Clean Energy Insight - Moving Energy Forward

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Rod Adams at the Atomic Insights Blog documented the volatile nature of the price of natural gas today in the attached blog.  Rod sums up his article with the following sentence:

It sure seems strange to me that power companies think that there is too much risk in planning a large nuclear power facility yet they will make what appears to be an even riskier bet by building lots of natural gas fired capacity where the major cost component is something that can vary in price by 15% in a single day. (In a gas fired electrical power plant, the cost of fuel is between 80-95% of the total cost of generation.)

With that being said, I feel that it is also important to note the news today from Bloomberg that uranium prices are expected to continue to fall steadily in the near future even with plans of constructing 30 or more new nuclear plants around the world.

“Cheap” Natural Gas Soars by 15% in a Single Day Based on Better Economic News and Less Gas Going to Storage

Friday, September 11, 2009

by Rod Adams

As a long time observer of energy markets, I have maintained a continuing skepticism as many people assured the world that we were entering into a lengthy period of low, well-behaved natural gas prices. I have heard that before and watched as the fuel’s natural volatility took over and prices see-sawed with great drama. Though natural gas has many good qualities, the only time that it is not subject to periods of dramatic price changes is when its price is regulated and that situation has its own significant disadvantages.

Traders love gas; they make their living on changing prices and often benefit no matter which direction the movement is happening.

Yesterday there was another day of excitement on the trading floor as natural gas prices increased by 15% in a single day, rising 42.7 cents per million BTU to settle in New York at $3.256 per MMBTU. As is true for most market fluctuations, the reporters and traders can list a number of factors that caused the movement. People with longer than daily time horizons should recognize that the previous price of $2.90 is/was clearly unsustainable in a world where heating oil, one of the prime competitors to gas in some markets, sells for a price that is 4 times as high. At yesterday’s market close of $1.78 per gallon for heating oil, one can use the conversion of 139,000 BTU per gallon to figure out that it costs $12.80 per MMBTU.

Gas is currently selling for about 25% of its 2008 market highs, also around $12 per MMBTU. That means that the dramatic increases in available fuel reserves that were revealed at that price are NOT going to arrive in the market because the drilling effort that makes them accessible for human use has slowed dramatically. It is predictable human and businessman behavior to slow or stop a difficult and expensive activity if the promised reward for success falls by 75%.

Aside - MMBTU is an archaic, but still frequently used market unit symbol. The MM stands for “thousand thousand” from Roman numerals which equals a million. To add to the confusion of casual market observers, many participants will talk about gas in “per M” which also means a million BTU. Conveniently, one thousand cubic feet of gas holds almost exactly 1,000,000 BTU, so you may also hear people talk about the price per thousand cubic feet - it is generally within pennies of being the same as per M. I know that this kind of discussion frustrates the heck out of engineering types and everyone outside of the USA that like metric units, but we are talking about markets here and need to be familiar with the market lingo.End Aside.

Some of the specific factors cited for yesterday’s move include a lower than expected increase in gas storage additions. Fall, which is closely followed by winter when gas begins to be used for both space heating and for producing electricity, is normally a period when gas storage increases due to lower overall demand. Fall is also the onset of one of the normal maintenance period for some large base load generating plants like coal and nuclear facilities. At this point in the cycle, US nuclear plants are operating at a total of 94% of rated capacity; there are only 5 plants that are in a maintenance period. The trend over the next few months will be for that number to drop as more plants enter into their scheduled refueling periods in the lull between summer and winter demand.

When traders saw the Energy Information Agency storage addition number and saw that it was lower than expected for this time of year, they piled in, causing that dramatic price increase that many have been expecting would happen. The price has plenty of room for additional increases, each of which makes natural gas less and less competitive in the electricity production market where it competes against coal, which has fallen by about 50% since last year to its more normal range of something close to $1.50 per million BTU and commercial nuclear fuel, which has sold for a rather steady price over the past 15 years of about 50 cents per million BTU.

Natural gas producers will cheer the sales price increases as they fall directly to their bottom line, but I expect that they will continue to talk to politicians and electrical power customers about the massive quantities of gas that can be extracted from shale gas areas. They like to tell the story to some listeners that gas is a reliable, low cost, environmentally sound fuel while they tell their investors about the profit increases that will come when the prices increase due to increased demand and less competition.

It sure seems strange to me that power companies think that there is too much risk in planning a large nuclear power facility yet they will make what appears to be an even riskier bet by building lots of natural gas fired capacity where the major cost component is something that can vary in price by 15% in a single day. (In a gas fired electrical power plant, the cost of fuel is between 80-95% of the total cost of generation.)

Perhaps the regulated utilities are comforted in their decision making by the nearly automatic fuel price adjustments that are allowed by essentially all of the public utility commissions in the United States. I wonder how the producers in more competitive markets feel about the risk balance between the two choices or how the customers in those regulated markets feel about the variation in the fuel surcharges?

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I’d like to spotlight some of the best blogs from the week from around the pro-nuclear blogosphere.  I read one from Rod Adams (See Atomic Insights and Adams Atomic Engines) that you won’t find reported anywhere else.  Rod commented on the Clean Energy Summit 2.0, where very important people discussed our clean energy future.  There’s only one problem with that–nuclear energy wasn’t mentioned ONCE.  Enjoy this article from Rod.  He always seems to catch the good stuff.

Nuclear - The CO2-Emissions-Solution-That-Must-Not-Be-Named At The Clean Energy Summit

by Rod Adams

I have finally worked my way through nearly 3 hours of the town hall meeting at the National Clean Energy Summit 2.0 held on August 10, 2009 in Las Vegas Nevada. The panel included John Podesta, President and CEO of Center for American Progress, Al Gore, Harry Reid, T. Boone Pickens and Cathy Zoi, Assistant Secretary of Energy For Energy Efficiency and Renewable Energy. According to Tyler Suiters from Clean Skies News, this group included “the real heavy hitters on policy making in terms of clean energy and energy efficiency”.

Though it is possible that I stepped out of the room at just the wrong time, I am pretty certain that neither the word “nuclear” nor the word “atomic” were spoken during the entire discussion. I heard a lot about the importance of natural gas. In fact, here is a quote from Susan McGinnis of Clean Skies News, when she was fulfilling her anchor duties by summarizing what she had heard during the morning sessions at the Summit.

It’s something that we did not hear a lot about out of Energy Secretary Steven Chu, in the past anyway, is natural gas, something T. Boone Pickens has been pushing for quite a while. It really seems that at this energy summit that his crusade finally has solid legs. I mean T. Boone Pickens is now at every major energy gathering that happens. The words “natural gas” are coming out of the mouths of Al Gore, Steven Chu and lots of others. Margaret Ryan was talking earlier about being surprised that this has such a prominent place at a summit like this one. Whereas a year ago there were all other kinds of renewables being talked about. One year later it does seem that natural gas does have a place at this table, Tyler.
(Ref - Minute 2:30-3:00 of national Clean Energy Summit 2.0 Town Hall Video.

The panel also talked a lot about wind turbines, solar panels, solar thermal energy, carpeting an area 95 miles on each side with solar collectors, building energy efficiency, reducing dependence on foreign oil and even some words about carbon capture and sequestration from coal burning power plants. I heard T. Boone Pickens state that financing wind turbines when natural gas costs less than $7.00 per MBTU is not possible (that is nearly 2 times the current market price). I also heard Harry Reid say that he believes that it is necessary to give eminent domain powers to the Federal Energy Regulatory Commission (FERC) so it could force land owners to accept the installation of electric transmission lines. He compared the needed powers to those that were available during the 19th century railroad construction boom and those used to enable the current interstate highway system.

However, I did not hear one of the panelists or anyone in the audience mention the fact that we discovered a vast new emission free energy source in the middle of the 20th century.

Since not one of the panelists mentioned nuclear power or atomic energy, none of them could talk about the fact that the power source does not produce any greenhouse gas emissions or any other form of air pollution. None of them could talk about the vast reserves of fuel found in North America or Australia. None of them could talk about the job growth in the industry or the recently announced expansions of production facilities by Shaw Group, Northrop-Grumman, Areva, and Westinghouse. None of the could mention the fact that the 26 nuclear plants waiting in line for license reviews at the Nuclear Regulatory Commission, if completed, would produce more electricity each year than ALL of the windmills installed in North America. None of them could describe how this almost magical power source grew from inconceivable to 8% of the world energy market in just a couple of decades, despite the inevitable teething pains of new technology development and a well organized opposition to its expansion.

One of my readers recently accused me of being a nuclear fanatic and described my attitude as similar to someone with a hammer who sees the world as being full of nails needing pounding. I think he is pretty close. I am a fission fan (that is the short form of the word “fanatic”) who gets seriously frustrated by the lack of routine discussion about a power source that has a lot to offer to a world in serious need of what it can do.

During the morning round table at the Clean Energy Summit Al Gore said something to the effect that the people alive on earth today have to ask themselves - how can we not act knowing what we know about the effects of climate change. He said he thought that our children and grandchildren are going to be pretty disappointed with us if we do nothing.

Along those same lines, I have to ask - how can I not make the case for using more fission as forcefully as possible? How can I not keep reminding people who would prefer not to complicate their plans or offend their donors that we have an energy source that is at least as American as natural gas, produces far less carbon dioxide when used, and is far more abundant than gas will ever be? How can I fail to point out that a natural gas powered ship would be terribly impractical because of the massive fuel tanks required, but ships burn a lot of oil that could be otherwise put to use? How can I help people like Al Gore and John Podesta understand that natural gas is not accessible in places where there are no pipelines, but small nuclear plants have a proven track record of providing reliable distributed power in the most inaccessible places on the planet?

I need your suggestions. How can we make sure that Clean Energy Summit 3.0 does not ignore the existence of fission and treat it like Harry Potter’s friends treated Voldemort - as that which must not be named?