Energy & Power Generation

Obama’s “Nuclear Renaissance” Receives Its Final Obituary with Toshiba’s Write Down

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Back in 2009 at the start of Obama’s first administration he proclaimed that a “nuclear renaissance” was coming. Although I am a fan of nuclear power, I knew right away that this effort was doomed to failure by a lack of structural incentives in the USA and the ability of NIMBYs and lawyers to drag out and kill any project by a thousand cuts. I wrote that it was doomed here and summarized the players here.

Yet 2 companies plowed along with their nuclear projects – Southern Company (big in Georgia and the south) and SCANA (a South Carolina utility), mainly because their state rate environment was favorable and allowed them to include the cost of assets in their “rate base” rather than being forced to price energy at something close to market prices. Eventually those that pay for electricity in these jurisdictions are going to be soaked with the enormous costs of these plants and / or the finances of Southern Company and SCANA will be seriously impacted. Southern Company has a market cap of around $50B and SCANA has a market cap of around $10B. For context, the Southern Company nuclear project is currently 3 years behind schedule and $3B over budget and likely to cost up to $20B (although costs are borne by many parties, not just Southern Company) and the SCANA project is likely to cost up to $12B (although not all borne by SCANA).

These nuclear projects, already non-competitive due to price declines in natural gas (caused by fracking), became even MORE non-competitive as their completion dates were extended and costs ballooned due to inevitable and completely predictable delays. The history of nuclear power projects is littered with failed efforts and those that were completed often had huge cost overruns, especially those completed near the “tail” of the initial nuclear building effort which petered out in the ’80s.

Now Toshiba is being hit with part of the overrun costs. Their stock recently went down 20% (the most that it can fall in a single day trading session) with discussion of potentially billions of dollars in write downs tied to their work on nuclear power projects.

What is sad about all of this is that the debacles that will hit rate payers in the south (predominantly Georgia and South Carolina) and / or shareholders were completely predictable, although the situation could get even worse if delays stretch on indefinitely and the plants are never even completed (which is always possible in the litigious USA). As the current administration leaves their utterly failed nuclear policy should be something that they accept responsibility for, as well as their ameteur-ish ignorance of history and the predictable consequences of these sorts of mega-projects (in our current legal and regulatory environment). However, I highly doubt that will occur.

Cross posted at LITGM

Worthwhile Reading & Viewing

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A USAF jet fighter pilot flies a WWII P-51 Mustang.

An argument that China will never be as wealthy as America.  (‘Never’ is a long time, though)

A huge database of artworks, indexed on many dimensions.

An ethics class that has been taught for 20 years (at the University of Texas-Austin) is no longer offered.  According to the professor who taught it:

Students clam up as soon as conversation veers close to anything controversial and one side might be viewed as politically incorrect. The open exchange of ideas that used to make courses such as Contemporary Moral Problems exciting doesn’t happen. It’s not possible to teach the course the way I used to teach it.

At the GE blog:  Direct mind-to-airplane communication…and, maybe someday, direct mind-to-mind communication as well.  Although regarding the second possibility, SF writer Connie Willis raises some concerns.

Also at the GE blog:  The California Duck Must Die – a very good explanation of the load-matching problems created when ‘renewable’ sources become a major element of the electrical grid. Media discussion of all the wind and solar capacity installed has tended to gloss over these issues.

The Battle of the Bulge, December 1944 – January 1945.

Cyber Warfare

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Col. Michael Brown, USMC, Retired:

The Russians and Chinese are the most active in offensive attacks. I worry a lot about the vulnerability of our electrical grid and even our water supply network.

SCADA Systems

Supervisory control and data acquisition – SCADA refers to ICS (industrial control systems) used to control infrastructure processes (water treatment, wastewater treatment, gas pipelines, wind farms, etc), facility-based processes (airports, space stations, ships, etc,) or industrial processes (production, manufacturing, refining, power generation, etc).

Powering Down

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Everyone is aware of Obama’s suppression of the Keystone XL pipeline project.  But the legal, regulatory, and PR assault against critical infrastructure construction goes far beyond this. WSJ reports that:

Many major fossil-fuel projects across the U.S., from pipelines to export terminals, have been shelved or significantly delayed because of a confluence of new regulations, grass-roots opposition and a drop in energy prices.  Overall, more than a dozen projects, worth about $33 billion, have been either rejected by regulators or withdrawn by developers since 2012, with billions more tied up in projects still in regulatory limbo.

Among the projects that the WSJ article identified as ‘cancelled’ were the $875MM ‘Constitution’ gas pipelines for the Northeastern US and the $3 billion “Northeast Direct” for the same region.

Natural gas is, of course, a major source for generating electricity, and the only practical way of getting the gas to the power plants is via pipeline.

(The CEO of New England’s power grid operator), said pipeline) projects are badly needed. Residential consumers in New York and New England paid between 5% and 41% more than the national average for natural gas in March, the latest month for which data were available. They also paid more for electricity, which itself is increasingly made with natural gas. 

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Frack-Log…ACTIVATED!

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In my two previous blog posts here and here I talked of a new extended flow oil fracking technique coming on-line that resulted in a lot of drilled uncompleted wells (DUC) and the population of such wells (~5,000). In the comment section of one of those columns I speculated that we have a top end on oil prices where “turn on a dime fracking” will cut in at a price point of $50 a barrel

We now have a “flaming datum” for that speculation, oil having just bumped -HARD- into the $50 a barrel roof for world oil prices. The 5,000 DUC Frack-log is being activated with — I strongly suspect — the new extended play oil fracking technique.

It is being reported in various places that the US rig count jumped from NINE RIGS in mid-May to 325 last week and there was no change from 325 rigs this week. That is a 36 fold increase in rig count in a week!!

Based on figures I’ve gotten from those in the industry, the range of production you can expect from those wells, depending on the geology, length of the laterals (6,000 to 8,000 feet) and the number of fracking stages (200′, 300′ or 400′) will result in initial barrel per day production of between 400 and 800 barrels a day per fracked well (with a very, very rare 1,300 barrel a day play from time to time). So we are looking at between 130,000 to 260,000 barrels a day of American oil fracking production arriving in the next few months.

Compared to Saudi production, 130,000 to 260,000 barrels of oil a day represents between 1.3% and 2.5% of the Saudis’ daily oil flow. The number of DUCs activated to provide that production amount to 6.5% of the frack-log. And all that for what amounts to Zero “CAPEX” (capital expenditure), plus the operating expenses of worker wages, the rental price for existing, out of service, oil fracking rigs, and oil tanker trucks to move product to rail heads or oil pipelines.

Now you know why the Saudis didn’t agree with OPEC oil production cutbacks this week. The Saudis maxing out their oil production is no longer about stopping American oil frackers. The Saudis’ long term regime survival strategy amounts to being the “Last Petro-State Standing.”

The Saudis — like everyone else inside the Big Oil economic paradigm — simply cannot compete with that sort of rapid to market, low cost & low risk oil. The Saudis’ highest priority now is to keep their customers as long as they can, because if they lose them they may never get them back.