Email of the day (2)
Comment of the Day

May 24 2013

Commentary by Eoin Treacy

Email of the day (2)

on the effect of low natural gas prices and state-sponsored wind (no pun intended) on nuclear

“The bottom line - a significant portion of US nuclear power plants may be at risk of becoming uneconomical to operate - details in the article. I had not considered this aspect of the ongoing switch to gas fired generation for new power plants, coupled with the ongoing governmental subsidization of the mostly uneconomic alternative energy projects.”

Eoin Treacy's view Thank you for this educative article contributed in the spirit of Empowerment Through Knowledge. Here is a section:

Q3: Will the economic outlook for merchant nuclear plants improve in the long run?

A3: By the end of this decade, market analysts predict that about 50 GW of coal-fired capacity will retire from the grid because of EPA regulations and low efficiency. Further, if the EPA is successful in regulating greenhouse gas emissions from new and existing power plants, more coal plants will be driven from the market in increasing numbers.

We expect natural gas to benefit the most from the departure of coal from the grid, but fuel switching from coal to natural gas will increase prices for that feedstock, which will improve the outlook for nuclear in some merchant markets. Civil nuclear power will still face significant obstacles from government renewable mandates in all competitive markets, but particularly in states that are pushing for higher and higher levels of subsidized renewable penetration, as well as in states that are establishing challenging efficiency targets.

The advent of unconventional natural gas remains a game changer for the energy sector and represents a disruptive influence on more established electricity production. While we tend to focus most acutely on the relative performance of natural gas prices compared to coal and oil, the political and regulatory environment are also powerful factors in this sector. Natural gas does not pollute to the same extent as coal. It does not have the waste issues of nuclear but it does provide base load which is a major challenge for wind.

Following the initial surge to acquire leases and to prove up reserves the economics of gas production have come back to the fore. In any market, when prices decline new sources of demand appear as the incentive to substitute proves too good to pass up. On the supply side, low prices put pressure on marginal production and the incentive to look elsewhere for profit potential eventually curtails supply.

As natural gas continues to hold above $4, medium-term potential for additional upside is likely to be held in check as more production becomes economic the higher prices move. The disadvantages of other energy sources offer the commodity a tailwind as a fuel for electricity production at least for the next few years.

The potential for exports got a further boost earlier this week as another project to build an export facility cleared one of its final hurdles in Texas. However Cheniere Energy's Sabine Pass terminal is still the most likely to become the first to open and that is not expected until 2015. Eventual exports could help lift natural gas prices to a point where other fuels become competitive once more.

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