In the short term I fully agree that there will be a tendency to introduce more natural gas plants due to the far lower capital cost, lower lead times and regulatory hurdles. However the danger is, as you point out, that natural gas prices will not be this low for the entire life of the gas plant and it is the total cost over the life of the plant that determines economic viability (and profit).

There are risks - both financial and technical - in all power generating facilities whatever they are fueled with.

The large difference between the cost of a nuclear plant and other available technologies should prompt nuclear plant manufacturers to lower costs and the only way I see to do that is mass production. The industry has been and continues to be an abysmal failure in this regard continuing the manufacture one-off designs so that there are almost no two reactors in the world that are the same.

The nuclear industry has not applied mass production techniques to manufacturing with the result that every single reactor required different repair tooling and different inspection techniques...concepts that would be laughed at in any other industry. By analogy it would be like Henry Ford building every Model T differently.

In order for nuclear to be considered it MUST dramatically reduce its capital construction costs and the two key ways to do that are to shorten construction time by using factory built modular components and by mass producing reactors that are EXACTLY the same.

The track record - with the notable exception of France - has been dreadful. It seems that China may be going down the mass production path with 25 units under construction but all other nations appear to be producing yet more different plant designs which can only serve to increase capital costs.

My personal viewpoint is that the future lies with LNG and shale gas both of which are going to be in plentiful supply for many years to come. That bodes well for the construction of natural gas plants and not well for nuclear.

Great article.

Malcolm

Second, the conclusion that I draw from the 2010 NERC Long Term Reliability Assessment is that there is no urgency to build large amounts of generation anywhere in the United States any time in the next decade.

http://www.nerc.com/files/2010_LTRA_v2-.pdf

James Carson, RisQuant Energy

James Carson, RisQuant Energy

Hello Mr Thompson,

I assume you are David E. Thompson, PhD Sandia Park who participated in the recent PNM electric IRP.

Question you may be able to answer is:

Where technical experts included to comment on availability and cost of natural gas in the years 2015 through 2026?

Reason I ask is New York Times reporter Ian Urbina is sounding alarms on natural gas. ' Here are some quotes from Insiders Sound an Alarm Amid a Natural Gas Rush

Natural gas companies have been placing enormous bets on the wells they are drilling, saying they will deliver big profits and provide a vast new source of energy for the United States.

But the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells. ...

But if natural gas ultimately proves more expensive to extract from the ground than has been predicted, landowners, investors and lenders could see their investments falter, while consumers will pay a price in higher electricity and home heating bills.

Please ack if you receive this email.

bill

http://www.prosefights.org/pnmrate/pnmrate.htm#thompson

I suspect that thousands of megawatts of coal plants will be phased out and that leads me to my next prediction. Natural gas is unlikely to remain inexpensive over the next decade because of massive increases in demand caused by a much larger fleet of natural gas fired power plants. While the supply of natural gas will increase, I think the demand will greatly exceed the supply increase.

I also predict that few, if any, nuclear plants will be built in the coming decade, with small modular reactors also unlikely to be built. In both cases, poor economics and public opposition will be the cause.

Since I have my crystal ball out, I also think renewable energy is likely to be a “bubble” about to pop as a result of subsidies drying up due to governments (federal, state & local) running out of money. This will be further fueled by the realization that man-caused global warming is not anywhere near the catastrophe some are trying to stampede everyone into believing.

I do not think electricity is going to be our real problem over the next decade. I suspect transportation fuels will be our most vexing and dangerous problem.

http://www.eia.gov/energy_in_brief/about_shale_gas.cfm

Page 79: http://www.eia.gov/forecasts/aeo/pdf/0383%282011%29.pdf

“National Gas Power Plants' Fuel of Choice Recent” – all words capitalized? What is this, the name of a magazine, an organization, what?

I’d guess “webinars” is just cutesy for seminars on line? Whatever that is. Why are Future of Coal and Nuclear Power and Natural Gas shale Gas etc. capitalized”?

“… becoming the fuel of choice for power plant energy production.” So called power plants convert energy from one type to electricity. No energy is “produced.” It used to be that in that within the first few pages of every science text book we found “Energy cannot be created or destroyed.” What fuel to use should be determined by economics and engineering reasons or environmental reasons – not by “choice” as in this season’s hot colors.

As I could not get past the first sentence I cannot comment on the rest of the piece.

Let me tell you about a dream I had a few nights ago. Amory Lovins returned to Sweden, and the ignoramuses who invited him also invited me to discuss nuclear with him. That's when he would have found out something about the cost of nuclear, and the real intentions of Germany, France and Japan.

Unfortunately vacations are probably over at my publisher, and I will be receiving my new textbook to proof read. What a fool I was to write a new book and try to explain a few things about the cost of nuclear to the unlearned.

Thank you all for taking the time to comment on my article.

Please following consider Recent Actions Taken by Major Electric Utilities:

• FPL This month (July 2011) FPL announced plans to build a new 1280 MW Natural Gas Fired plant in Port Everglades; costing about $1Billion or $781/KW (similar to my article’s older $2010 cost figures). Building this NG base load plant justified their long-term delay of expanding capacity at Nuclear Plants [Pt. St. Lucie and Turkey Point].

• AEP This month (July 2011) AEP announced a long-term delay of their CCS demonstration at Mountaineer plant that, in part, was based upon costs similar to those in my article. Also Mike Morris, AEP CEO, warned against dependency on Natural Gas for base-loaded power plants rather than peaking units.

Consider Henry Hub Natural Gas Spot prices over the past year: June ’10 ($4.80/MMBTU) vs. July ’11 ($4.42.MMBTU). These cost lie well within the upper boundary of $6/MMBTU and short-term ($4-4.5/MMBTU) effect of Shale Gas – triggering alternate fuels for base loaded plants.

The costs (cited in my article) or similar relative comparisons are those used by Electric Utility Executives when planning for new units e.g. AEP (Base Load using Coal and Nuclear) vs. FPL (Base Load vs. Nuclear and Natural Gas). Time will tell (next 3 – 5 years) which approach is more financially sound.

Dr. Richard W. Goodwin P.E. West Palm Beach FL

Let me remind you that natural gas when burned in power plants STILL generate carbon dioxide ! Carbon Dioxide has a 10 yerar half-life in the atmosphere which means only 1/2 of it that was generated by the gas plant is removed by green plants and the ocean in 10 years. This causes the ocean to become more acid thus destroying needed coral and fish species.

Yes, nuclear power is TOO expensive. A kilogram of silicon (for solar cells) contains more energy than a kilogram of enriched uranium (2.35% U-238). Go solar !

Dr. Warren Reynolds

However the people that make the decisions about which type of plant to build are focussed on making money from the plant. While one can always criticise those decisions it is easy to see why it is difficult to persuade these folks to build nuclear plants over natural gas. The planning, regulatory and environmental hurdles for nuclear now take many years and many dollars to complete before a single megawatt is produced. Nuclear construction has not a very stellar record for on time completion and cannot seem to get to grips with the fact that the tools and techniques of mass production are essential to reduce costs. The overhead costs (people and materials) are far greater than gas fired plants Gas fired plants are easy to build, face relatively mild planning regulatory and environmental hurdles and require very few people to operate and maintain them. The risks of fuel price increases can be factored in to the long range operating costs.

Practically of course I think it is a terrible waste of our natural resources to burn gas to produce electricity and nuclear is far and away the better choice but I can certainly forgive any Corporate CEO for not seeing that when faced with a mutibillion dollar price tag.

The bottom line is that it is essential for nuclear to reduce both its operating costs and its construction costs if it is to compete in the marketplace.

I would ad in defense of nuclear that huge strides have been made in production from nuclear power plants over the last 20 or so years with capacity factors well above the 90% mark. If the same gusto that yielded these fantastic results was put into O,M and A reduction and capital cost reduction then nuclear would be the clear choice for every CEO tasked with making that choice.

Malcolm

I agree the title is confusing. A Gas Power Plant's fuel of choice is of course natural gas. There IS no other choice! It's a GAS PLANT!! With respect to the rest, I find James Carson's comments revealing (as they often are, despite our occasional differences) and Fred's comments about nuclear power being a better long-term economic bet.

What gets me is that those in the gas industry KNOW its a boom/bust sort of thing so why do they think in 5-year timeframes, whereas the timeframe for power plants is more like 50 years? I don't get it. I appreciate that Nat. Gas plants are cheaper and faster to build than other options, but they get expensive when they are sitting idle because they are too expensive to run.

I'm nervous that gas shale is the wonder fuel that everyone says it is. The environmental issues are not negligible, and I'm not sure the actual resources numbers will bear out over time. We'll see.

I predict a LOT of gas generation stations suddenly comming onto the market from distress and bankrupcy sales fairly soon. When did that happen last? I guess "smart investors" can't remember the late 1990's.

Fred: I am surprised at your comment regarding natural gas that you do not 'do that resource'. While you may be a nuke guy, power market prices are driven largely by the price level of natural gas. I have found that to be true in EVERY market in North America, and I have analyzed every region. I understand that this relationship is true elsewhere. Would you agree that the market price of power is relevant to nukes?

Let me extend this to say that the principal determinant of the value of a nuclear power plant (at least in North America) is the price of natural gas. How does that work?? Natural gas is the principal determinant of power price. Nuclear costs are not sensitive to the market prices of hydrocarbons and tend to be fixed once built. So the difference between the power market price and the nuclear cost, which has been called the 'quark spread', is essentially determined by the price of natgas.

Why is natural gas so important? Despite the fact that natural gas comprises 40% of capacity and only 20% of generated mwh's, natural gas fuels the generator on the margin a disproportionate number of hours, especially on peak hours. The ISO/RTO markets are designed to drive the hourly spot price of power (LMP) to that marginal cost. Forward prices, then, reflect the expected average of those hourly spot prices.

~ James Carson, RisQuant Energy

It also brings into question why, if these gas formations are of limited supply duration, large gas pipeline companies like TransCanada are building thousands of kilometers of pipelines to bring it to market. That would make no sense if the supply will last just a few years.

Also what is not mentioned here is that the cost of drilling wells has decreased substantially as a result of directional drilling technology and is far and away cheaper than drilling wells miles below the ocean. Of course companies are going to go after the resources that are the cheapest to extract and can be sold at the greatest profit.

Whichever way you care to look at it the difference in gas supply in the US is far and away better than it was just 5 short years ago. The US has moved from a net gas importer to an exporter and that will suppress the price of gas worldwide for years to come.

Also drilling technology is never static and the drilling costs will continue to decrease as improvements are made and new innovations are implemented. It is always a fatal error of judgement to assume that the future will depend on the extrapolation of todays technology. That is always wrong.

Natural gas prices are going to remain suppressed for a considerable time at least until the US economy picks up steam.

Malcolm

One needs to analyse why these cycles occurred in the past and identify the differences between then and now.

I do not think there is any dispute that both Canada and the USA have access to vastly more natural gas reserves than at any time in their history. While one can debate how long they will last and the economics of extraction there can be no argument that the gas is there and is accessible whereas it was not before.

Gas is a currently cheap source of energy compared to other forms and is almost entirely shipped around North America by underground pipeline. When supplies are plentiful due to decreased demand (low economic activity) or increased supply (new supply available) the price will be depressed. When you have the combination of both of these effects at the same time the price will be forced lower.

That is the current situation. It is very credible that if were it not for the gas liquids some gas reserves would not be exploited however that cannot be the whole story. It is also very credible that even at these low prices it is still economic to exploit pure natural gas wells because the drilling costs are low.

So far the USA has moved from a net importer of natural gas to a net exporter and is now converting LNG terminals which, just a few short years ago were built to IMPORT gas due to shortages of supply in the US to EXPORT gas to world markets.

When prices are low demand will go up BUT demand depends on the available infrastructure and if you do not have a pipeline near you you simply do not have access to it.

Thus the demand build up is linked to the build out of the natural gas infrastructure. As more export terminals are built the export demand will increase even if the domestic demand does not. As the economy regains steam (as it will) domestic demand will increase in those areas with a supply and gas infrastructure will be built out to areas where it was previously unavailable.

As a result demand will increase and prices will tend to move up, however not as much as was previously the case where supply was severely restrained due to a chronic shortage of available supply to meet the demand.

Gas prices will remain low for quite a long time. If Bill 1380 passes congress (incentives to convert cars trucks and other vehicles to natural gas) you may well see a long term shift from gasoline vehicles to natural gas vehicles.

Also consider in your thinking that there are vast untapped conventional gas reserves in Canada (Mackenzie river delta) and Alaska (North Shore) that are awaiting the construction of pipelines to move the gas to markets in the south.

All that being said gas turbines can only be built where there is the pipeline infrastructure to support them such as near large urban centres. Building power plants close to urban centres is very beneficial and that is where I see the development being focussed.

Large nuclear power plants cannot be built within cities or large urban concentrations and that is why I consider that new combined cycle plants will be the preferred choice for many grid applications. Nuclear will continue to supply base load demand and new nuclear will be built only where older nuclear plants are retired.

Malcolm

< href="http://www.theoildrum.com/node/8212#more">U.S. Shale Gas: Less Abundance, Higher Cost - the Oil Drum

U.S. Shale Gas: Less Abundance, Higher Cost - the Oil Drum