Means, Motive and Opportunity – The Natural Gas Industry’s Price War Against the Nuclear Renaissance

About 15 months ago, I wrote a blog titled Means, Motive and Opportunity – Who Discouraged US Nuclear Developments? After several intense and interesting conversations during the past three days, I decided that it was time to update that post and provide some additional information. Please take a few minutes to follow the link for the background that post will provide for this one. I also figured that it might be time to try out a new headline and see if my theories about purposeful market action by the established energy industry can gain some additional traction.

Here is an abridged version of the story about how I came to the conclusion that the real power behind the opposition to nuclear energy comes from somewhere inside the coal, oil and gas industry and/or its assorted fellow travelers in transportation, government, media and finance.

The very first hint was given by a colleague in the summer of 1993. I had stopped by Dave’s office to tell him good-bye. At the time, I was a lieutenant commander, a “served engineer officer” on a nuclear submarine, and the father of two elementary school aged daughters. However, I had resigned my commission after determining that it was a good time for me to leave the active duty Navy to start a entrepreneurial company whose mission was to design and build small, modular nuclear engines that could power ships, islands, and other locations not well connected to the grid. I thought I was ready to be a feature story in Fast Company, one of my favorite sources of inspiration at the time.

Dave’s parting message tossed some cold water on my optimistic plans. There have been many times during the past 18 years when I wish that I had marched right down to my boss’s office and figured out how to pull my resignation. Here is what Dave told me – “The oil companies will never let you succeed.” Unfortunately, I was stubborn and ignored Dave, just like I did not pay much attention to all of the other people – my wife, my immediate boss, my mom, the Commandant of the Naval Academy, and even the executive director at Naval Reactors – who told me I was taking an enormous risk.

At the time that I formed Adams Atomic Engines, Inc.there was some stirring in the commercial nuclear industry because the first Gulf War had increased concerns about dependence on unstable areas for our vital heat sources. I thought that there was a niche that the big guys were ignoring – the kind of idea that Fast Company stars always seemed to find – so I thought that there was an opportunity for innovation in smaller sized plants that could be built in a factory to take advantage of the same ideas that made Eli Whitney, Henry Ford and Boeing successful.

Of course, “the oil companies” never paid any attention to Adams Atomic Engines, Inc., but during the first three years that company was in business, the price of oil and natural gas steadily fell to almost unimaginably low levels of $10 per barrel and $1.80 per million BTU. All interest in building anything nuclear evaporated during that period; the displays at annual ANS meetings were dominated by D&D (decommissioning and decontamination) focused companies; and essentially every single power plant built in the United States was designed to burn natural gas. In 1996, I put AAE, Inc. to sleep and found a new job, having spent my life savings, gone through a fair sum of family and friend money, and put my marriage at serious risk of destruction.

I know from many conversations with nuclear trained friends and colleagues that I was not the only one who experienced some significant financial stress and job changes during the late 1990s and early 2000s. That is also the period of the lost generation of nukes – nuclear engineering departments could not attract students, many programs got absorbed into other engineering departments or closed altogether, and a number of valuable research reactors were permanently shut down. Nuclear plants that could have been refurbished (Maine Yankee and Zion) were shut down because their owners could not make the numbers work in competition with $1.80 per million BTU gas, especially in the face of uncertainty about the license renewal process.

A critical look at the economic history of the US over the past 15 years would show most observers that it was a huge mistake to halt the nuclear industry’s stirrings in the mid to late 1990s. If we had kept moving forward, there would have been new reactors coming on line by about 2005, there would not have been a lost generation of nukes, and we would be steadily reducing our greenhouse gas emissions. (And perhaps more importantly, we would be eliminating SOx, NOx, fine particulates, and mercury emissions.) We would be burning less natural gas in electric power plants, freeing up lower cost heat sources for industrial and chemical production.

I might be a rich dude with more power to make positive impacts on the world, instead of a working stiff with a blog written during the dark hours of the morning while I am still in my PJ’s.

My theory is that the drop in oil and gas prices in the 1990s was not accidental. Oil and gas prices are cyclical and determined by the balance between supply and demand, but there is a lot of work and thought that goes into determining just how much supply to put into the market.

Though I have often been accused of being a “conspiracy theorist” (which is a way that some people try to dismiss me) when I describe how the oil and gas industry functions, I am merely describing what you can find by reading the business press and focusing on its coverage of actions taken by OPEC. Though it is illegal for any American company to be involved in a cartel, it stretches credibility to believe that US oil and gas companies ignore or discourage OPEC quota actions.

When OPEC sees a competitive threat, they open the taps to increase market supply and drive down the price to discourage that competition. When the competition seems to be a long way from the market, they gradually throttle production down and establish higher targets for trading ranges. I clearly remember driving along highway 450 near Annapolis one day in 2001 and hearing the way that the announcer discussed OPEC’s decision to seek a trading range of $20-25 per barrel from a then current price of about $18.

My updated theory is that the dramatic price decline in methane prices in 2008 may have been an unavoidable result of a recession driven drop in demand, but I believe that the gas companies saw a real opportunity in adversity. By keeping production up and by touting a technology that they have been using for 60 years as a major new innovation, the gas companies have created a perception of long term abundance.

They have been repeating and amplifying the story of the increase in total North American resources documented in the Potential Gas Committee report of 2009 to the point where it is becoming a bit like a fish story. I have heard people like Boone Pickens throwing out numbers like 3500 or 4000 trillion cubic feet, even though the 2009 report provided a number of 1836 TCF – including all proven, potential, possible and speculative categories of resources.

Since the PGC only provides reports every 2 years, there has not been another report and any number that is higher than 1836 – 56 = 1780 TCF (taking into account the usage since the date of that report) is pure speculation.

There should be no doubt that gas company decision makers have read countless stories about how low natural gas prices have again discouraged the development of new nuclear power plants and have pushed projects off into the distant future. I am nearly positive that they have watched with glee the difficulties in the loan guarantee program and the continuing drop in the number of active applications at the Nuclear Regulatory Commission. When I wrote Means, Motive and Opportunity – Who Discouraged US Nuclear Developments? 15 months ago, the backlog was at 32, now it is down to 20.

My response is to fight back. Many of the leaders in the “nuclear industry” are either too polite or have too many conflicts of interest to point to the logical conclusion that today’s low natural gas prices are temporary. They would take a big risk if they mentioned a belief that the current situation is probably the purposeful result of production decisions by companies that want to maintain and expand their base of addicted users.

I believe that temporarily low gas prices have been created by a group of people who are deeply steeped in the law of supply and demand and who fully comprehend the market implications of the time delays associated with any efforts to expand capacity in the nuclear industry.

Gas/oil industry decision makers are also fully aware that a “standard” 1000 MWe nuclear plant displaces approximately 200 million cubic feet of natural gas per day of operation. At today’s wholesale prices, that much gas costs roughly $1 million. A decent thumb rule is that every reactor-year of delay is worth at least $365 million to the gas industry. Adding a single reactor-year of delay would create a pretty fair bonus for the culprit if he or she can take credit.

Defending markets is a perfectly acceptable action in a free market economy. In the interests of defending my own career prospects and the career prospects of many friends and supporters, I would like to point out that “cheap natural gas” is not so cheap, not so clean and not so abundant. Putting any more of our economic eggs into that basket is an enormous risk.

The correlation between periods of rapidly increasing oil and gas prices and a subsequent economic recession is frighteningly consistent during the past 50 years. There are often some temporal delays and some obscuring information, but look at the period of 1974-1978, the period of 1980-1982, the period of 1990-1992 and the period of 2008-2011.

In that light, I am publishing the following open letter to journalists. I am rooting for Gasland to get its well-deserved Oscar for exposing some of the underbelly of the petroleum beast. Even though Josh Fox does not seem to be a nuclear energy fan yet, he is the enemy of my enemy, so he is a friend.

My hope is that Josh Fox and many of his fans will take a hard look at nuclear energy as a real alternative to natural gas, coal and oil. I want them to stop being infatuated with the combustion alternatives that the oil and gas companies are promoting with great vigor as a distraction tactic. (Please ask yourself – if the oil and gas companies are promoting it, is it really in my best interest as an energy consumer.) My “stretch goal” would be for a few members of NEI to contact Fox and invite him and his crew to visit their plants and the wonderful, thriving communities that host many of those plants. I have media contact information for Josh Fox if there are nuclear companies interested in making that dream come true.

AN OPEN LETTER TO JOURNALISTS FROM
GASLAND DIRECTOR JOSH FOX
IN RESPONSE TO ATTACKS BY GAS INDUSTRY
GASLAND NOMINATED FOR ACADEMY AWARD 2011

February 7, 2011 — With the recent Oscar nomination of my documentary film GASLAND, Big Gas and their PR attack machine hit a new low in its blatant disregard for the truth.

In an unprecedented move, an oil and gas industry front group sent a letter to the Academy of Motion Picture Arts and Sciences saying that the film should be ineligible for best documentary feature.

We are honored and encouraged by the Academy’s nomination. It is terrific to be acknowledged as filmmakers by the film world’s most prestigious honor. But perhaps more than that, I believe that the nomination has provided hope, inspiration and affirmation for the thousands of families out there who are suffering because of the natural gas drilling. The Oscars are about dreams, and I know that for all of us living with the nightmare of gas drilling the nomination provides further proof that someone out there cares.

Now Big Gas wants to take that away, as they have shattered the American dream for so many.

GASLAND exposes the disaster being caused across the U.S. by the largest domestic natural gas drilling campaign history and how the contentious Halliburton-developed drilling technology called hydraulic fracturing, or fracking threatens the water supply of millions.

Fracking is a whole-scale industrialization process that pumps millions of gallons of toxic material directly into the ground. Thousands of documented contamination cases show the harmful chemicals used have been turning up in people’s water supplies in fracking areas all over the map.

We stand behind the testimonials, facts, science and investigative journalism in the film 100 percent. We have issued a point-by-point rebuttal of the group’s claims (“Affirming Gasland”), posted on our website: www.gaslandthemovie.com.

It’s not just us they’re after. The gas industry goes after anyone who tries to punch a hole in their lie. Last week the same pro-drilling group, Energy in Depth (EID), attacked an investigative piece on drilling pollution by ProPublica, the highly credible public interest journalism organization.

And just last week, T. Boone Pickens, the most visible promoter of gas fracking, went on The Daily Show claiming that he personally has fracked over 3,000 wells and never witnessed any contamination cases, even when Jon Stewart asked him about GASLAND point blank. He simply stated over and over again the industry lie, that fracking is safe. Not a single word of acknowledgement, or respons
ibility for the claims of thousands and the threat posed to millions.

The gas industry believes it can create a new reality in which their nationwide onshore drilling campaign isn’t a disaster. But no amount of PR money or slick ads can keep the stories of contamination coming from thousands of Americans from being any less true.

On Monday, Congressional investigators called out frackers for pumping millions of gallons of diesel fuel directly into the ground, exposing drinking water sources to benzene and other carcinogens. This makes EID’s specious and misleading attack on the science and data in GASLAND especially ironic since Halliburton stonewalled Congressman Henry Waxman’s investigation into fracking, refusing to provide data on their use of diesel and other harmful chemicals injected in the fracking process.

There are major watershed areas providing water to millions of Americans that are at risk here, including the watershed areas for New York City and Philadelphia. The catastrophe has been widely covered not only in GASLAND, but also by hundreds of news stories, films and TV segments. This is a moment of crisis that cannot be understated.

Even before its release, the power of the film was not lost on the industry. In the March 24th edition of the Oil and Gas Journal, Skip Horvath, the president of the Natural Gas Supply Association said that GASLAND is “well done. It holds people’s attention. And it could block our industry.”

GASLAND was seen by millions and I personally toured with the film to over 100 cities. In affected areas, people came to the screenings with their contaminated water samples in tow. They came to have the truth they know shared and confirmed

As Maurice D. Hinchey, U.S. Representative (NY-22) recently said, “Thanks to GASLAND and the millions of grassroots activists across the country, we finally have a counterweight to the influence of the oil and gas industry in our nation’s capital.”

Big Gas is blocking the truth in their pursuit of hundreds of billions of dollars of profit. Their clear goal is to ensure our nation remains addicted to fossil fuels for the rest of this century. They seek to stifle the development of truly renewable energy.

They’re playing dirty in more ways than one, attacking the film and the testimonials and science in it instead of taking responsibility and addressing the contamination, destruction and harm that they are creating. I now know how the people in my documentary feel, to have the things they know to be true and the questions they are raising so blatantly discounted and smeared. It is truly unfortunate that the gas-drilling industry continues to deny what is so obvious to Americans living in gaslands across the nation.

Josh Fox
Director, GASLAND