direct pressure on the EU and NATO to prevent the deployment of missile defense in Europe.

    In the case of Japan, their economy is shifting wealth from their nation to the middle east and exposing their energy supply to significant political risk, evidence Iran’s weapons program and the mass of revolutions in the past year. Additionally piracy in the Indian Ocean, and the Straits of Malacca expose the risk of the potential of detention of an LNG ship to Japan. There have already been several oil tankers held for ransom by the Somali pirates.

    A free economies do not function well with that level of risk and uncertainty. As we saw after the Tohoku earthquake the global economy does not function well when a significant cog is degraded and taken out for a period of time. It will shift business to regions that are more reliable and stable. We are seeing the flow of capital from Japan and Germany to here in the southeast in the past year. My wife owns an industrial construction company and our business is booming, as is the entire sector in this region.

    I am grateful for the business however, I am not happy that two major governments enacted policy that is enabling a massive transfer of wealth to other areas for no good reason. I am not happy that our government is acting so irresponsibly in this matter and failing to recognize the overall degradation in our national security and foreign policy posture, while preventing the market from supporting our allies and finding the most efficient solution. Cranks like Markey only want to keep domestic prices of energy low to get reelected. They are effectively taking wealth from the gas industry to do this. Additionally, they are taking wealth from the people whose votes they are buying by exposing them to volatile energy prices because of the lack of fungibility in the market.

    I had an opportunity on Monday to ask Frank Verrastro (Senior VP of Energy and National Security Program) for the Center for Strategic and International Studies about this topic. His words were effectively it is an election year so nothing will get done because the policy makers do not want to push high energy prices onto their constituents. For somebody as credentialed as he is, this is a surprising statement of naiveté. By forcing the market to an inefficient position and enacting protectionist export controls the one who suffers is the domestic consumer. This is basic and I mean basic economic theory, and he helps set major policy.

    The North American energy market (not just US but Canada and Mexico) is a more fungible market. Those countries will act in their interest (as they damn well should) and begin exporting LNG. So I think we will see higher energy prices here anyway without the benefit of exports bringing in revenue, all because of some short sighted pedantic fools who govern our country.

    BTW Mr Verrastro, if you get a hold of this post. It is always an election year.

  5. I believe part of the revival in manufacturing stems from the building of petrochemical facilities based upon natural gas. Dow and others have moved forward on some substantial chemical manufacturing plants.

    Regarding the observation: “How does halting the expansion of nuclear power cut carbon emissions?” I took the original comment to mean versus coal.

  6. No one in their right mind would suggest that NG prices will remain at these historic lows; the problem is to what degree this can help us advance the cause of nuclear power. The answer I’m afraid is precious little.

    The problem is that we have become an economy that is systemically myopic and long-term planning is a luxury that many concerns cannot afford to engage in. In the battle between nuclear and gas, gas simply is the best short to medium term choice end-over-end. Even if prices rise (which they must) it will take huge hikes and a long time to cut into that advantage.

    In several markets gas is also a lower carbon source than the fuel it is replacing used by aging coal-fired plants. This too has to be factored in by governments that must show that something positive is being done on this front. The fact is that many current nuclear plants depend on other thermal generation for ancillary services also doesn’t help.

    Considering the above I don’t think the cost issue will get much traction with the people it needs to, at least as far as moving the choice over to nuclear. That is not to say I disagree with what is being said by Rod, only that it is going to be a very hard row to hoe if we try and depend on this argument alone, or even as the major one, selling nuclear to the public. On top of which, NG producers can keep the price artificially low for extended periods of time cutting the legs out from under any gains we might make in this area.

    I have written elsewhere on these pages about the need to develop grassroots support for nuclear. Those observations still stand, but I won’t repeat them here. Instead I want to bring up another area that will have a major impact on energy in the coming decades which will have a huge impact on both NG and nuclear power: desalination.

    Regardless what one believes about AGW it is abundantly clear that the climate is changing rapidly and populations are continuing to grow. This is already putting pressure on fresh water supplies, a situation that will only worsen with time. Currently this is not yet a major issue in the Western Hemisphere, but the signs that it will shortly become one are difficult to ignore, particularly in the U.S. Southwest. The bottom line here is that while NG may be able to shoulder electric generation economically even with higher prices, it is not likely that it can also take on the burden of desalination in the volumes that will be needed worldwide. This I believe is another argument that can be leveraged to promote nuclear.

    Between the issue of GHG and the above this gives us two powerful arguments that I think will find resonance with the groups that we desperately need to mobilize in this fight. And again the largest of these are the young who will have to live with the choices that are being made now.

    -Rob Gauthier

  7. Rod – keep the pressure on. I to am sorry that there isn’t an endless stream of new nuclear technology stories, but I also realize that businesses have to get on with building the industry and can’t be catering to my curiosity. My curiosity also leads me to too much reading – and not enough doing in support of nuclear power.

    DV82XL – the Fortune article Rod cites is definitely worth reading closely. I absolutely agree with your assessment that almost nobody is thinking long-term. Almost. In the article, Tillerson speaks on the long term view:

    Tillerson believes that the shale investments will pay off for Exxon over 25 to 30 years, a point he emphasized to analysts in March when explaining the company’s careful approach to developing its shale assets. “Now, that is not the same model that all the other players out there would follow because they don’t have the size,” he said. “They don’t have the technology resources, the research resources standing behind them. They don’t have the financial resilience.” He added, “We can be patient.”

    He also comments on opposition to fracking:

    Tillerson believes the discourse about shale has been hijacked and distorted. He says that Exxon is transparent about its practices and points out, for instance, that the company was an early proponent of disclosing the chemicals that it uses in fracking. He argues that shale drillers are being held to an unrealistic safety standard. “What’s happened is the tables have been turned around now to where we have to prove it’s not going to happen,” he says. “Well, that is a very dangerous exchange to get into because where it leads you from a regulatory and policy standpoint is to govern by the precautionary principle. And the precautionary principle will absolutely undermine the economy.” He adds, “If you want to live by the precautionary principle, then crawl up in a ball and live in a cave.”

    (Emphasis added.) Do you think the “environmental” movement the fossil fuel industry funded has finally started biting the hand that fed them? This is a perfect quote to use – the precautionary principle is fine for nuclear reactors but don’t apply it to us.
    Not only that – Greens might be going for the vitals of the fossil businesses.

    It has also led to some resistance from shareholders. An advocacy group called As You Sow, representing a coalition of green-oriented investors, has proposed a shareholder resolution calling for Exxon to issue a report on the risks associated with its development of shale gas. In late March the Securities and Exchange Commission rejected a request from Exxon to exclude a vote on the resolution at its annual meeting in May. (A similar resolution last year garnered 28% of votes cast.)

    Rod’s right – that article merits close reading.

  8. Nuclear energy will proceed on its own merits, Fossil fuels are competitors trying for themselves. Scope for improvement in nuclear power are possible and must be continued. Long term target has to be uranium and thorium breeders so that all the uranium and thorium becomes potential fuel. West is suffering from fatigue and it is being pursued by Russia, China, India and Korea. A major advance would be a safer coolant. Pyro-processing would be another.
    In the interim period, uranium has to be used more effectively. NPT is not hindering weapons development but only power production.
    Indian paper on use of thorium in the fuel for existing reactors is promising but not yet implemented.
    Simple yet safe designs could reduce costs. A reduced moderation design with moderated sectiTons providing neutrons to sub-critical fast pockets could be another. Japanese were working on this but will have to be taken up by someone else,

  9. Don’t forget the large role the big push for Wind Generation (whose behind that fiasco?) has on the advantage of NG over Nuclear & Coal. Wind is a guarantor of NG power generation. Ontario is already regularly dumping Nuclear and spilling Hydro whenever the Wind is blowing strongly. Or exporting the Wind at avg 14.5 cents per kwh for it. And that is just with 1900 MW of Wind installed, that will be rising to 10,000 MW by 2018:


    Wind & Solar Energy is just:

    a) greenwashing for Natural Gas,

    b) a sleazy trick to force Nuclear & Coal out of the Electricity Market and replace them with Natural Gas, since it is not economical to build big expensive modern Coal & Nuclear plants and have to shut them down for large periods or run them at substantially reduced capacity because Wind happens to be high at the time. Wind essentially destroys Baseload Power and turns it into a new form of Peak Demand power – a role that NG generation has always provided.

    c) a way to push up Electricity prices so they won’t look so bad when NG costs skyrocket to International levels about 5X what domestic prices are and also make Electricity too expensive to be attractive as an Energy Substitute for Oil & NG when those commodities are horrendously expensive. Energy Substitution – Nuclear, Hydro or Coal Electricity for Oil or Gas – is a nightmare Big Oil will use any and all devious means to avoid.

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