Some Thoughts on the Wall Street Journal Story on Natural Gas and Nuclear Energy

Cheap gas? Not last week in the Northeast.

Yesterday evening, the Wall Street Journal published a story by Rebecca Smith that asked the question, "Can Gas Undo Nuclear Power?" It's a question that's been asked often, especially in the wake of the announced closing of the Kewaunee Power Station in Wisconsin by Dominion last October. Here's what NEI's Richard Myers had to say about it at the time:

In 2005, when Dominion bought the plant: (1) power prices in the Midwest were in the $40-50/MWhr range; wellhead gas prices were in the $6-10 per million Btu range; and U.S. electricity demand was growing.

Today: (1) power prices in the Midwest are in the $30/MWhr range: gas prices are in the $2-3 per million Btu range; and (3) the U.S. has had 5 years of no growth in electricity demand, thanks to the worst recession in 80 years.

Near the close of 2012, NEI's President and CEO, Marv Fertel addressed the natural gas issue head on when it came to building new nuclear energy facilities. The following exchange with Steve Dolley of Platts came during an NEI-sponsored press briefing that took place in December (page 12):

Steve Dolley, Platts: Thanks Marvin, thanks for taking the time today. If you’re not expecting any new plants to be built over the next five or ten years, what are the industries other priorities with the nuclear regulatory commission? I know obviously plant safety is the number one priority for the industry and for NRC, but specific things that you’re hoping to accomplish with the commission over the next year?

Marv Fertel: Well first of all, news flash, we are building four. And we’re finishing Watts Bar, so there’s five new plants both in the pipeline being build. And one of the reasons on new plants, I don’t see us completing any beyond those five in the next - the rest of this decade. [A]s a nation we have not gotten back to 2007 electricity demand rates yet. So our demand is still down. We’re still in this recession. If you go over to financial whatever, we’ve probably increased the recession duration for a while.

So we need demand to come back. And as you all know because of the shale gas game changer (type) situation, we’re seeing low gas prices and low electricity prices right now. So everybody is looking to gas.

I would expect late this decade like into 2020 after we finish Vogtle and Summer that you could see new plants get started in our country. They just won’t be completed this decade. I expect demand will go up and there’s no question the price for natural gas will go up. I don’t expect it’s going to go to $12 or $14, but it will go up. It’s not going to stay at $2 or $3, it’s not even in the futures right now it’s almost $4 next year.

So we’ll see gas go up.

The message here ought to be pretty clear: while natural gas prices are at historic lows today, that can't last forever, especially if, as projected, America begins to export shale gas to international markets. In addition, we're already seeing evidence that industries that rely on natural gas as a feedstock that fled the U.S. during periods of high prices are now returning, driving additional new demand.

Finally, we need to remember that even in times of plenty, the price of natural gas can be awfully volatile. Just a few days ago during a cold snap in the Northeast, day ahead spot prices for natural gas reached $34.25 per MMBtu in New England and $36.00 in New York City.

Fluor Invests in NuScale

You know, it’s kind of sad that no one is willing to invest in nuclear energy anymore. Wait, what? NuScale Power celebrated the news of its company-saving $30 million investment from Fluor Corp. Thursday morning with a press conference in Washington, D.C. Fluor is a design, engineering and construction company involved with some 20 plants in the 70s and 80s, but it has not held interest in a nuclear energy company until now. Fluor, which has deep roots in the nuclear industry, is betting big on small-scale nuclear energy with its NuScale investment. "It's become a serious contender in the last decade or so," John Hopkins, [Fluor’s group president in charge of new ventures], said. And that brings us to NuScale, which had run into some dark days – maybe not as dark as, say, Solyndra, but dire enough : Earlier this year, the Securities Exchange Commission filed an action against NuScale's lead investor, The Michael Kenwood Group. The firm "misap...

Wednesday Update

From NEI’s Japan micro-site: NRC, Industry Concur on Many Post-Fukushima Actions Industry/Regulatory/Political Issues • There is a “great deal of alignment” between the U.S. Nuclear Regulatory Commission and the industry on initial steps to take at America’s nuclear energy facilities in response to the nuclear accident in Japan, Charles Pardee, the chief operating officer of Exelon Generation Co., said at an agency briefing today. The briefing gave stakeholders an opportunity to discuss staff recommendations for near-term actions the agency may take at U.S. facilities. PowerPoint slides from the meeting are on the NRC website. • The International Atomic Energy Agency board has approved a plan that calls for inspectors to evaluate reactor safety at nuclear energy facilities every three years. Governments may opt out of having their country’s facilities inspected. Also approved were plans to maintain a rapid response team of experts ready to assist facility operators recoverin...

Nuclear Utility Moves Up in Credit Ratings, Bank is "Comfortable with Nuclear Strategy"

Some positive signs that nuclear utilities can continue to receive positive ratings even while they finance new nuclear plants for the first time in decades: Wells Fargo upgrades SCANA to Outperform from Market Perform Wells analyst says, "YTD, SCG shares have underperformed the Regulated Electrics (total return +2% vs. +9%). Shares trade at 11.3X our 10E EPS, a modest discount to the peer group median of 11.8X. We view the valuation as attractive given a comparatively constructive regulatory environment and potential for above-average long-term EPS growth prospects ... Comfortable with Nuclear Strategy. SCG plans to participate in the development of two regulated nuclear units at a cost of $6.3B, raising legitimate concerns regarding financing and construction. We have carefully considered the risks and are comfortable with SCG’s strategy based on a highly constructive political & regulatory environment, manageable financing needs stretched out over 10 years, strong partners...

NEI Nuclear Notes

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