Great article on natural gas supply and demand on Energy Pulse

Tim Douek, Principal, Utilis Energy has published a well researched and useful article on Energy Pulse titled Natural Gas Supply, Demand and Pricing. I highly recommend reading it if you are interested in some of the details that drive the complex natural gas market. The article is especially strong when it talks about the nature of Liquid Natural Gas (LNG) and its particular project requirements.

If you are like most of my readers and you are interested in successful nuclear power plant projects; you cannot ignore the importance of competitive sources of energy.

A big driver for interest in LNG is the difficulty that the domestic natural gas industry has in increasing its production rate to keep up with the increased demand from electrical power utilities. Those entities have invested a little more than a decade in a massive expansion of natural gas burning power plants. LNG supporters have got to be hoping that the new nuclear projects that have been announced and discussed in many forums will not be successful enough to reduce the need to use that gas fired capacity.

If the licensing and construction activities for new nuclear plants are successful, there is a strong likelihood that more new plant orders will follow closely behind the first ones and that the infrastructure put in place as a partial result of the incentives in the Energy Policy Act (EPA) of 2005 will be put to good use in building a whole new generation of nuclear facilities.

Once nuclear plants are built, they are usually operated at high capacity factors, pushing facilities with higher operating costs out of the generating market. The fuel suppliers for the facilities that are not operating generally are not happy unless they have managed to obtain “take or pay” contracts that provide revenue even if there is no fuel being consumed.

That scenario is certainly NOT part of the future as predicted by the Energy Information Agency’s Annual Energy Outlook. The possibility of large additions of nuclear plant capacity is not included when the EIA makes its predictions for natural gas market demand. According to the EIA, there will only be about 6,000 MW of new nuclear plants constructed; they apparently think that the ONLY reason for the construction interest is to obtain the EPA incentives.

Nuclear plant supporters and investors need to be cautious and watch their backs when involved with the LNG crowd. Our projects have the potential for making their projects unnecessary. If they are able to get them financed and built, our success might cause their investors to become very nervous as the demand for natural gas slowly shrinks, causing prices that do not justify the massive capital investments that they have made.