Stable Natural Gas May Hurt Nuclear

Issue 2 and Volume 3.

By David Wagman, Chief Editor

Natural gas prices aren’t making things any easier for proponents of new nuclear power plants. Robust storage levels and the emergence of so-called “unconventional” gas reserves suggest an extended period of stable supply and prices. Both may well make it tough to convince the public that spending anywhere from $5,000 to $10,000 a kilowatt for new nuclear capacity is a good investment.

Unconventional gas reserves are those contained in tight sand or shale geologic formations. They are extracted by fracturing the formations and forcing the gas out. Advances in drilling techniques makes it possible to use one drill site to reach multiple reservoir locations through horizontal drilling. Horizontal drilling and other techniques developed when gas was in the $10 to $12 range are being put to work. This expands the reach of a single well, softening the environmental footprint and reducing drilling costs.

While the environmental footprint is reduced, concerns exist that the fracturing technique may introduce chemicals into groundwater. As a result, unconventional natural gas resources are appearing on environmental groups’ radar screens.

Even so, natural gas prices holding steady at $5/mcf for the next five years or so is what Jim Rollyson, senior vice president at Raymond James, says is a likely scenario.

Price and supply both are expected to be relatively benign and predictable for several years. Although gas well completion costs are higher, production rates are even higher, Rollyson said. On average, U.S. nonconventional gas is around three times more productive than conventional plays. The Barnett Shale near Ft. Worth, Texas, which started the shale gas boom mid-decade, is twice as productive as the U.S. average. More recent plays are as much as 10 times as productive

As recently as 2008 natural gas producers needed prices of $8/mcf to grow supply, Rollyson said. “Now in a $5 world you can make money.”

Rollyson spoke at the 11th annual Burns & McDonnell Coal Symposium, held at the engineering firm’s world headquarters in Kansas City.

Stable prices and supply are two things that have eluded the gas industry in recent years, helping to restrain enthusiasm for developing large amounts of natural gas-fired generation. Natural gas-fired plants can be developed for anywhere from one-third to one-half the estimated cost of a new nuclear unit. They are relatively easy to permit and quick to build.

Natural gas has enjoyed limited success as a baseload fuel, largely due to volatility issues. So it’s not exactly a straight-line replacement for nuclear. But for cost-wary regulators and consumer groups, the technical distinctions may not be entirely clear. An extended period during which natural gas supply and price volatility are eased may cool enthusiasm for expanded new nuclear development.


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