October 17, 2009

NATURAL GAS CHANGES THE ENERGY MAP: “Vast amounts of the clean-burning fossil fuel have been discovered in shale deposits, setting off a gas rush. But how it will affect our energy use is still uncertain.”

UPDATE: Reader Stuart Wagner writes:

I have been in the energy industry for nearly 30 years, much of it as an investment banker and am now the CFO of a private exploration and production company who is exploring in the Marcellus and Barnett shale plays, both in the lower-48 states. I found the article to be well done and fairly complete, particularly on the technical issues surrounding natural gas. However, I found the content addressing how it stacks up against alternative energy to be disappointing.

In comparing nat gas to coal, coal is definitely cheaper on a BTU basis than nat gas (which in turn is cheaper than fuel oil). However, nuclear power is a fraction of the cost of coal on a BTU basis. Alternatively, nuclear power plants are far more expensive to build on an output equivalent basis than coal, which is in turn far more expensive on an output-equivalent basis than gas. Point is, its simplistic to compare the two on just the cost of the fuel. Moreover, the cost of the waste product for each again makes gas the clear victor–nuclear waste versus high levels of carbon dioxide of coal versus moderate levels of carbon dioxide for gas (although I’m a GWT skeptic).

That issue works against natural gas, though, in that the high cost of plant construction for coal and nuclear plants is borne by rate-payers and are owned by powerful, politically-connected utilities who have successfully lobbied for exemptions in the Waxman-Markey bill (which is why Waxman-Markey is a joke–this is about control of the means of production–socialism–not cleaning the environment). The article does address the fact that coal loses its competitive edge when emissions costs are included, but its very questionable as to whether Waxman-Markey puts ANY emissions costs on coal.

Most of us in the energy industry know that alternative energy is a joke and is unlikely to ever meet a meaningful amount of this country’s energy needs. Put aside the fact that its not cost-competitive and unreliable. It has its own environmental issues. Bird kill and surface disturbance for wind and surface disturbance and water for solar (did you know solar panels need to be washed once a week?) not to mention the huge amount of power lines that need to be built. Nimby or Banana (build absolutely nothing, near anything) are already rearing their head vis a vis alternative energy. Even if alternative energy were to meet a meaningful amount of our electricity needs, natural gas-fired power generation will be needed in large volumes because they are the only plants that can cycle up and down rapidly to keep maintain the integrity of the grid as the wind stops blowing or clouds pass over solar panels. Coal and nuclear are base load–meaning the size of the plants necessary for the economies of scale needed are not conducive to easily turning them on and off.

The point is, natural gas is the bridge fuel whether we acknowledge it or not. While Pennsylvania will not become the OPEC of natural gas, there are many more shale plays than were mentioned (the Fayetteville and Haynesville come to mind) plus there are huge deposits in Canada (Horn River) and the North Slope that weren’t even mentioned, plus nat gas offshore that has not even been explored for to date. In addition, liquified natural gas is even cheaper than U.S. supplies and come from places like Australia, Equatorial Guinea, Norway, and Qatar. I would also point out that a national natural gas grid is already in place to move natural gas to market (most cities already have natural gas lines under the streets) so refueling cars would actually be very easy. Most likely it will be conversion of fleets to nat gas, but that could be significant.

I know this has been long and a little rambling, but I believe natural gas will play a tremendous role in our energy future and also believe that the ultimate answer is nuclear.

Thanks, Stuart. And I agree about nuclear.

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