Canada Cannot Solve Our Natural Gas Problem

Posted on June 17, 2003
Posted By: Frank Clemente
 
In recent weeks, the emerging natural gas (NG) supply problem in the United States has been well documented by a steady stream of commentators including Andrew Weissman of Energy Ventures, Ellen Hannan at Bear Stearns and, perhaps most convincingly, Matt Simmons at Simmons International. These analysts have noted several crucial issues: (1) U.S. NG inventories are at some of the lowest levels in over a decade with only 990 bcf in storage compared to 1775 bcf last year and a five year average of 1,520 bcfpd. (2) U.S. NG production has steadily declined in recent years from 52.1 bcfpd in 1998 to 48 bcfpd in 2003 and is projected to drop to 44.3 bcfpd by 2007. (3) Despite this erosion of production, the United States has installed upwards of 220,000 MW of NG fired electric generation capacity in the last several years and continues to add more almost weekly. In just the last month alone, for example, Mirant began commercial operation of its 533 MW NG plant near Las Vegas and Tampa Electric began operation of its 750 MW Bayside 1 NG unit while announcing Bayside 2 (1,000 MW) will begin operation in January. The Bayside facilities replace the retiring Gannon coal plant – thus, a net increase of NG usage. And the beat goes on. Keyspan just announced its plan to build a NG power plant on Long Island next year and Exelon is completing an 800 MW NG unit at Fore River in Massachusetts as well as the twin 800 MW NG units Mystic 8 and 9 – both replacing oil plants. In fact, over 11,000 MW of new NG fired turbines will come on line this summer in 16 new plants located in the Northeast and West alone. The continuing addition of these NG fired turbines to the generation mix means NG will have to meet virtually all incremental electricity demand as well as make up for shortfalls from other generation sources (e.g. unexpected nuclear outages such as the recent event at the 1,250 MW South Texas Project 1 unit). The cumulative nature of the three issues delineated above has profound implications for the U.S. economy and our quality of life. We have built an entire infrastructure – electric generation, residential heating, manufacturing and commercial development – on the assumption that NG would be available at a relatively moderate cost for the foreseeable future. This assumption will surely be put to the most severe of tests as early as this year. The emerging NG supply problem has not gone unnoticed in Washington. Earlier this year, President Bush indicated concern at NG shortages could impede economic recovery. In testimony before the Joint Economic Committee, Federal Reserve Chair Alan Greenspan stated the low level of NG supplies is “a very serious problem” and indicated he is “quite surprised at how little attention the natural gas problem has been getting”. And earlier this month, Spencer Abraham, Secretary of Energy, called for a special June meeting of the National Petroleum Council to “identify those actions which can be taken immediately to ease short-term supply constraints”. While a reasonable skeptic would ask “Why wait until June?” there is little doubt Abraham will find his options quite limited in terms of supply. Basically, the United States has three sources of NG supply: (a) land and offshore production in the lower 48 (81%), (b) imports from Canada (17%) and (c) imports of LNG (2%). In separate reports Weissman and Simmons have already documented the difficulty of increasing supply from within the continental U.S. and offshore. Numerous commentators have acknowledged that significant supplies of LNG is years away due to lack of infrastructure, the long lead times needed and national security risks. This leaves Canada – the focus of the present analysis – and a not too comforting picture. Can Canada Help? – Probably Not
Canada is the largest supplier of energy to the United States. In 2001, for example, we imported about 500 MMbbl of oil and 3.8 Trillion Cubic Feel (tcf) of NG from our northern neighbor. We are also a net importer of electricity to the tune of 25,000 GWH most years and up to 35,000 GWH when needed. Further, since U.S. NG production has declined steadily in recent years we have increasingly relied on Canadian imports to meet growing demand. In 1998, for example, we imported 8.4 bcfpd from Canada but by 2001 that figure had climbed to 9.7 bcfpd. Currently, it is estimated Canada supplies about 17% of U.S. natural gas supply. In fact, U.S. NG policy is predicated on stable increases in Canadian imports over the next several decades. In 2000 the National Petroleum Council concluded “U.S. gas demand will be filled…with increasing volumes from Canada”. The next year the Energy Information Administration (EIA) predicted imports of NG from Canada would increase substantially over the next decade and stated “Canadian resources are adequate to sustain production for many years”. Unfortunately, recent months have shown that Canada is very unlikely to significantly increase NG exports to the United States. Thomas Driscoll at Lehman Brothers has studied this issue extensively and has projected that the 9.7 bcfpd imported in 2001 may be the high water mark for quite some time. Driscoll estimates 2003 imports at 9.1 bcfpd, 2005 at 9.3 bcfpd and 2007 at 9.5 bcfpd. Such numbers clearly are not what the NPC and EIA had in mind just a few years ago when predicting an ever expanding supply of NG from Canadian fields. Yet it would be unfair to say that Washington types were the only ones overestimating Canadian NG production – the market was fooled as well. As a testament to these great NG expectations money was poured into pipelines destined to bring Canadian NG to the burgeoning U.S. metropolitan centers. The most heralded of these, Alliance Pipeline, was announced in the late 1990’s as the means to ship as much as 1.3 bcfpd from NG laden British Columbia to what is arguably the city most dependent on NG – Chicago. In fact, newspaper headlines at the time were typified by the Houston Chronicle in May of 1997, “Natural Gas poised to flood into U.S.”. After five years of planning and construction, many delays and much fanfare, Alliance came on stream at a cost of over $4.5 billion. Its subsequent impact has been minimal and the only significant consequence of Alliance is that it takes NG that had previously been transported by smaller pipelines – putting them in financial disarray. Supply has not been increased leaving the question: “Canada has the pipelines but does it have the gas”? Canada’s Problems
While estimating the future production of Canadian NG is a complex matter it is safe to say that at least six factors are converging to constrain NG exports to the United States over at least the next five years:
  1. Low NG inventory – just as the United States is facing near historic lows in storage levels so is its major supplier of NG. Generally speaking, Canadian inventory at the end of the injection season (November) should run about 450 bcf. Earlier in May, however, it was reported that storage was only 117 bcf – compared to 264 last year and a five-year average of 211. Clearly, Canada will have a difficult time meeting its own needs let alone bailing the U.S. out of a supply shortage.
  2. Declining production – Matt Simmons has made “depletion” a household world in the energy investing business by pointing out the accelerating decline rates of the U.S. wells is over 40% the first year. But this phenomenon is not limited to the United States. Canada also faces a serious depletion problem of at least 30% which can be likened to a treadmill – running even faster just keeps one in the same place. Perhaps no better depiction of the treadmill analogy can be drawn than in Lehman Brother’s estimate:

    In essence, after the drilling of over a hundred thousand wells in the decade 1998 – 2007 Canadian NG production will be basically the same in 2007 as it was in 1998. In fact, if it weren’t for one single field – Ladyfern – in northeastern British Columbia, the 2001 increases probably wouldn’t have occurred. Ladyfern was originally billed by Premier Gordon Campbell as “the largest discovery in the last 15 years in Canada.” Talk of a million bcf “Elephant” was rampant. And, for a time the promise was fulfilled as production from Ladyfern swelled Canadian supplies. Unfortunately, Ladyfern is susceptible to substantial decline rates and the Canadian National Energy Board (NEB) has estimated its decline to be at least 63% over the 2003-04 period. Clearly Ladyfern will not be much of a factor by the end of next year – a major reason Canadian production is projected to revert back to 1998 levels.

  3. Shallow Field Focus – In December of 2002, the NEB provided a dose of cold water to conventional thinking regarding future NG supply. In their “Short-Term Natural Gas Deliverability” assessment of the Western Canada Sedimentary Basin (WCSB), NEB concluded: “Despite drilling a record number of gas wells in 2001, and the start up of the highly productive Ladyfern project, increases in natural gas deliverability have been lower than projected…” The NEB attributes these shortfalls to not only the aforementioned decline rates but also to the “tendencies toward drilling in shallow gas areas characterized by low productions per connection”. In other words, producers have focussed on shallow gas plays which (a) are inherently smaller than their deeper counterparts and (b) have higher decline rates. As a result, more and more wells have to be drilled for less and less payoff. In 2003, for example, a record 11,350 new gas wells are projected across Canada – yet production is expected to decrease. The NEB estimates that fully 67% of all 2001 well connections in the WCSB occurred in shallow gas plays. Until Canadian producers make a systematic effort to access the deeper fields there can be little expectation that NG production in the WCSB – historically Canada’s most prolific region – will increase. Rather, WCSB has appeared to have reached a plateau – more wells, lower production.
  4. Remote Reserves – Canada is blessed with tremendous oil and gas reserves. The NEB estimates there are at least 555 tcf of NG remaining in the nation. Unfortunately, many of these reserves are in what are remote or difficult to reach areas including (a) Northwest territories (175 tcf), (b) offshore including deepwater (167 tcf), and (c) the more inaccessible areas of Alberta and British Columbia. Access to these reserves is years, in some cases decades, away. Significant infrastructure must be built. Pipelines would have to be put in place at a cost of billions of dollars. Foothills Pipeline Company, for example, says a 2,700 km NG line through Canada’s Yukon and into Alberta where it would connect with existing lines would cost over $6 billion. Further, the First Nation residents of the region would have to approve the project. While the MacKenzie Delta will one day be an important source of NG this timeframe is far beyond the help needed by the U.S. over the next five years.
  5. Opposition to exports – As the Canadian public becomes more aware of the NG situation, look for opposition to exports increase dramatically. The price increases in NG are not confined to the U.S. but impact Canadian consumers as well. There will be little support to ship this commodity south just because the U.S. has a shortfall and will pay higher prices. Price spikes next winter could create a public backlash which would overwhelm free trade politicians. Canada has a “market oriented” trade policy relating to NG based on the 1985 Western Accord on Energy. But this policy may be sorely tested as high prices and demand for NG by consumers force a rethinking of the current liberal approach. In fact, problems have already begun to surface:
    • In March, the New Brunswick government filed an appeal to block dedication of a pipeline designed to send NG from offshore Nova Scotia to Boston and other areas of the northeastern United States. The New Brunswick appeal argued sending Scotian NG to the U.S. will not allow for the needs of Canadians’ to be satisfied.
    • In Calgary, the Citizens’ Oil and Gas Council intervened in an NEB case regarding a plan by ProGas to export NG directly to a food-processing plant in North Dakota. The Council argued that Canada is “exporting too much gas and not leaving enough for Canadian consumers”.
    • Unions are getting involved as well. The Communications, Energy and Paperworkers of Canada has stated: “We will intervene in NEB hearings to ensure that we consider our long term needs, and so that Canadian natural gas will be affordable for our key industries…”
    Ken Vollman, Chair of the NEB says most Canadians favor free trade in theory, but that support will evaporate amidst high heating bills. How all this plays out within NAFTA is still open to question. One interpretation is that the current agreement guarantees the U.S. 60% of Canadian NG. Needless to say, with declining Canadian production and rising U.S. appetites Canadian proponents of NAFTA may soon be between a rock and a hard place.
  6. Demand in Canada – the U.S. is not the only North American country in which NG has emerged as a preferred fuel. Canada is also increasingly dependent upon the fuel. Canada exports about 60% of its NG but native demand is steadily increasing along at least three fronts.
    • Power generation – like the U.S., Canada has built NG facilities to meet growing demand for electricity. The NEB has stated “Combined-cycle gas technology, located close to load centers, appears to be the preferred option for new generation” (e.g. the 578 MW Brighton Beach 2004 unit in Ontario). Further, given Canada’s nuclear problems the pressure on NG facilities may well increase. The restart of Pickering A has been delayed numerous times as has the restart of the twin 750 MW Bruce reactors. All three of these plants are now delayed again and restart dates uncertain. Numerous commentators have pointed out that unless these three major nuclear units are online this summer, the pressure on NG supply could be immense.
    • Organic demand for NG is increasing as Canada’s economic recovery continues. NG for manufacturing and commercial growth is an important component to the future expansion of the Canadian economy. Certainly the chemical industry will be pushing to keep lower priced NG in Canada in order to gain competitive advantage over their U.S. counterparts.
    • Oil Sands development in Alberta has long been seen as a future economic boon to the region. In this process tar-like bitumen is transformed to crude oil. Paul Cellucci, U.S. Ambassador to Canada, has indicated the U.S. hopes to import up to 2 million barrels of oil per day from the oil sands fields. Suncor Energy is the primary actor in the oil sands operation and they have shown growing concern about the availability of the NG needed to loosen the bitumen from the soil. The heat intensive nature of this process should not be underestimated. Geologist Joe Riva (Library of Congress) has estimated about 20% of Canada’s annual NG production (i.e. 1.3 tcf) will be needed to operate Alberta’s oil sands projects. In short, Canada faces a major trade-off between continuing oil sands development and producing NG for local consumption – and export. This economic and political debate will become increasingly strident as the public becomes aware of the implications.
Concluding Comments
It is increasingly clear the U.S. is facing an emerging NG supply problem stemming from declining production and increased demand – especially in the power generation sector. Although Canada has effectively served as the marginal supplier of NG over the past several years, the U.S. cannot expect expanding supply from the North since Canada faces its own difficulties. In addition, LNG imports from overseas will not significantly increase for years. Finally, Mexico imports NG and the amount imported from the U.S. will soon reach 1 bcfpd. Perhaps as early as the summer, the U.S. will face significant price spikes to destroy NG demand and allow for local gas distribution companies to fill storage for the winter. Prices are already at work to destroy demand, at the NYMEX HH the close on May 29, 2001 was $3.71 mcf and for May 29, 2002 it was $3.42. This week the price will close around $6. No one fully understands the implications of this situation since our infrastructure is based upon the assumption NG will be readily available at a reasonable price. We do know NG supply problems in the 1970’s caused severe socio-economic disruption. Even then, however, our nation was not as dependent on NG for power generation and residential and commercial space heating. These infrastructural changes are not fully recognized on either Wall Street or Main Street. To a large extent the snap cycle of 2001 portrayed a spurious picture of how easy it is to solve a NG problem. Prices spiked to $10 but drilling ramped up, well operators moved to “flush” production, Canada sent more NG and soon storage facilities were brimming. In the meantime, however, one of the warmest winters in history and a cool summer occurred, terrorists attacked the WTC and the Pentagon and the nation was mired in recession. There is no reason to expect a similar confluence of events and the relentless process of well depletion marches on in both the U.S. and Canada. Surely, we live in interesting times.
 
 
Authored By:
Frank Clemente is Senior Professor of Social Science at Penn State University where he specializes in research on energy policy. His work has been supported by the National Science Foundation, Ford Foundation and Rockefeller Foundation. Professor Clemente has published over 100 articles in a wide variety of media including Oil and Gas Journal, Nuclear News, Journal of Commerce, Electrical World, Public Utility Fortnightly, the Detroit Free Press and the Chicago
 

Other Posts by: Frank Clemente

 
 

Comments

June, 17 2003

Andrew Weissman says

Frank --

Thanks for an excellent article, which provides a great deal of useful information.

On the Canadian side of the border, I'd add only two observations:

1. There currently is fairly strong pressure within Canada (which is a signatory to the Kyoto Treaty) to convert 5,000 MW or more of coal-fired capacity to natural gas (with the first units targeted for converion as early as 2005).

Should this occur, it would add significantly to demand for natural gas in Canada -- and therefore further reduce supplies available for export to the U.S.

2. While Canadian currently exports large amounts of electricity to the U.S., demand fo electricity in Canada is growing and reserve margins are declining. Addition of new coal-fired capacity is doubtful . Iit remains to be seen whether new nuclear is feasible politically and whether new hydro can be added rapidly enough to keep pace with increasing load.

To the extent Canadian electricity load grows more rapidly than new non gas-fired generating capacity is added to the Canadian mix, the effect will be to increase Canadian consumption of natural gas for electric generation or reduce Canadian exports of power to the U.S. or both.

Either way, the end result will be to put even greater pressure on gas supply in the U.S. -- either because there is less natural gas available to import from Canada or because there is a need to generate more electricity from gas-fired units on the U.S. side of the border or both.

On that cheery note .....

Your observation that we have built a massive infrastructure that is dependent upon the availability of moderately priced natural gas couldn't be more on point.

A major transformation of the energy strategy for all of North America is going to be required in order to avoid severe adverse impacts on the North American economy.

The sooner we begin focusing on this urgent task at the highest levels of the government of all three major North American countries, the better off we will be.

-- Andy Weissman aweissman@energyvg.com 202/944-4141

June, 17 2003

Mark Adams says

In this article, you state "Basically, the United States has three sources of NG supply: (a) land and offshore production in the lower 48 (81%), (b) imports from Canada (17%) and (c) imports of LNG (2%)".

I must assume that you are relying on sources of past gas consumption to derive these numbers. I think that may lead to a small error, as the low and erratic price of gas made LNG less viable as an alternative, depressing imports below capacity.

Elsewhere in the article, you state "U.S. NG production has steadily declined in recent years from 52.1 bcfpd in 1998 to 48 bcfpd in 2003 and is projected to drop to 44.3 bcfpd by 2007. "

If we juxtapose those two statements, that 81% of demand is supplied domestically, and that domestic supply is appx 50BCF/d, then It would appear that demand is (50/.81) or roughly 62BCF/d.

LNG capacity of 2.5BCF/d in place today would amount to roughly 4%. Further, capacity expansion in progress would raise this to just over 7% by 2006 and near 10% by 2007, neglecting pie in the sky greenfield proposals on the table. These numbers are based on the info on LNG capacity from page 3 of http://www.pi.energy.gov/US-AlgerianSummit/US-AlgeriaLNGSummit11-01-02.pdf and the two plants SRE has in active development which aren't included in that document.

Later in the article, you state "In 1998, for example, we imported 8.4 bcfpd from Canada but by 2001 that figure had climbed to 9.7 bcfpd. Currently, it is estimated Canada supplies about 17% of U.S. natural gas supply. "

If this is the case, then 2.5-6+ BCF/d of LNG capacity would appear to be a significant factor going forward, both in offsetting near term depletion and moderating pricing somewhat. It is my impression that LNG is viable with NatGas pricing in excess of 3.50, and that imports have ticked up due in recent months.

June, 18 2003

Art VandenBerg says

What I can’t understand, is with all of these very unusual frank comments coming from various analysts regarding the gas crises, it seems not to have sunk in with either Main Street or Wall Street.

On Wall Street, working in the oil patch since 1990, I can tell you I’ve never seen an analyst ever describe energy other than as “declining” in price and an energy company as anything but “overvalued” before, and they still don’t. Oil and gas companies are fairly valued as if the current forward curve for oil and gas, which is steeply backward-dated, will actually come to fruition, and thereafter we’ll be enjoying $22 oil and $3.5 gas in to perpetuity. Strange that they have managed to successfully factor in declining production, but not the effect such declining production would have on prices when applied across the industry.

On Main Street, people are still buying large SUV’s, building 4000 square foot homes 30 miles from their place of work, and heating their outdoor pool. (Why have an outdoor pool if you don’t want to cool down? Oh well.)

The so-called Natural Gas Crises is merely the first act of a much longer time frame “General Energy Crisis”. It’s not that we are running out of energy, there is lots. But we are running out of “cheap” energy. But because North America is built on the premise of cheap energy, the adjustment will be extremely painful. For example, imagine a time 20 years from now, when we’ve had to “Europeanize” our cities, with multi-family homes located within walking distance of major employment centers and widespread public transit. What happens to all those 4000 square foot wooden structures located at the end of a 30 mile long freeway? How do we pay for the major infrastructure costs that will be associated with the conversion, when it’ll be 20 years before we finish paying the mortgage on the current houses, and indeed the freeway itself? Unfortunately, due to rising energy costs, much of North America’s infrastructure is going to be worthless by the time it’s paid for, and we don’t have the money to start building the appropriate new infrastructure we will need once energy prices rise. It’s a classic catch 22. I guess it doesn’t matter though, because even if we had the money, we don’t seem to display the foresight. Here in my city we are constantly developing new overpasses and widening roads, but there hasn’t been a major addition to the LRT (Light Rail Transit) in years. They extend one of the existing lines 2 or 3 miles once every ten years as an excuse to build overpasses, and that’s about it. And it’s not that there isn’t demand for the LRT. It’s jam-packed at rush hour. There just isn’t a commitment to spend money on it, since most voters prefer ring-roads and maga-shopping centers.

June, 19 2003

Joseph Somsel says

While we are seeing short term (3 to 5 year) market responses to supply and demand imbalances, the deeper question remains: have we seen the end of $3 natural gas?

That question is a matter of resource extraction. If cheap (ie shallow, low risk, and close) gas has been largely gotten out of the ground, then E&P companies will have to move to a more expensive "horizon" - deeper, less certain, and more distant wells will have to be drilled. Of course, they will only be drilled if the market price will cover the costs.

Given the recent history of rig counts vs. depletion rates and the complaint about good domestic prospects being locked away by government mandate, one would think that the post-crisis price of natural gas at the major hubs will not fall back to $3 for any length of time and should stabilize near the price of landed liquidified natural gas. When that day comes, domestic production will start a serious slide as imports take over the market. That presumes that the world has plenty of places where really cheap natural gas resources exist and transportation is the major cost factor in bringing them to market - any market with a sea port and a LNG terminal.

This article clearly illustrates that Canada is in the same resource/demand situation as the US and that our markets are closely coupled. Our friends from the North won't be able to bail us out of this crisis nor restore the golden age of combined cycle gas turbine plants.

If these expectations are well-founded, then nuclear power looks increasingly attractive as, alack, does coal.

June, 24 2003

William Quapp says

Nuclear and coal power can be our solution. Current nuclear plants which represent 30 year old technology (or more) still work fine. The waste issue is a political boogy man and not a technical issue. Proliferation resistant reprocessing is a superior solution to burial in Nevada. The issues are political not technical.

My last look -- a couple of years ago (2001) -- indicated that nuclear electric O&M cost (includes fuel and waste disposal) was about 1.7 cents/kWh. I believe that electricity from NG at the same time was 3.8 cents/kWh. Coal was a little higher than nuclear but still much cheaper than NG.

Natural gas use for electricity generation in turbines or boilers should be illegal as it is an "immoral" end use based on historical demands. Driving up the cost of NG and forcing petrochemical jobs offshore is an immoral act even if legal. Forcing retirees to not eat or not heat their home because gas costs have doubled is immoral. Overall thermodynamic efficiency of gas turbines is much less than 50%. In domestic heating and petrochemical use, the efficiency is better than 90%.

I dislike government involvement as much as anyone but when a country needs energy planning on 20 to 50 year horizons (installation and ammortization periods for large capital projects), the private sector, dependent on quarterly earnings, is not going to make the right decisions for society. Even government elected and changed every 4 to 8 years is marginally adequate. It is time we look at energy from a "best end use" perspective -- not most convenient tomorrow.

Does Allan Greenspan need a new job? A federal reserve type of organization with minimum government involvement is needed to set energy policy. The DOE can't do it as it has too much pressure from the Congress and White House. With its leaders reappointed every four years, they can barely find their desks before they have to find a new job.

So, it is time we put asside our energy biases and quarterly earnings based energy decisions and look to the 20 and 50 year horizon. With tax policy, we can motivate the market to do the right thing for the right reasons and have a stable energy cost in our future. The last ime I looked, France ( the same place we despised a few months back) had the lowest electricity price of any major country. Could that be related to the fact that there electric energy supply is 75% nuclear?

June, 24 2003

Edward Overtree says

The fallacies in these facts and so numerous they take many pages to refute, but where have I heard Mr. Weissman's solution before?

Oh, yes; I remember--Jimmy Carter in his 1975 cardigan sweater, moaning that we will run completely out of oil by 1995, but the government will save us. They're smarter than we are...

PLEASE spare us any government "remedies" this time! You're not smarter than we are. We can take care of ourselves.

June, 24 2003

William Masciarelli says

Edward, we've heard your solution before, too.

Let's see . . .

"Let those who can't take care of themselves eat cake."

June, 24 2003

Ron Tan says

Dear Reader, Natural gas supply problem, can be overcome to a certain extend by using Water2FIRE generation for all domestic and industrial application.Water2FIRE generation can be powered by Green Power from Solar , Tidal, hydro and wind . Geothermal to certain extend, all for a 100% zero emission. Hydrogen/oxygen is generated by electrolysis using green power for homes and industry in individual units of different capacity to generate hydrogen/oxygen for heating and cooking.It is better to transit to a hydrogen economy now, before it is too late to save planet Earth from Environmental disaster and also natural resources under Earth are limited. Renewable with Water2FIRE will, certainly be the answer. Water2FIRE Ron Tan

June, 25 2003

Lloyd Weaver says

Great article. I don't understand the negative comments above. No solution per se was recommended.

American’s aren't used to high priced energy, but it’s here. This is an economic question first and a supply question second. The supply crunch and the really high prices are decades away.

Fortunately for us, President Bush bought us some time with the Iraq war opening up a long-term stable source of LNG in Qatar’s massive NG fields, plus a steadying of oil prices by hopefully stabilizing Middle East politics and reinvesting in Iraq’s oil infrastructure to benefit Iraqis (but it will probably stabilize global oil prices for a few decades).

President Bush may lose the election for what he did, but I say he’s a courageous man and we owe him a big debt.

What we do with the President’s legacy is the key question. But if we are smart, we will change our energy ways and reduced consumption, a tough and expensive but necessary undertaking. We will also dramatically change the energy mix by installing the coal and nuclear that we know we must, including coal gasification for petrochemicals as well. And there is no question we will steadfastly install the alternative energy supply technology that we know we must. Experts see ½ our energy coming from alternatives. GE thinks so, they bought Enron’s wind business, for example. Transportation alone will go though a major transformation with hybrid drives and more streamlining and higher efficiency tires; all increasing the cost of a vehicle.

The long and short of it is that electricity will be shouldering a larger and larger burden to help reduce oil consumption with hybrid drives etc., and we can’t get that electricity from NG unless it is LNG, and that is Greenspan’s point, and that is what we are doing. We have to suffer two or three winters of higher prices before NG levels off to the LNG import price, and the Canadians willingly will bail us out on the supply side at these new higher prices until then. I’m highly confident of that.

In the meantime, some of these new NG power plants may go bankrupt before the LNG infrastructure is in place. But without it, they are dead in the water with no wind in their sails. Some may switch to coal as IGCC processes. But with LNG they can’t ever be competitive with coal and nuclear, which they will find themselves confronting in a big way far sooner than they expect. What their business plan will be then is anybody’s guess.

For a glance at a clean-coal IGCC front-end (gasification) technology that NG power may have to compete against, visit www.pcpg.us. Lloyd Weaver, lloyd@suscom-maine.net

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