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Why Building Too Much Natural Gas Capacity to Generate Electricity Could Come Back to Haunt Florida

By Eric McErlain
NEI VP Richard Myers
About a week ago, the Tampa Bay Times published an analysis by Ivan Penn claiming that ratepayers in Florida would be better served if Duke Energy built a natural gas plant in place of a proposed nuclear energy facility in Levy County. Over the weekend, that same paper published a letter to the editor by NEI's Richard Myers taking issue with that conclusion:
Nuclear plants offer benefits

The May 12 article "Levy nuclear plant more costly than a natural gas facility" fails to account for the economic and environmental benefits the two nuclear plants would bring to Florida. Progress Energy Florida, now Duke Energy Florida, determined in 2008 that the Levy nuclear plants would benefit the state by providing fuel diversity and price stability for consumers while avoiding air emissions.

In 2012, Florida generated 68 percent of its electricity from natural gas, a significant increase from 47 percent in 2008. Floridians may recall that in 2008 and 2009, the state endured its highest-ever electricity costs when natural gas prices were hitting all-time highs. Five years later, Florida relies even more on natural gas.

Just like a diversified financial portfolio is important for investors, so is a diversified energy portfolio for consumers. By relying ever more heavily on natural gas, Florida is putting itself in an increasingly vulnerable position if and when natural gas prices change.

Further, if natural gas plants are built instead of the two Levy nuclear plants, the gas plants will consume nearly 8 trillion cubic feet of natural gas and emit more than 500 million metric tons of carbon dioxide over 60 years.

The Levy nuclear plants will help Florida manage and balance any future that includes changes in carbon regulations and natural gas fuel costs, and an overreliance on any one form of electricity generation.

Richard Myers
Vice President
Nuclear Energy Institute
This isn't the first time Richard has addressed this issue. Back in January, he took issue with a piece in the Wall Street Journal that concluded that the natural gas boomlet we're currently experiencing might undo nuclear energy. The key takeaway here: nothing is forever, and that goes double for natural gas prices.
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onyerleft said…
Today in Bloomberg:

"Natural Gas Climbs for Second Day on Outlook for Hot Weather,

Natural gas futures advanced for a second day in New York on forecasts for above-normal temperatures that would boost demand for the power-plant fuel to run air conditioners...The futures jumped the most in three weeks on May 17 after the U.S. conditionally approved the Freeport LNG liquefied natural gas export project in Texas."

http://www.bloomberg.com/news/2013-05-20/natural-gas-rises-5-from-week-ago-as-u-s-approves-lng-exports.html

Whoever didn't see this coming, probably should have seen it coming.
May 20, 2013 at 2:38 PM
Anonymous said…
How do daily fluctuations in the futures market speak to long-term price trends? That's like denying global warming because it's chilly on Thursday.
May 21, 2013 at 11:29 AM
Anonymous said…
Short-term price variations can have various effects in the market and for end users. Utilities that have winter-peaking demand mostly use short-term contracts for seasonal supply, negotiated anywhere from one month prior to delivery out to one year. A good example might be the purchase in June of a futures contract for December delivery. Utilities enter into numerous short-term contracts with different pipeline suppliers for different delivery dates in order to ensure a reliable supply of natural gas at competitive rates for their customers.

Short-term variations have a fairly significant impact on the "spot" price. The spot market is a source of natural gas that is needed within a matter of days rather than months. The spot market allows local natural gas utilities to respond quickly to changing weather or other market conditions, or local problems with delivery, storage, and use rate. The spot market is especially sensitive to changing market conditions and spot market prices quickly respond to changes in weather or availability of supply.

A small amount of natural gas that utilities use during the winter heating season is contracted for under “long-term contracts” – contracts that are negotiated one year or more in advance of physical delivery of the natural gas.

Like all commodity markets, speculative buying and selling often moves the prices paid for futures contracts. Speculators are particularly attuned to changes in supply and demand, so if there is a broad-based perception that the demand side will remain strong with no counterbalance in supply, short-term prices will be the first to reflect the long-term trend.
May 21, 2013 at 8:13 PM
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