April 12, 2011 § 1 Comment
Some preliminary thoughts as prelude to our upcoming Breakfast Forum
The Fukushima Daiichi disaster will undoubtedly have a marked effect on the energy policies of nations. There is something about nuclear fission accidents that evokes strong fears out of proportion with the actual threat to human well-being. People with anti-nuclear views will be emboldened, such as what happened in Germany.
Consider the German situation – A significant move away from nuclear is only possible with massive new natural gas based capacity. This will apply elsewhere as well as discussed later. Natural gas replacing coal gives a net improvement in carbon emissions. Decidedly not so when replacing nuclear. So, carbon mitigation targets will have to be met in other ways. The country has already placed a big bet on solar. But with programmed reductions in subsidies, the future is increasingly cloudy. The true elephant in the room is Russian gas. Further reliance on gas for power means increased reliance on either Russia or LNG imports.
An LNG Revival: If one builds on the premise that in the short term, a nuclear future will at least be rendered bleaker, the only fast response alternative is natural gas. Coal has a longer lead time and makes the carbon emissions situation decidedly worse, unless carbon sequestration is accomplished. A scant five years ago a massive shift from nuclear to gas would have been untenable from the standpoint of a price explosion brought on by the spike in demand. Today we know that U.S. gas supplies are abundant and LNG originally destined for the U.S. may now be directed to countries such as Germany. Japan itself, although seemingly committed to a strong nuclear future, will be a big purchaser of LNG in the short term.
The sudden draw on natural gas supplies could have interesting consequences. As we previously posited, U.S. natural gas prices will stay in a band between $4 and $6.50, with excursions to $8 for decades due to the unique attributes of shale gas. The demand increase discussed is unlikely to materially change that. But, gas price in Europe and Japan, to name just two, will undoubtedly see a sustained uptick. U.S. gas interests will therefore find a lucrative LNG export business hard to pass up. While production costs are not as low as in Qatar or Iran, the demand will likely support all sources. Also, western companies constructing LNG trains will be winners.
European shale gas exploitation will also pick up. The importance of this resource to reduce reliance on Russia just escalated. We can also foresee increased efforts to exploit those conventional gas resources which are currently dormant due to high carbon dioxide (for example in Malaysia), nitrogen (for example in Saudi Arabia) or hydrogen sulfide. All of these require improvements in technology.
Effect on Renewables: Despite the initial flight to gas, the net effect on renewables will be positive, provided the world continues to believe that global warming due to carbon emissions is a concern. This is primarily because the replacement of nuclear with gas has a negative effect on carbon emissions and means to ameliorate will be ever more important. The need for this will put increasing pressure on the enablers such as effective storage. In the near term, wind should be the winner because it is closer than solar to parity with conventional production costs. So a massive scale up is feasible but is hampered by the diurnality. Analysts believe that some wind heavy parts of Europe are maxed out. A greater fraction from wind appears not easy to assimilate. Smarter grids allowing for better load leveling and cost effective storage will take on greater urgency. An interesting possibility is that distributed power, including combined heat and power, may acquire greater currency. Policies governing utilities will need adjustment.
In fairly short order the Macondo oil spill and the Fukushima Daiichi disaster have brought into focus the downsides to two major sources of energy. In each case, the reactions have been peremptory and the voices against offshore drilling and nuclear energy loud. The nuclear substitute of shale gas has organized opposition on environmental grounds. Wind is buffeted by aesthetic arguments. Lost in the rhetoric is the realization that it is always going to be about choice; picking one’s poison as it were.
Energy: we can’t live without it so we must learn to live with it.