Discussion: Continued

When natural gas well-head prices were below $2.00/million btus, it was not economically feasible to develop many of the more remote natural gas supplies. But, with prices exceeding $5.00 at the well-head many of these development areas become economically viable.

The choice between domestic development and construction of Liquified Natural Gas (LNG) terminals is a devils bargain. Natural Gas industry leaders favor the development of LNG terminals. In fact a total of more than a dozen new terminals have been proposed.

The first issue associated with these terminals is one of trade imbalance and the impact on the Nation’s trade deficit. Natural Gas has largely been a product supplied in the western hemisphere by western hemisphere suppliers. These supplies provide momentum for the western hemisphere economies and allow NAFTA trading partners to trade energy resources for U.S. goods and services. If LNG terminals are constructed it will begin a long-term drain on the U.S. economy that will benefit many countries that currently already have a poor trade balance with the U.S.

A second issue, real or perceived, is the safety aspects related to LNG terminal facilities as terrorist targets. These proposed terminals contain massive amounts of energy that, if released by an event like the “World Trade Center” attack, could destroy everything within miles of the terminal. The only solution to this problem would be major “hardening” of the facilities. This additional construction could make these facilities very costly while still leaving them as potential targets.

In 1978 when PURPA was passed it specifically excluded natural gas as a fuel for projects unless the projects met a certain efficiency standard. Over time the rules became more relaxed as it began to appear that natural gas was readily available at very low costs.

Environmentalists saw natural gas as the “clean” fossil fuel and began to promote its use over other domestic fuels such as nuclear or coal for the production of electricity. The events at Three Mile Island provided the final straw that broke the camels back and the rapid expansion of base loaded natural gas plants began. These plants were less expensive to construct, natural gas was projected to remain at low prices, and the equipment efficiencies were improved to levels that were well above those of other fossil generation.

Unfortunately, the original framers of the natural gas restrictions in PURPA have been proven correct. Their position was that natural gas should be considered a premium fuel that should only be used for electricity production when other fuels could not practically be used. An example of this would be using natural gas for highly variable electricity loads such as meeting daily demand swings. A reasonable case could also be made for using natural gas for meeting short-term electricity peaking needs as well.

The genie was let out of the bottle, however, and now there are more than 200,000 MW of peaking and base load natural gas fired units in the power generation mix. Environmentalists still contend that natural gas fired units are the best way to produce electricity when compared to both coal and nuclear generation.

With the increased price for natural gas the arguments against coal and nuclear are more difficult to sustain, with the exception for peaking generation requirements. Many environmental groups recognize that the price advantages to coal and nuclear are likely to move the market in that direction. Therefore, they rely heavily on the Not-In-My-Backyard (NIMBY) concept to prevent construction of these types of facilities.

While it is true that many parts of the U.S. vehemently oppose construction of coal and nuclear plants, there are other areas that may be more receptive to their construction. Specifically, coal bearing areas might be very receptive to construction of mine mouth electricity generating stations that could provide large blocks of electricity to the grid.

The environmental lobby understands this and therefore has taken a different direction in their opposition. In this case there is a strange bond between environmentalists, Investor Owned Utilities and the major railroads. These three groups, for completely different reasons create an opposition front to the development of mine mouth generation.

The IOUs want to maintain their market monopoly positions in their local markets. Therefore bringing in inexpensive electricity by wire is not necessarily in their interest. Obviously, if the IOU is the producer of the electricity it will favor the project, but otherwise it will object since it creates competition in their marketplace.

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