Gail Marcus at Nuclear Power Talk recently published a post titled Natural Gas: A Flash in the Pan? in which she points to two recent articles (Rise of natural gas may mean fall of alternative energy and Is Natural Gas the Next Bubble ? Has Fracking Promised More Than It Can Deliver?) that describe our current energy supply situation as a natural gas bubble. She concludes by wondering what the rest of us should be doing in case those articles are correct and the current oversupply of natural gas is not sustainable.
Still other recent items look at the same problem from other angles. One, for example, notes that many wind farms have long-term power purchase agreements (PPAs). These could keep costs low and exert a downward pressure on rising gas prices. While the article is focused only on wind, the same should, of course, be true of PPAs for other energy sources. I am not sure what the terms are for PPAs, so wonder if these could possibly hold prices down for the longer term, but it may be one way we can buy time as the full dimensions of the gas bubble begin to take shape.
Waiting for something to take shape is simply not in my nature. I was trained to look ahead, bring some technology to bear, sense the rocks on the radar and note the shoal water warnings on the chart. When I see that we are “standing into danger” (to use some more nautical terminology) I must advocate or take effective action to avoid calamity. That need is even more imperative when I realize that the obstacle ahead is not necessarily natural “rocks and shoals” but a high powered, very large ship that is purposely building ramming speed with the intention of harming all of us.
I know Gail on a personal level and believe that she is wonderfully incapable of seeing purposefully destructive marketing behavior. Like many technically-trained nuclear professionals, she projects her natural integrity onto others who do not deserve it. Here is the comment that I left on her blog, which, by the way, is a terrific resource with a unique perspective on energy technologies and politics.
As I tried to imply here quite some time ago in response to your review of “Why We Hate Oil Companies”, I see a purposeful marketing strategy behind what has been painted as a spontaneous, technology-enabled shift in the supply picture for natural gas. In my analysis, one of the factors behind the natural gas bubble is a purposeful effort to derail the nuclear revival.
The oil companies – which are also the natural gas companies – have taken some pages right out of Rockefeller’s dusty old Standard Oil book. They have invested heavily into the infrastructure required to extract and deliver gas, driven down the price and are capturing market share.
As gas producers drive out their competition – primarily new nuclear power plants that do not burn ANY natural gas to supply electricity, which is their most lucrative market – they will act surprised as demand for their product increases faster than their ability to increase production. That process will inevitably lead to an imbalance between the rate at which customers want their product and the rate at which they can deliver.
Prices and profits will rise. Since gas infrastructure is notoriously difficult to build because of the nature of the commodity – it is a low energy density gas at STP – the price increase will be rapid and sustained.
People that extract and sell gas understand its price history. They have very fond memories of the “good old days” from 2001-2008 when their wells were incredible cash cows because they were extracting with essentially zero marginal cost, but selling for $6, $8, $10, $14 or even $25 per MMBTU.
There was a brief period last winter in New England when natural gas prices exceeded $30 per MMBTU. That should have been a clear warning, but it does not seem to have been heeded.
Unfortunately, many of the most powerful influencers in the nuclear industry also remember the last gas price mountain with fondness. When you are operating nuclear plants with a marginal cost of 2 cents per kilowatt-hour in a competitive market where the “last-in” supplier sets the price, skyrocketing natural gas leads to high priced electricity.
Every commodity supplier likes high prices for their commodity, especially when they already know that their production costs are far lower than the market price in a supply-constrained environment.
Once again, I think it is important to try to burn the below graph into the collective consciousness of all energy decision makers. (That includes all of us, we make energy decisions every day, though most of them are a bit on the automatic or unconscious level.)
Please do not take this as investment advice, but I feel the need to tell you that one of the things I have done to protect my personal savings against the inevitable rise in natural gas prices is to buy stocks in companies that will benefit as those prices increase. My portfolio is overweighted in nuclear focused engineering firms and competitive market nuclear power plant operators like Exelon.