Saturday, May 29, 2010

Failure to pass climate bill will benefit natural gas

With cap-and-trade unlikely, green groups see it as the best alternative to coal

This blog post is an edited version of an article published in Fuel Cycle Week V9:N376, May 13, 2010, by International Nuclear Associates, Washington, DC.

natural_gasThe long and probably doomed path of the Senate climate legislation, which contains what the nuclear industry considers a crucial emissions cap-and-trade provision, took another twist in May when its sponsors, Senators John Kerry (D-Mass.) and Joseph Lieberman (I-Conn.), introduced it in the Senate without their Republican coauthor, Lindsey Graham (S.C.), who dropped out for political reasons.

This signals that they have given up, at least for now, on regaining Graham’s support, which they had hoped would attract more Republican votes. As a result, their chances of advancing the bill in the polarized Senate are dim. Even some Democrats are wary of the bill because it contains incentives for offshore drilling, as an out-of-control oil spill on the Gulf Coast grows more dire every day.

The White House keeps trying to get Graham back in the fold. In attaching a measure to add $9 billion in federal loan guarantees for new nuclear plants to an appropriation bill, if passed, will cover two new reactors in South Carolina. That might get his attention.

Should the Democrats lose their majority in the coming midterm elections, as seems ever more likely, it may be years before anyone tackles emissions-curbing legislation again. This scenario would deal a heavy blow to the nuclear industry.

Wheels come off plans for a carbon market

dysfunctionalFor some time key nuclear utilities, including Exelon, Duke and Florida Power & Light, have campaigned for a steep price on carbon-dioxide emissions, hoping to see benefits for both nuclear and renewable generation. They posited that the climate bill’s carbon tax would drive investment toward nuclear new build, which generates no emissions while delivering enormous amounts of energy.

That would help utilities overcome the obstacles of heavy upfront capital investment and long lead-time before plants are brought on line. John Rowe, chairman and CEO of Exelon, has expressed the hope that the emissions tax would permanently shift utilities’ capital investment planning toward nuclear construction.

Natural gas, the preferred fossil fuel because of its relatively low emissions, would fare better if the emissions measure were to fail, however. For most nuclear utilities, that creates a dilemma in deciding whether to back the cap-and-trade proposal, because most also run fossil-fueled plants. The independent power generator NRG, for instance, plans to build two new nuclear reactors in Texas, but also has significant coal-fired and natural gas generation assets.

As Exelon’s Rowe has pointed out, the essence of the electric utility business is return on assets. The quicker capital assets generate revenue, the happier stockholders will be over time. The time-to-market for a 500 MWe natural gas plant is a lot faster than for a nuclear reactor. The reactor has a longer operating life, and the energy density of uranium insures it will produce more electricity, but it takes a lot more money to build one and more time with much of it consumed by regulatory reviews.

William Tucker, an advocate of nuclear who authored the book Terrestrial Energy, is nevertheless a realist about the fossil-fuel market. He has noted that the supply of natural gas in the U.S.is abundant and will grow with the contribution of huge gas producing shale deposits. Moreover, these deposits are not on federal lands, which will make development much less subject to regulatory delay and environmental paralysis by analysis.

How to keep the gorilla in the closet

gorillaOne thing boding well for the climate bill is that no one in any industry wants the Environmental Protection Agency involved in regulating CO2 from coal plants. In effect the EPA is the administration’s gorilla in the closet that it can threaten to unleash if the disputatious senators do not figure out how to work together. Just before the climate legislation was introduced in the Senate, representatives of about 100 companies met with Sen. Kerry to suggest climate legislation that would stave off EPA and state emissions regulations.

One likely option would be to swap out coal for natural gas. Coal accounts for 48% of electricity generation in the U.S., and that hefty market segment represents a major opportunity for the natural gas industry. The same utilities that fear regulation of CO2 by EPA think the agency might give natural gas a pass because of its lower emissions. If that would keep the regulatory gorilla at bay, these utilities would build natural gas plants, with their quicker return on investment, and postpone nuclear energy to future decades if and when a carbon emissions market comes into being in the U.S.

Antinuclear groups would also favor the substitution of natural gas for coal. It would let them claim they had succeeded in reducing greenhouse gas emissions, without appearing to cave in on nuclear energy, which would alienate their base. These groups are pushing hard for a climate bill, and they are part of President Barack Obama’s political base. He’ll need all the support he can get from them come November. That’s good for natural gas and bad for nuclear.

Note: My friend and online colleague Rod Adams at Atomic Insights has written extensively on competition from natural gas relative to nuclear energy. See in particular his blog post on the cozy relationship between green groups and natural gas companies.

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3 comments:

Rod Adams said...

Dan:

The advantage to natural gas from the current stalemate cannot be lost on the people who make their money by marketing, transporting or delivering natural gas and its associated products.

I have a hard time believing that the inaction is not being encouraged as the desired outcome.

BTW - my analysis of the resource numbers for gas compared to consumption are not as optimistic as some. Counting all proven, possible and speculative reserves the US has approximately 2000 TCF. Our annual consumption is currently 23 TCF, giving us less than 100 years of supply AT CURRENT RATES.

That is a scary number if the goal is to increase our consumption. Natural gas is a very useful raw material and should not be burned unnecessarily just to provide a higher income to people that are operating extraction companies today. As much of the material as possible should be retained for future generations.

It is one thing if there really is a technology available that allows a transition from fossil fuels, but anyone who believes that traditional renewables like wind and solar are capable of the job is delusional.

DocForesight said...

Why not keep the legislation as simple as possible: (1)place a fee or tax on bona fide pollutants like SOx, NOx, mercury, arsenic and Particulate Matter so as to lend "encouragement" to clean up the air and minimize the fly ash and holding ponds; (2) include loan guarantees for new nuclear construction; (3) offer incentives and penalties, appropriately applied, in order to maximize our exploration of transportation fuels.

If the EPA takes on a role not authorized by Congress, de-fund them.

Anonymous said...

Shale gas reserves decline quickly & dramatically; forget the groundwater pollution problem, right now they're using newly enacted accounting tricks to hide these giantic negatives.

http://www.businessinsider.com/marcellus-shale-disappointment-2010-10