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  • Natural Gas Wins… by Default

    Posted by Carl from Chicago on April 26th, 2009 (All posts by )

    In the April 27, 2009 issue of Barron’s magazine is an article titled “An Alternative to Alternative Fuels” by Mike Hogan. Barron’s is an offshoot of the WSJ and generally offers pithy and to-the-point articles, although sometimes even they go off the reservation.

    The byline in italics does a pretty good job of summing up the REALITY (not the fiction, by both Democrats and Republicans) of our energy policy:

    When you see more wind turbines and solar farms built, your first thoughts should turn to gas

    Doesn’t that sound counter-intuitive? But the article does a decent job of explaining why.

    Gue just returned form the US Energy Information Administration’s (EIA) annual conference, where he was puzzled by Secretary of Energy Steven Chu’s focus on renewables – with scant mention of oil, gas, coal or nuclear power: “This is striking to me because these four sources account for nearly 93% of U.S. primary energy consumption: and, according to the EIA’s own estimates, will still make up more than 90% of the total in 2030.”


    Chu is the presidents’ new golden boy who is supposed to take the US energy policy into the new direction of alternative energy, even though as a scientist in charge of actual facts he must know that this is nothing more than window dressing, since renewables face a host of difficulties (they are unreliable, there is no transmission, and they are heavily dependent on subsidies).

    As the article notes, oil, nuclear and coal are essentially pariahs. Don’t believe the Republicans touting 100 new nuclear reactors – we might get 2-3, if all the cards fall just right. They likely cost $10 billion EACH, with power company balance sheets shriveled and no incentives, there isn’t $1 trillion dollars ($10 billion * 100 reactors) just laying around for them to toy with.

    As the article notes, then the only viable alternative for an actual, functioning economy is natural gas. Why? Because you can site a natural gas plant pretty much anywhere, they are cheap to construct, and are viewed as environmentally benign. This has been our de-facto energy policy essentially since the early 80’s anyways – if you need generation, don’t bother trying to build coal, nuclear, hydro or new transmission lines – just site a natural gas “peaker” plant near the demand and call it a day.

    The PROBLEM with natural gas is that it is the most EXPENSIVE to run of all the items listed above. The plant is relatively cheap to construct and run (fixed costs), but the marginal cost of natural gas is much higher than the marginal costs of the other plants. If you really ran a peaker plant all the time, the cost will go up very quickly in most typical natural gas markets.

    The price of natural gas is a roller-coaster. When I was in the industry in the 90’s $2 / unit was a good price. There was some seasonality in the price – it would spike up during the winter months and also in the peak months of summer – and the price would go down as utilities re-filled their storage capacity in the “shoulder months” of spring and fall.

    Nowadays natural gas prices spike wildly; they were recently near $14 / unit before they have fallen down below $4 / unit. At $14 / unit, your local natural gas peaker plant is a horrible blot on your electrical bill – at $4 / unit, probably not so much. In fact, if there was stability at around $4 / unit, that would be a good price for the industry.

    Natural gas is essentially a local US and Canada market. We did add some LNG terminals that allow us to bring in foreign gas to the US – this is a good thing. The natural gas, however, competes with gas used for heating and is tied to our fickle environmental policies and tax policies which change by administration – for instance much of the best drilling area for natural gas is currently off limits and tax breaks for drilling (and other incentives) are at risk, while the prior administration was all for it.

    CONCLUSION

    The environmental debates are hype. Here are facts:

    – Almost no new nuclear plants will be built – maybe 2 to 3 (optimistic) which won’t even dent what is coming out of service
    – Almost no new coal plants will be built – also not enough to keep up with old ones coming off service
    – Since most of the renewables are low power in terms of MW and not sited where there are transmission lines, they won’t make much of a dent in anything
    – We don’t have the will or the money to fix the transmission grid, that isn’t going forward
    – There likely will be some savings on the distribution (customer) side from more efficiency and perhaps smart meter benefits – these will reduce the rate of growth in usage
    – Businesses don’t rely on the grid if they need un-interruptible power – they will just keep on buying and installing backup generators, at a higher total cost than just building reliable baseload generation (making us less competitive overall, and frankly a bit third-worldish)
    – Whatever gets built will be natural gas, and then our overall price (market rate) for power will essentially be set by the highest cost “peaker” units, which will be natural gas. Thus if prices stay low, we are OK, but if they rise, expect chaos in the markets

    I wouldn’t call that an “energy policy”, since it essentially means let our base load units rot and make our policy dependent on the wildly fluctuating spot market for natural gas, but, there it is.

    And don’t believe the hype, from anyone.

    Cross posted at LITGM

     

    25 Responses to “Natural Gas Wins… by Default”

    1. renminbi Says:

      The public hasn’t the foggiest notion of how incompetent our ruling class is,but they will find out! And it won’t be pretty.

    2. Mrs. Davis Says:

      as a scientist in charge of actual facts he must know that this is nothing more than window dressing

      You are giving scientists credit for being more rational than the general populace. The current discussion over AGW demonstrates that this is clearly false. Scientists share the same religious fervor that overwhelms the capacity for rational consideration of the facts. If they just believe hard enough we can emerge into the promised land of green sustainable energy where poverty has been eliminated, all religions live in brotherhood together and swords are beaten into ploughshares. Believe it and they will come.

    3. Shannon Love Says:

      We should also mention that dependence on wind and solar will increase demand for natural gas plants.

      Wind and solar are massively unreliable. Their contribution to the grid fluctuates wildly and unpredictably. This means you needs a new 100% redundant backup able to come on line with only a few minutes notice. The only available technology to accomplish this is gas turbines.

      So every time we add significant wind and solar capacity to the grid we will need to build the equivalent capacity in gas plants which will spend most of their time inefficiently constantly adjusting their output to try and balance out the fluctuations in the wind and solar inputs.

      We’re boned.

    4. david foster Says:

      Thanks for posting this. I flipped through my Barrons yesterday & somehow missed this story.

    5. Shannon Love Says:

      Also, wind-solar will make coal and nuclear financially untenable.

    6. david foster Says:

      Shannon…I don’t think that *all* the wind/solar capacity will need to be duplicated: there is some benefit from geographical diversity of the wind/solar sources, and there are also some peak-shaving technologies that aren’t too intrusive. But we probably would need to duplicate 70% of it. And this would probably mostly be done with small peaking plants (a) to save capital costs (we are paying double for the same megawatt, within that 70%), and (b)for reasons of enviromental & NIMBY litigation. And these peaking plants will be less efficient.

      Here’s GE’s gas turbine brochure. Note that the big “H” series turbines need only 5690 BTU to produce a kilowatt-hour. The units below 100MW, though, mostly need 9000-10000 BTU for that same KWH. Even the best unit in the “small” class needs 6950 BTU.

      Decreased efficiency, of course, means increased nat gas consumption.

    7. Anonymous Says:

      Just Asking: If things get really bad might we drill offshore, drill in Alaska, turn shale into oil? Or was Nancy Pelosi right, is there no way we can drill our way out of at least temporary problems?
      Bret Stevens in and on WSJ has not made me comfortable with our future. Life without energy would certainly be life changed.

    8. david foster Says:

      anon…there are leadtimes in drilling and in powerplant construction. There are even longer leadtimes in new processes such as shale. If we get ourselves into a deep hole, it would likely take a long, long time to dig ourselves out again.

      Also: I suspect most people think that solar/wind saves large amounts of oil used in electricity production. Actually, very little oil is used for this purpose. If electricity costs could be substantially reduced, it would save oil indirectly…viz, people switching home heating from oil to electric…but the programs being talked about here will *increase* electricity costs and probably nat gas as well, hence making oil heating *more* economically attractive.

    9. sol vason Says:

      I really don’t see why we need any duplication of wind/solar capacity. We need to learn to live in harmony with nature. When the sun goes down we should just all go to bed and when the sun rises, start working. Make hay while the sun shines.

      And if the sun doesn’t shine or the wind doesn’t blow – then we should tighten our belts and take pride in our sacrefice.

      No electricity after sundown. Our ancestors lived that way and built our civilization.

      The people voted for Obama change. Powering down at sunset is the change he is bringing. This is a new direction. We must not fight it.

      Of course we will have to reinstate the old forestry laws and the death penalty for possession of fire wood.

    10. david foster Says:

      Sol…firewood…it’s interesting. If you read the history of the peasant classes in Europe, hot meals were often possible only occasionally, because of a shortage of firewood for cooking. This is said to have been a major inducement for enlistment in the Royal Navy: hot meals every day, even if the food wasn’t so great.

    11. Michael Kennedy Says:

      Our ancestors lived with no electricity at all. We may yet learn what that was like.

    12. virgil xenophon Says:

      Yeah, how the Greenies will like the deforrestation via firewood bit? (And don’t forget the floods and mud-slides!) Especially if everyone apes the 3rd-world in burning wood to make charcoal with all the attendant air pollution problems as well. Ain’t life grand!

    13. Carl from Chicago Says:

      I am not an expert on all these threads but I would say that on both the left and right they are massively smoking something if they don’t understand that our “policy” is just natural gas and a bit of curbing demand.

      Then the price of natural gas alone will pretty much determine whether or not the generating companies make good profits or obscene profits – since they make the market clearing price for electricity.

      The other point that is subtle is not that we go back to firewood but that we put an implicit tax on businesses that require reliable power by making them build their own backup power rather than relying on their unreliable local utility.

      Residents can and will live with intermittent power outages…. eventually some municipalities will go off the grid anyways and put in their own backup supplies. And the poor will be left with low quality power.

      Meanwhile, cheap and plentiful coal will be burned all around China and India and Brazil and put the same pollutants in the atmosphere, anyways.

    14. Robert Schwartz Says:

      Shannon: “We are so boned.”

      David Foster: “I don’t think that *all* the wind/solar capacity will need to be duplicated: there is some benefit from geographical diversity of the wind/solar sources”

      Yes, but not as much as you would think. Solar is of course gone for at least half the day, and wind is correlated by the enormous weather systems that blow in off the Pacific.

      I think the reaction to the brave new world of “renewable energy” will be mass installation of gasoline and diesel powered generators in peoples homes. We will be even more dependent on imported oil for electricity than we are now.

    15. Daran Says:

      I see an opportunity for Mexico to become Americas energy supplier. However the political instability in Mexico may deter foreign investment. (Similar opportunities for East European countries.)

    16. Carl from Chicago Says:

      Mexico is already starting to export some power into the USA. They also have large quantities of natural gas. For power, they face the same transmission grid constraints as everyone else and there are political issues because if they burn coal and transfer the power then everyone in the USA goes nuts anyways because it is pretty much the same as doing it in the USA. For their natural gas, that could be a big profit center for them, because it is perceived as so much cleaner, but their monopoly PEMEX company is slow moving and gives away all its reinvestment cash to the Mexican state. Then they would need to build transmission capacity, as well. But certainly long term Mexico could be a big exporter, especially of natural gas.

      Canada is a huge exporter to the US – they have large hydro capacity and integrated transmission lines. They also have huge quantities of natural gas.

    17. O Bloody Hell Says:

      I posted a guest-piece over on No Oil For Pacifists

      Solar Power: Flat-Out Wrong For All Time

      I use the Solar Constant to show that replacing the current US power grid with Solar would require covering not less than an area equivalent to 4/5ths of the entire State of Delaware.

      …or about 5 billion square meters of surface.

      And that is *without* any estimates/adjustments for the obviously significant effects of cloud cover.

      That only covers
      a) The current 1 TW capacity
      b) Daytime/nighttime (generously set to 12 on/12 off)
      c) Storage for nighttime demand
      d) assumes a 50% efficiency cell (or 50% conversion efficiency if you want to use solar-thermal).
      e) transmission line losses

      Adjust that number as needed for your target goal of replacing current capacity with solar — 10%, 30%, 50%, whatever.

      I believe the numbers used to create that 5 billion square meter result are generous, so the real world application is likely to be substantially higher.

      The fact is, there’s only one system for solar power which MIGHT actually pan out at some point — and that is Ocean Thermal, the solar option being almost completely ignored by the Obama administration.

      I haven’t worked on wind, yet, but solar isn’t just “impractical”, it’s boneheaded to the point of being mentally retarded. It has a few justifiable special applications and otherwise virtually no intelligent justification for being selected.

      This assessment isn’t based even on costs, just on the sheer absurdity of cover a huge percentage of land area with “little blue cells”, to say nothing of the vast physical support structure which they rest upon — even if you substantially use existing options (i.e., mounting on roofs and south-facing walls) you still run into all manner of major issues — if you mount them on roofs, then you vastly increase the risks of falling, and accidental falls are the #3 cause of accidental death in the USA, after autos and poisoning. You also force your neighbors to keep their trees trimmed (and/or adjacent buildings below) the necessary height in question which would obstruct your cells from getting direct sunlight.

      The whole idea is just plain stupid, and everyone should grasp this.

      The moneys in question should be spent on producing a standardizable nuclear installation which can be used in a wide variety of circumstances and has re-usable and interchangeable parts.

      Such a design can be safety-inherent (i.e., all failure modes specifically designed to prevent accidents) and can be produced in several different sizes to match existing environmental conditions.

      Doing THAT would produce a clear and obvious source of income and employment for highly-skilled technical workers on all levels, which could be sold and/or licensed out to nations around the world.

      As opposed to a nation of solar-cell “window” washers.

    18. Dan from Madison Says:

      OBH – Just curious, do hail storms wreck solar cells? Because we have nasty hail around here on occasion, and if you did have a large grid of cells and they were, well, hailed on, do you have to replace them all?

    19. Shannon Love Says:

      We had a hellish hail storm here about 3 weeks ago. It took out windows, windshields and damaged roofs. There was a solar water heater on a nearby house. It got hammered. They repaired the roof but didn’t replace the solar install.

      I imagine that such storms, which are not uncommon in the American mid-west, would simply destroy a lot of solar versions. Solar thermal plants, which use extensive lightweight mirrors, would simply be destroyed. Photovoltaics are more resistant to impact but I think even they would be knocked out by large enough hail. Anything that could do enough damage to require a roof to be repaired would destroy almost solar install.

    20. Dan from Madison Says:

      One other thought, if we had an ice storm (who would think of that in the upper midwest?) or heavy snowfall, the collectors would certainly be damaged/blocked, therefore useless.

    21. kurt9 Says:

      Several weeks ago, California PG&E announced a deal with a start-up to buy electricity from them if they are about to put solar power satellites in space and beam the energy back down to earth. Having been in this milieu during the heyday of the L-5 Society, I can tell you that this concept has many technical hurtles and is not practical due to high launch costs. However, there is a similar concept that might be doable.

      The Asians do not share our aversion to nuclear power. In fact, they are building pebble-bed reactors and reactors of other advanced designs in China. My thought is, instead of putting up solar power satellites in orbit (which would require many launches), why not put up a microwave relay satellites to beam electric power generated in China to the U.S. by microwaves? Depending on the energy density of the microwaves, such a system could be set up with relatively few space launches. The Chinese would make a killing on this, laughing their way to the bank) while the American liberals wring their hands endlessly over the evils of nuclear power.

    22. Setbit Says:

      The Chinese would make a killing on this….

      Pun intended?

      No doubt the Chinese government would indeed love this. As long as US-China relations are good, they can rake in the cash. And if things ever get uncomfortable, well, it only takes a few short bursts on the station-keeping thrusters to turn the Orbiting Power Transfer satellite into an Orbiting Death Ray.

    23. Robert Schwartz Says:

      OBH Try NREL’s pretty maps Link.

      Personally, I think you are an optimist.

      AP Saturday, March 21, 2009 Washington: California’s Mojave Desert may seem ideally suited for solar energy production, but concern over what several proposed projects might do to the aesthetics of the region and its tortoise population is setting up a potential clash between conservationists and companies seeking to develop renewable energy. Nineteen companies have submitted applications to build solar or wind facilities on a parcel of 500,000 desert acres, but Sen. Dianne Feinstein said Friday such development would violate the spirit of what conservationists had intended when they donated much of the land to the public.

      * * *

      Feinstein said the lands in question were donated or purchased with the intent that they would be protected forever. But the Bureau of Land Management considers the land now open to all types of development, except mining. That policy led the state to consider large swaths of the land for future renewable energy production.

      “This is unacceptable,” Feinstein said in a letter to Interior Secretary Ken Salazar. “I urge you to direct the BLM to suspend any further consideration of leases to develop former railroad lands for renewable energy or for any other purpose.”

      ===================================================================================================
      Environmental Concerns Threaten Solar Power Expansion in California Desert Saturday, April 18, 2009:

      OAKLAND, Calif. — A westward dash to power electricity-hungry cities by cashing in on the desert’s most abundant resource — sunshine — is clashing with efforts to protect the tiny pupfish and desert tortoise and stinginess over the region’s rarest resource: water.

      Water is the cooling agent for what traditionally has been the most cost-efficient type of large-scale solar plants. … The unusual collision pits natural resources protections against President Barack Obama’s plans to produce more environmentally friendly energy.

      The solar hopefuls are encountering overtaxed aquifers and a legendary legacy of Western water wars and legal and regulatory scuffles. Some are moving to more costly air-cooled technology — which uses 90 percent less water — for solar plants that will employ miles of sun-reflecting mirrors across the Western deserts. Others see market advantages in solar dish or photovoltaic technologies that don’t require steam engines and cooling water and that are becoming more economically competitive.

      * * *

      “Water usage is becoming the larger issue. Some companies still want wet cooling and say it’s less efficient to do dry cooling, and they need 10 percent more land to get the same output,” said Peter Weiner, an attorney representing solar companies. Some are exploring hybrid systems that use water during the hottest part of the day.

      The government won’t say how much water would be needed by applicants because those proposals are still in flux. But National Park Service hydrologists last fall tallied more than 50,000 acre feet per year — nearly 16.3 billion gallons — proposed by applications in Amargosa Valley alone, or enough to supply more than 50,000 typical American homes. Nevada previously said the basin could support only half that. Since then, some companies have dropped out or switched to photovoltaics, making that estimate of 16.3 billion gallons outdated.

      * * *

    24. Anonymous Says:

      you have made some great posints. good post

    25. Scott Says:

      I read an article this week about how few of our congress critters and supreme court members have science or engineering backgrounds. With the exception of a couple of MD’s, most politicos are lawyers with undergraduate work in the Liberal Arts or History rather than any “hard” science. There are engineers and scientists within the bureaucratic support system, but I wonder how much the decision-makers actually listen to or understand them.