Saturday, August 8, 2009

Natural Gas Power Plants Booming

It is always a pleasure to watch the market work, especially when unrestricted by overly-burdensome government regulations. When natural gas was regulated in the 60's and 70's, a shortage of natural gas occurred and then-President Carter announced we had an energy crisis, a shortage. There was a crisis, allright, but it was a crisis of over-regulation and stifling the creative energy of oil and gas men. When those regulations were relaxed, amazingly, the energy crisis disappeared. Natural gas today is far more abundant, and less expensive as a result. Based on the huge reserves of natural gas, and the confident prospect of even more being placed into production for the foreseeable future, power companies are building combined cycle gas turbine (CCGT) plants all around. First, a 350 MW combined-cycle natural gas power facility in Brockton, Mass, then TVA is moving ahead with plans for an $820 million, gas-fired power plant instead of a nuclear plant, finally (to name just three), CPV wants to construct a 1,200-megawatt, high-efficiency gas [fired power] plant that can help supply electricity demand in southern Ontario, Canada, instead of a nuclear plant.

Meanwhile, in the forlorn and gloomy world of new nuclear power, nothing is being built in the U.S., and those who planned to build nuclear power plants are scuttling those plans in favor of, what else, natural gas power plants (see above for two examples). Utilities do have some sense, after all. They also have shareholders who have the right and the power to sue the corporation in a shareholder derivative suit. The corporation could, of course, claim the business judgement rule defense, as their company loses money and the stock price plummets - all because they built a nuclear power plant that cost tens of billions of dollars, took a decade or more to complete, and then found their customers reducing their power demand by self-generation. With apologies to Field of Dreams writers, "If you build it, we won't buy."

Some pundits write that the natural gas industry is behaving irrationally with prices low, and production continuing as storage volumes are filled. That analysis shows a failure to grasp the fundamentals of business: buy low, and sell high. This is not complicated stuff, here. With natural gas prices at or near historic lows, yet the almost certainty that prices in the coming winter will be higher due to increased demand caused by cold weather and a (hopefully) increased economy, it makes all the sense in the world to produce gas now, store it, and sell it later for a nice profit. This cycle of produce and store in summer, and sell in winter has been with us for a couple of years at least. With global warming on the wane, indeed, winters are growing more severe, thus the demand for natural gas to heat buildings and homes is assured.

There is no conspiracy, no market manipulation, no chicanery, just common business sense by people who know what they are doing. Buy low. Sell high. A winning formula.


Rod Adams said...

Roger - I am not sure that you and I fundamentally disagree here. It is certainly rational business behavior to buy low and sell high. It is also quite rational for suppliers of a commodity to sell low long enough to dissuade their customers from finding an alternative. It is marketing behavior that rich and powerful people from places as diverse as Columbia and Afghanistan would recognize.

Provide an inexpensive escape from a harsh reality; get short-sighted customers focused on the next quarterly report to buy cheap plants that can only burn one kind of fuel - what's the difference?

I agree that the behavior is rational - I just do not think it is right. I have spent far too much time in churches and in service to my country to believe that taking the easy road to riches is moral or even successful over the long term.

Rod Adams said...

Roger - One more thing.

Weren't you the guy who wrote the following comment on my blog?

"You are also very amusing in your characterization of me as a Natural Gas friends and clients got quite a kick out of reading that (and so did Mom)...Actually, I'm much more into the grid-scale renewables for power generation and the Energy Storage Systems associated with them. "

I could be very wrong, but it sure seems like this post is a celebration of the current market success of natural gas. If you are not an advocate for that fuel source, who is?

Roger E. Sowell said...

Mr. Adams, you have an interesting viewpoint: what is rational is not right. I am no PhD in philosophy, but that appears contradictory.

The supply of energy throughout history has required man to make choices. Selecting among alternatives can be done blindly, but that is irrational. Careful selection after considering the consequences is rational.

Even long ago before nuclear, natural gas, oil, and coal were discovered, and human muscle power was the only energy source, man had a choice of using his own labor or obtaining slaves and forcing the slaves to do the work. Later, slaves turning a grindstone could be substituted by a water wheel.

There is no harsh reality regarding natural gas: it is clean, abundant, readily available, and cheap. The harsh reality exists with nuclear power: it is toxic, terror-inducing, unsafe, and very very expensive as my writings, and many others, have shown. Einstein himself wrote that he wished he had never discovered the mechanism that led to nuclear fission.

As for me being an advocate for natural gas, that is merely one of many fields in which I am an advocate. Attorneys advocate for their clients, among other functions. Engineers advocate as it pleases them. I also am a student of, and expositor for, the Grand Game, of which I write on my blogs. The most exciting and rewarding fields at this time are in renewable energy with grid-scale energy storage, for power and transportation. see

Bill said...

"Engineers advocate as it pleases them." That's an interesting statement. Engineers should advocate based on a logical evaluation of the merits of all the available options. Personally, I see a great deal of benefit in natural gas as a chemical feedstock, as fuel for home heating/cooking, and as a transportation fuel. I even see some benefit in certain applications of cogeneration. However, expanding our use of natural gas for large scale electricity production seems irresponsible to me when we have so many other viable options. Chief among those options should be nuclear power.

As for your assertion that TVA is building that gas plant "instead of a nuclear plant," last time I checked, TVA is still building Watts Bar Unit 2. According to your linked article, they are still keeping the option open to build at Bellefonte as well. Perhaps TVA doesn't need 4 new reactors (4-5 GW) worth of generation capacity in the next 10 years. Given their recent power demand statistics, that doesn't surprise me in the least. Nothing in your linked article suggested any connection between the new gas plant and any nuclear projects.

I suspect that the natural gas plant is going up simply because it's not economical, or even possible, to upgrade the 50+ year old John Sevier plant to meet the latest environmental standards within the timeframe required by recent legal judgments.

Many companies have built natural gas plants because they're quick and easy. I would challenge them to make a choice between what is easy today and what is right in the long term for their shareholders and for the country as a whole. As we've seen in recent years, many of our largest institutions have failed miserably in that regard. My former employer wasted tens of millions of dollars on gas turbines that never generated a single kilowatt because they were simply not competitive with their other generation options at that time.

It's funny that you refer to nuclear power as toxic and unsafe. I suppose that methane isn't technically toxic, but there's no doubt that it can be highly unsafe if not properly controlled. As an example, 22 people died in a gas explosion in Italy earlier this summer. Just last month, a worker died in a pipeline explosion near my former home in Jackson, MS. Does that mean we shouldn't use natural gas? Of course not. However, it does demonstrate that there are legitimate "safety" concerns with any form of stored energy. Personally, I'd rather have a storage cask for used nuclear fuel in my backyard than a natural gas storage tank, because I know that the sealed and shielded nuclear fuel is a whole lot less likely to kill me.

It's easy to be scared of nuclear power if you don't understand the technology. Once you do understand it, and you get to know the dedicated professionals who work in the industry, it's hard not to understand what an awesome boon it is for our society. Unfortunately, the anti-nukes and fossil fuel interests have historically had a much stronger PR machine than the pro-nuclear advocates.

Roger E. Sowell said...

Mr. Bill, I have addressed each of your points in my blog entry Nuclear Nuts on

Engineers advocate as they wish, whereas attorneys advocate as the needs of the client dictate. A fine distinction, perhaps. A good engineer will do as you suggest, look at the big picture. The big picture includes economics of today, not some far-off future 30 years or more when capital charges for a plant are paid off. That is what nuclear advocates do, when they insist that nuclear power costs only 3 cents (or less) per kWh.

Natural gas is perfectly safe, and has been so for decades, when handled properly. Your personal preference is for a cask of deadly radioactive spent nuclear fuel in your back yard, and that is your prerogative. Fortunately for the rest of us, that is illegal and likely to remain illegal for centuries.

Natural gas, on the other hand, flows through pipelines of various sizes and pressure across the country, through every major city, and into most homes. Very few injuries occur as a result.

The reality is for TVA that they must comply with the regulations that affect them. Building a nuclear power plant takes many, many years, which no one denies. Therefore, it makes sense for TVA to build a natural-gas fired power plant to meet their need. TVA states they are going to finish the one nuclear plant for which they are allowed, but that road is full of obstacles.

What is right for the country as a whole must include the costs of decommissioning existing power plants, and rendering the spent fuel and toxic radioactive isotopes safe, without passing the obligation on to future generations.

Natural gas is a pay-as-you go proposition, and its power plants do not place burdens on future generations.

Nuclear power sounds wonderful to hear its advocates talk. You intimate that I do not understand it, or I would embrace it. Quite the contrary. I fully understand nuclear power, and the steps required to produce the fuel, and reprocess the fuel. I also know, as a chemical engineer, how many problems and accidents occur, plus the environmental devastation produced, by the nuclear fuel cycle. These points are conveniently not mentioned by the gung-ho nuclear advocates.

My final point is that nuclear power plants are far too expensive and disruptive to the pocketbooks of the lower-income and very poor segment of society. Even if there were no safety issues, no toxic legacy issues, and no environmental issues, that alone is reason enough to never build another nuclear power plant.