Thursday, December 1, 2016

Nuclear vs Gas Economics Part 2: Guest post by Nick Escu

Nuclear Power vs. Natural Gas Power 3 Year Projection (Part 2)
By Nick Escu
LNG unloading arm in Japan

Part 1  of this post basically explained a few facts from historical data:
  • Nuclear plants today are not as economical as natural gas generation plants are today.
  • Natural gas prices have consistently had ups and downs. When natural gas prices are high, nuclear plants become very profitable. When natural gas prices are very low, nuclear plants become unprofitable.
Changing times and LNG

There are new kids on the block. Seventeen  new liquid natural gas export permits granted, and an additional  29 LNG permits partially approved (Energy.Gov-August17, 2016). This has changed the dynamic of the amount and pricing of natural gas leaving the US. There's a huge difference between U.S. prices and worldwide prices.

There is now a very positive indication that natural gas prices are rising, as in the case of the Henry Hub price for MMBtu in February, 2016 moved from $1.71/MMBtu to $2.98/MMBtu in October, 2016. A 75% increase in 8 months.

Will changes like this continue? Will there continue to be a such price changes?

EIA stats (November 14th, 2016) for November and December (Drilling Productivity Report) clearly show an increase production rate of 4% to 5%.

Why is this increase important?

Because as more of those 17 approved permits begin liquefying natural gas and exporting natural gas, the natural gas prices will continue to climb. More LNG (Liquid Natural Gas) produced and sold will increase the base US price for nat gas.

Natural gas producers will want to maintain their huge markups in the world. The world prices for nat gas, begin at the $17.50/MMBtu. Our prices here in the US are at $3.00/MMBtu, or an almost 600% markup value for natural gas. Huge profits from exporting gas from in the US.

LNG export abilities set to grow

A portion of the first LNG permit, licensed to Cheniere in Louisiana, has come on line, February, 2016.
Cheniere, in Louisiana, will produce 2.1 Bcf/day of LNG. But the total for all 17 approved permits, and the 29 partially approved permits will equal 53.8 Bcf/day of LNG for the world.

So now we clearly see why production of new wells and output has increased for the following 2 reasons.
  • First, the need to maintain the profit margin between US nat gas production and world nat gas demand. 
  • Second,  to have sufficient stock available for all 46 LNG exporters.

Nuclear power becomes profitable at about $4.75/MMBtu spot nat gas.

So Cheniere was the first test, with just their first unit out of 6 units.  Their first unit caused a gas price increase of 75% increase in 8 months. Now the market has balanced. But it will not be balanced for long!

The LNG exporters will need over 25 times the amount of nat gas and what we will see are nat gas prices following each new LNG exporter when they come online.

By the end of 2016, Cheniere’s Sabine Pass Trains 1 & 2 will be in operation.  In 2017, another three trains will probably start, some from Cheniere and others from Dominion’s Cove Point. By the end of 2018, five more new trains* may come online from Cameron, Freeport and Corpus Christi. Another four trains are due online in 2019 from Freeport, Corpus Christi and Sabine Pass. US LNG exports have only just begun.

We will see the nat gas prices rising in 2017. By the end of 2017, that $4.75/MMBtu price will be reached and every nuclear plant will again be competitive.

Think about the zero pollution from nuclear power plants versus all the pollution that the new natural gas power plants the world will produce.

Enough for now.


Nick Escu is the pen name of a person with long experience in the power industry.

* A natural gas liquefaction facility consists of separate units, called "trains," each of which is set up to purify and condense natural gas.  So a facility can have one train or several.  Cheniere will have six trains.

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