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.
I’d like to see Josh Fox as a guest on the Atomic Show. I’m sure he’s a pretty busy guy these days but it wouldn’t hurt to try to ask him.
Yes and while you’re at it get him interested in making a documentary on Nuclear Energy. But make sure he’s pronuclear first.
I have contacted Josh Fox’s media contact. I’ll see how that goes. In the meantime, I am operating under the assumption that he is a man with a questioning attitude and an observant nature. With those attributes, even if he is currently not pronuclear, I am pretty sure that he can be convinced by reality. That is why I will also try to arrange for him to visit at least one nuclear plant, but maybe we can achieve more than that.
I came across a press release from Friends of the Earth, on a site called CommonDreams.org (found via a google news search), which discusses a plan by GE-Hitachi and the Department of Energy to try to build a demonstration plant for the GE-H PRISM reactor (which is a small modular reactor based upon the Integral Fast Reactor design).
GE-H and DoE, because this is a first-of-a-kind demonstration reactor, believe that they can operate it under the authority of the DoE without NRC licensing. FOE contends that this would be illegal and that the reactor requires NRC licensing. I have a few questions, which I wonder if you might possibly, if you have a chance, perhaps look into (you know things and people which/who, I think, would probably be good sources for answers, which I don’t know, and I think these are the type of questions which would be very hard to answer with just google/bing/wikipedia), maybe write up a blog post with your findings?
* How can the NRC actually license designs which are basically new? Doesn’t the NRC need operation results from experimental reactors to create licensing guidelines? Isn’t that why the DoE was given authority to run experimental reactors – to give us a path to get experience with new designs for which their is inadequate experiencing to create licensing guidelines?
* Does the NRC have enough past experience with sodium fast breeder reactors that, based upon that experience with previous designs, they already have enough experience to create a licensing regime which could apply to the PRISM, since it is part of that general category?
* The linked presser above claims that this is illegal because,
The federal Energy Reorganization Act of 1974, which created the Nuclear Regulatory Commission and the Energy Research and Development Administration (now DOE), requires NRC licensing of a nuclear reactor ‘when operated in any other manner for the purpose of demonstrating the suitability for commercial application of such a reactor.’ Thus, unless the projects are pursued exclusively by the Department of Energy with no private involvement, Nuclear Regulatory Commission licensing is mandated.
The snippet they provide seems to be missing some context which, I think, would be necessary to interpreting it (it’s not even a complete sentence, it’s a sentence fragment). So, I went and looked up the cited act, and searched for the above fragment, and found the following as the whole text:
Sec. 202. Licensing and Related Regulatory Functions Respecting
Selected Administration Facilities
Notwithstanding the exclusions provided for in section 110 a. or any
other provisions of the Atomic Energy Act of 1954, as amended (42 USC
2140(a)), the Nuclear Regulatory Commission shall, except as otherwise
specifically provided by section 110 b. of the Atomic Energy Act of 1954,
as amended (42 USC 2140(b)), or other law, have licensing and related
regulatory authority pursuant to chapters 6, 7, 8, and 10 of the Atomic
Energy Act of 1954, as amended, as to the following facilities of the
(1) Demonstration Liquid Metal Fast Breeder reactors when
operated as part of the power generation facilities of an electric utility
system, or when operated in any other manner for the purpose of
demonstrating the suitability for commercial application of such a
(2) Other demonstration nuclear reactors
Good questions. I think one would have to go back to the legislative history regarding the split of the AEC and what Congress intended. For example, NRC is prohibited from developing its own laboratory complex and has to depend upon DOE (previously ERDA). Not a lawyer, but I believe DOE actually has latitude regarding your question. It chooses in more recent cases to accede to NRC. However, it can come under the purview of the DNFSB (which is advisory in nature).
The private company piece is a canard. Who is building naval reactors? Naval Reactors is in the DOE, but enjoys substantial independence from both the DOE and NRC bureaucracies.
Several observations about the comparison between Gasland and Haynesville that I just discovered due to reading deeper into Rod
@Bill – It is also worth noting WHY CNBC is such a huge promoter and cheerleader of business as practiced today and Wall Street.
NBC Universal is a GE subsidiary. GE is a >$150 BILLION conglomerate that includes a number of arms that benefit from a shift in market attention to natural gas and wind from nuclear energy (especially since the GE-Hitachi ESBWR and ABWR offerings are not doing well in the US market). GE Capital was also a huge beneficiary of the bailout and a leading culprit in the collapse that required the bailout in the first place.
There was a time when GE employed a lot of Americans at great jobs and made terrific products. That time was somewhere in the past.
The power of good PR. GE is in the background and puts out soft advertising with GE workers dancing but no explanation on why that is important to making a profit.
Thanks for the reminder of the GE to NBC connection. That explains a lot about who issued the orders to buy Haynesville.
I see a lot of “we think” and “we believe” at your Atomic Engines web site. But I don’t see anything at:
Unless you’re taking credit for what PBMR (Pty) Ltd has submitted….
As a Naval submarine engineering officer, you relied on shipyard-provided designs and procedures that you never produced. As an “entrpenuer” you are again relying on someone else’s work without a single hour of commercial nuclear power plant experience yourself. I think Tohiba, NuScale and Hyperion will have success before you. Good luck with that degree in English!
@Guest – You are correct. There is no current plan for any Adams Engines. Here is an excerpt from the current “About Us” page:
Adams Atomic Engines, Inc. is once again in a cash preservation mode, waiting for several initial conditions before starting serious development, design, and licensing work. We have no current employees, are not working on any current projects, and are not hiring any employees.
As I have described on a number of occasions on Atomic Insights, I have put Adams Atomic Engines, Inc. to sleep. I maintained a full time job in the Navy until my retirement in September 2010. I am now employed by B&W working on the mPower reactor. My degree in English is coming in quite handy, thank you.
@Guest – you can also find our project described on the World Nuclear Association page
One of the reasons that you cannot find anything about Adams Engines on the NRC web site is that we could not afford to pay the $259 per hour fees to try to teach them how to understand direct cycle gas turbine engines without some prospect that the fuel we needed would be available. We had no desire or intention to be fuel producers. Once the PBMR project closed shop, the last available free world option closed – at least until the NGNP fuel has finished its testing in 2018 or 2019.
So taking this argument further, this post raises a question of what is needed (from a technological perspective) for nuclear to be an adequate and effective replacement for natural gas in electricity generation? Since there are few “here” talking about investments in conservation, efficiency, demand management, and newer grid and transmission technologies (I think we need to be looking at these things regardless of power generation sources)
“Can current designs be load following … ?”
Yes. The plants were originally designed with load following capability (some better than others, of course). Remember that, back then, some people were predicting that the U.S. would have 1000 reactors by the year 2000. (It’s probably a good thing that this didn’t happen, since that many reactors would produce about twice as much electricity as we use today.) Nuclear was expected to be producing the majority of the country’s electricity within a few decades, and thus, some load following would be necessary.
Nuclear power today provides only 20%, so there is no need for reactors to do load following. It is better to do the load following with either hydro, which is easily throttled, or another source with higher marginal costs (e.g., gas) and leave the relatively cheap nuclear plants running full out.
I am always amused by the fact that supporters of renewable energy have infinite faith that engineering and technology will somehow come to the rescue of wind and solar and make all the shortcomings of those modes of generation go away, yet at the same time remain convinced that nuclear power will never solve ‘problems’ like load-following.
Perhaps Rod can get the “sales” data for the B&W NPPs. Davis Besse, TMI, Rancho Seco, and the other B&W units were “designed” to accommodate a 20% per minute runback (load decrease) and emergency runbacks of 30 & 50% (but not as great a decrease in power. They would also withstand a “loss of load” and a “loss of reactor coolant pump” with out tripping the reactor. These were “guaranteed” by B&W and tested and verified at original startup on each plant – prior to the TMI-II incident. During the “incident,” other vendors that were helping with the incident were amazed that the system could do this, and as a result these capabilities were removed from all B&W systems as part of the TMI Lessons Learned Action Plan. Most of these runbacks were replaced with unit trips. The B&W owners did not push back as they were losing a million dollars a day on any delay, and most were base-loaded anyway.
As designed, the B&W units had a “Dispatcher” controlled power output setting. The dispatcher (in the system control center, miles from the plant) would adjust a control to set in the plant’s output power, just like he would for Coal, Gas, or Hydro. The AEC (Atomic Energy Commission) nixed this, but not until they discovered it. I had heard rumors that unions had something to do with this as the “dispatcher” was doing “operators” work.
“Perhaps Rod can get the ‘sales’ data for the B&W NPPs.”
Probably not, since he works for the part of the old B&W company that sold fuel to the US Navy. My company has most of the expertise on the old commercial B&W plants.
Anyhow, Rich is correct. One of the great selling features of the B&W plants was their superior load-following capabilities, which largely resulted from their unique steam generator design.
What happened after the TMI accident is a shame, but then again, all of those B&W plants are now run as baseload — and will be run as such for the rest of their operating lifetimes — so none of it really matters today.
In any case, the claim that nuclear can’t do load following is a myth that deserves to die.
@Brian – you are mostly correct. However, the part of B&W that made those unique steam generators was not part of the sale.
If you look at the cartoons of the mPower, you will see that there is still no ‘U’ in our company’s S/G’s and those devices still retain some unique advantages over the ones designed and produced by other companies.
The other thing worth noting is that compared to the rest of the operational costs the price of fuel for a nuclear plant is virtually nil, so running said nuclear reactor at 100% costs almost exactly the same as it being switched off producing no power at all. So therefore we could in theory build enough reactors to supply all of our electrical needs at peak times, dump the surplus electricity across giant resistor arrays (!) off peak, and even this flagrant waste would still be perfectly economical because hey, it
That’s a pretty good idea. A shrewd entrepreneur would start a power intensive industry that could operate at off-peak times. The utilities would basically give away the power for free. The daily cycle of electricity use is quite predictable, more so than the weather. Time to start brainstorming on some energy products.
Home work assignment –
Count the number of ads on TV extolling the virtues of Coal, Gas, and Oil.
Multiply the weight of Coal, Gas, and Oil used to make electricity by two.
And they are concerned about the release of CO2 into the atmosphere?
So they plan on “sequestering” this waste, you claim, in defense of their actions.
Where are they going to put all of this “sequestered” waste? Go back and look at the film clip of the trainload of coal going to a power plant. Now multiply that by two and that will need to be hauled out to dispose of it. How much is just the transportation going to cost? Where is the environmental impact statement? The cost of electricity will become so high that meters will require an armed guard to prevent tampering! (Exaggeration, but likely)
How many ads did you see extolling the virtue of nuclear power or how little CO2 it releases?
@Guest: Here’s one suggestion for “a power intensive industry that could operate at off-peak times”. . .
I don’t know if that company is ‘the real deal’ or not, but they at least seem to be based in real science and engineering, and the business model of using off-peak electric to produce synthetic liquid fuels sounds like a solid, money-making idea, as long as the costs of production are reasonable.
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