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  1. Rod – thanks again for your posts. One little niggle – you said

    That XTO purchase will be far more profitable when supply exceeds demand

    . I think you meant to write demand exceeds supply.

    I agree that it’s very telling that the natural gas producers aren’t offering long term supply contracts at low prices. The natural gas industry is also encouraging utilities to convert coal fired plants to natural gas, locking even more of our infrastructure to commodities with volatile prices.

    1. I was going to note the same correction.

      @Rod, from me seeing this posting, I get the feeling you read a few of the things I have posted on the Chesapeake facebook page. I may have just been reading your blog long enough to be thinking along the same lines as you though.

      I haven’t gotten a response yet for my offer of locking in a 10-20 year contract starting at today’s Henry Hub price and with built-in escalations of CPI + 5%.

    2. @Andrew – Thank you for noting the error in phrasing. It has been corrected. You, too, Joel.

      It is good to have careful readers who can recognize what I meant to say.

  2. The fossil fuel industry should have little to complain. It may be slightly off-topic, but according to this NPR report, the U.S. military spends an astonishing 20 billion dollars annually on powering airconditioning units in Iraq and Afghanistan (more than the entire NASA budget !):


    Maybe it is about time to put some money into developing portable mini-reactors for the U.S. Army.

    1. I agree with the idea of developing small reactors for use in the AOR, but not because of the $$. Replacing diesel fuel used in generators with nuclear fission could have saved hundreds of lives since many of the convoys that were hit with IEDs were carrying fuel. Also, using a small reactor with 7 – 10 years of fuel pre-installed would enable our forces to be more resilient against possible supply line disruptions.

  3. Rod Adams wrote:
    For the record, I do not believe that shale gas is a Ponzi scheme. I believe it is a loss leader designed to encourage further fossil fuel addiction. It is doing that by discouraging the near term construction of new nuclear power plants that can take away some of the gas industry’s market share and profitability.

    I believe that shale gas, like certain other investments, is a fad. Fracking does indeed cause natural gas to flow, and no one wants to be left behind. My guess is that judgement is being reserved at the moment about the quick decline in gas production from the wells in the hope of some technological fix coming soon. After all, fracking itself is a technological fix compensating for declining production from conventional gas wells.

    If a technological fix for the quick decline of shale gas wells does not materialize, then the financial fix of higher gas prices will, soon enough. At that point, the financial pain of the producers will be traded for the financial pain of the consumers of natural gas.

  4. Already the Oil producers are constrained by the market and oversupply. In short, the market can not bear the cost. It would be prudent for Exxon Mobil to diversify their capital to prop up a work force stagnation. Investment in composites fabrication and steam turbine manufaturing via investment in GE might prove more profitable than fracking. Hydrogen production via cavitation steam generation is another source for the gas fired market. It is not the money in the ground but the lack of it in the mojority of the consumer market pockets. Supply side economics fails if there is no market for the supply.

  5. Rod,

    You and I agree on many things – but, here we part company.

    I’ve worked with both sectors – my orogins are nculear, as you know, but I’ve worked with BP, SHell and Exxon – and frankly seen little difference in the cultures. Engineering-led, and, compared to the inate hazards of what they do, spectacularly good records.

    Take an example that you addressed in a recent thread – pipeline safety. The reality is, trutium leaks pose a tiny, tiny risk. One that doesn’t stand up to examination. But, in reality, given the energy we shove down them, neither do pipelines. I used to work about 500 metres from a pumping station run by our UK Pipelines Agency, that moved aviation fuel from refineries to Heathrow airport. I can honestly say it never caused a moment’s concern (even when we realised we were about to the primary data-centre for the UK’s biggest energy retailer on a site adjoining Heathrow’s tankfarm).

    Our argument isn’t with gas. To a very large degree, gas and nuclear are natural partners – gas generation plant is low-fixed cost,, high marginal cost. It’s fast responding. Nuclear, even in newer designs is high fixed cost, negligible marginal cost and, alhtough capable of load following, isn’t ever going to do balancing and peaking load. Gas can readily be run in Carbon Capture mode – I’ve worked on a plant that would be identical to the front end og a gas-fired CCS plant.

    And gas can do what nuclear can’t – provide transport fuels at low(ish) carbon impact, and low cost. I’ve run an LPG fuelled car (technically barely distuinguishable from a CNG system). I’ve been trying, for three years, to come up with a viable, competitive way of doing three miles each way most days from my local train station in an EV – all I’ve been able to make work is a 1KW electric bicycle (officially illegal under local EU legislation).

    Compare that with coal, or renewables, and there’s nothing like that synergy.

    Let’s be honest – the obstacles for nuclear are in our own ability to demonstrate safety (an argument already won, on any rational basis), and economics. That latter depends on showing consistent, rapid build more than anything else. And in markets rigged to support renewables. Gas, assuming some reasonablly low carbon tax, isn’t the issue.

  6. @Andy – you’re right. On this issue, we disagree. I have known a number of people in the petroleum business, so I understand your perception of them as “engineering-led”. That is often true in many of the operational units.

    However, I have also dealt with petroleum business leaders who operate financial models, not pipes, pumps, valves or drilling equipment. Those folks are as money driven as any Wall Street banker and they are keenly aware of the law of supply and demand as an active participant. They KNOW that abundant energy supplies translates directly into low petroleum prices, low bonuses, low profits and low stock prices.

    With regard to nuclear’s ability to provide transport fuel, you might not know that I operated two propulsion power plants. I am keenly aware that uranium and thorium could be providing transportation fuel directly for ships, indirectly for trains, and even more indirectly for synthetic oil fueled automobiles. (check out liquidcoal.com, for example.)

    I will be honest – I live in a town that is hurting economically right now because it is the North American headquarters for Areva. A few years ago, there was a huge burst of hiring in excitement for the Nuclear Renaissance and a fleet of EPRs. More than any other factor, low gas prices encouraged utilities to put their plans on hold. Fukushima did not do the deed; the deferral decisions were being made long before that happened.

    1. I don’t imagine things are much different in the US – but I assure you, the senior managment of our electricity generators and retailers are not unaware of finance!

      To give examples, Sam Laidlaw CEO of Centrica (our biggest energy retailer, and owner of 25% of our main nuclear generator) is a commercial lawyer by background, having come to Centrica from being VP for acquisitions and disposals at Chevron. The chap running EdF Energy’s nuclear new build subsidiary, Humphrey Cadoux-Hudson, is a former CFO, and an accountant by training (albeit his Bachelors degree was in Engineering). Johannes Thyssen, CEO of EON, is another economist/lawyer by training.

      And while it’s true that nuclear can, and has provided power for shipping, and can power electric trains, in reality economics speak loudly against a major role. Nuclear propulsion isn’t about to make a major contribution to shipping – and I’ve worked on a synthetic fuels plant, albeit one using natural gas as a feeedstock. The ecnomics are hopeless. Even in that case, using gas with almost no market value (it was in New Zealand,, 3,000 miles from the nearest market in days before there was an international LNG trade), the fuel was about 6x the cost of the petrol it displaced. Making fuel froom scratch” using nuclear heat or electricity will make that look cheap, on capital cost grounds alone.

      We need to maintain a sense of realism. The decarbonisation agenda is the best opportunity the nuclear sector has had in many years – and that will load costs on gas (and more crucially, IMHO, Coal).

      Making over-ambitions claims has been an “achilles heel” of the industry for years – infamously, in the 1950s, it was stated that nuclear power in the UK would make electricity “too cheap to meter”. That’s still thrown back at us. Let’s not offer further hostages to fortune.

  7. @Andy

    When someone fires a hard serve at you, you can either dodge or hit back. My answer to the accusation that we made an over-ambitious claim with regard to electricity that is too cheap to meter is to perform some hard analysis to show that we achieved that result!


    The economics of nuclear power for shipping are different, but potentially just as compelling as they are for stationary, central station power plants. Most ships operate in what is almost a baseload role – they leave port, go to full power and stay there for weeks at a time. However, they burn distillate fuel oil! That situation is getting worse as International Maritime Organization rules tighten on their ability to burn higher sulfur fuels that have been relatively cheap because no other customers could use them.

    Not only do ships burn expensive fuel (which can cost $20 per million BTU or more), but they also have to devote what would otherwise be potential revenue generating hull space to intakes, smokestacks and fuel tanks. I have run the numbers a variety of times – once you have to carry a week’s worth of fuel, the space devoted to your power plant (including fuel) becomes equal for diesel and nuclear. Once you need two weeks worth, the weight becomes equal. From then on, nuclear gains more and more advantage. (Those numbers are for low enriched uranium reactors using PWR technology. They can be made even better with advances like closed cycle gas turbine nuclear systems.)

    The economics of synthetic fuel using vapor might be hopeless, but Sasol seems to be doing alright with producing high quality diesel fuel using coal and wasting about half of the input in producing the necessary heat.

    By the way, did you listen to the episode of the Atomic Show in which a senior VP at Chesapeake Energy described his swat team of activists that partners with environmental groups to help impose laws that favor burning natural gas instead of coal? He did not mention nuclear, but he did talk about how his company viewed energy as a zero sum game where sales by one fuel source were taken from sales by another.

    1. As far as “too cheap to meter”, frankly, we didn’t come close! I’ve never quite had the nerve to do a proper end-to-end financial analysis on our first and second generation plants, but it’s beyond argument they struggled even to make the old CEGB 5-7% “hurdle rate” on payback.

      As far as the marine propulsion side of things, I think you’re underweighting the capital cost issue (as well as operationsl challenges – it’d be interesting to speculate on the publicity the first time a nuclear propelled ship was taken by something like Somali pirates!). I apologise if I sound too much like an accountant, but studying an MBA was an eye-opener for me, when for the first time I really started to understand the issues/problems of finaincing large scale capital investment.

      Re SASOL – you have to recall the origins of the company – making synthetic fuel during the apartheidt era, when South Africa was under boycott. SASOL themselves reckon the costs of the “oil from coal” process amounted to about $30/bbl when market prices were $10/bbl – and that was while benefitting from cheap finance from the government, and heavily discounted coal. Post-apartheidt and privatisation they’ve largely got out of that business – they’re nowadays very largely a conventional petrochem company. They still build CTL plants, but it’s notable that they’re pretty much all projects for governments who want to use local coal reserves to substitute oil.

  8. @Andy – as a former writing instructor, I have to ask about your pronouns. Who are you referring to when you say “we” and what plants are you talking about when you say “our”?

    I do not have an MBA, but I was the cost accountant and General Manager for a small manufacturing company. I also spent 6 years as a financial analyst in the US Navy. Half of that was in human resources and training (specifically nuclear submariners); half was in submarine maintenance. I have a pretty fair idea what things cost. More importantly, I have some experience in controlling costs. I have a different point of view regarding the potential for nuclear ship propulsion that is hard to explain using open source literature.

  9. I’m perhaps being a tad unclear there, I admit – by “we” in the first paragraph, I’m referring to those involved in constructing and operating the MAGNOX and AGR plants in the UK (the Sizewell PWR may, or may not be a different case. As I said, I’ve not cruched the nubers in detail).

    And re the finance issues, my main concern is to do with reasonable expectations of a rate of return on capital invested – something to which highly capital intensive projects like nuclear technology is highly sensitive.

    Rates of return on capital amongst European generators vary from 7-8% in the case of EdF, up to 13% for Fortum. The likes of RWE, Iberdrola and Eon sit somewhere between. At those rates, currently most nuclear investments look marginal – and as someone who has shares in a couple of those firms (via my pension fund), I’d be most upset if they dilute returns significantly.

    And it may well be that non-nuclear fuel prices rise, or fall significantly in the years to come – but the impact of that is reduced in the investment models by the (sensible) practice of discounting future cash-flows. The same thing hurts nuclear new build, unless the industry can demonstrate an ability to build fast and reliably as costs are “up front” and returns delayed by a good few years. We can’t ask for special pleading, in terms of access to cheap capital – nor is it reasonable to assume the demanded rates will fall in the foreseeable future.

  10. I have held my tongue as long as possible. Your recent demonization of shale gas and the fracturing breakthrough that has changed the energy market has discouraged me from continuing to follow your blog.

    I am most of the way through a Masters in Nuclear Engineering and I’ve applied to jobs at B&W, Dominion, and Newport News Shipbuilding. I had an internship with Dominion last year working with nuclear plant safety. It is indisputable that the fuel cost of nuclear will make it the cheapest power source once the capital costs can be brought down.

    However, the problem with nuclear in the US is all about the government’s adversarial attitude. We are doomed to struggling against the parasites in government that arrogate power to control business for their own gain. You believe that if other businesses were similarly burdened that nuclear would get a bigger share. I think the industry will do much better if we fight the communists, socialists, and crony capitalists together with all the other producers in this country, especially the other energy producers.

    I have had a long career in all sorts of energy production and am considering working in gas development now. I would like to share some facts about shale gas economics and environmental impacts if the rest of your readers are interested.

    The NYT article was particularly bad journalism and the “documentary” you cite (Gasland) is pure propaganda.

    Here are the crucial facts about shale gas that I am happy to amplify.

    1. Production is growing rapidly at current prices

    2. The price of gas is stable as far as anyone contracts, typicallly ten years.

    3. There is no documented aquifer contamination from thousands of fracturing operations.

    4. Horizontal drilling allows development of square miles of resources from a single pad and with a deliberate program of radial wells, staged to the needs, that pad can produce steady gas flow for decades.

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