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Can Natural Gas Weather The Cold?

Jan 28 2014, 5:19am CST | by

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Can Natural Gas Weather The Cold?
 
 

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Can Natural Gas Weather The Cold?

If natural gas is going to save America, boost our economy, roll back carbon emissions and bring back our Golden Age of energy, we probably should determine if it can stand the cold. The last few weeks seemed to stump natural gas supplies with its cold snap.

The cold affected electricity generation systems, particularly natural gas, in the Mid-Atlantic and the Northeast such that supply weakened and prices skyrocketed. In New England, natural gas faltered so much that regional grid administrator ISO-New England had to bring up dirtier coal and oil plants to try to make up the difference (Hartford Business). Just prior to the cold snap, ISO-New England had told the governors in the northeast that increased dependence of the region on natural gas has made the energy market in New England fragile (Seattle PI).

Climate Change is a funny thing. It’s not the same across the board. Although the Earth has an average temperature that can change slowly over time, some places get hotter and other places colder. Atmospheric dynamics alter, the jet stream moves abnormally, oceanic temperature changes cause anomalies like the polar vortex moving out of its normal bounds. But most importantly, the extremes seem to get more extreme, which is why humans with a life-span of about 70 years have plenty of time to notice some of these changes.

As an example, I can’t imagine why a foot of snow in the northeast brings on such panic these days. We got that all the time growing up in New England in the 50s and 60s and thought it was normal.

But as human populations continue to expand, these extreme cold snaps become more important because they draw so much energy. According to TVA’s Tim Ponseti, “When it’s below 20°F, each time the temperature drops one degree another 400 MW of electricity is needed. That’s almost as much as one of our larger hydroelectric dams” (TVA). Or a gas-fired power plant.  So when the temperature drops to zero you need the additional supply of twenty big power plants. That’s quite a strain on the system, as we’ve seen this winter.

The difficult time natural gas had these last few weeks should make us concerned. The White House has chosen to promote natural gas as its default climate policy (EPA Insider). At a recent fundraiser in Chicago, President Obama said, “The great news, here in America, is that by 2020 we’ll be a net exporter of natural gas. We will, over the next couple of decades, have the capacity to be energy independent for the first time.”

Yes, we have lots and lots of natural gas. We’ve always had a lot, but now that we’ve made fracking routine, we have tons of it, covering half the U.S. (EIA Gas Shale Map) and totaling over 2 quadrillion cubic feet. This is over 100 times what we thought just ten years ago. And that number will likely rise in the coming years.

Yes, gas emits about two-thirds less CO2 than coal per kWhr produced, and a third less than oil per BTU, but replacing all coal with gas, and all oil with gas-generated electricity charged vehicles, in the entire world would still not be enough to stabilize atmospheric concentrations below 400 ppbv. Plus, coal and oil consumption is on the rise globally, contrary to what is happening here, and will continue growing for decades.

However, if the United States is to become a Natural Gas Nation, we will require a lot more infrastructure and pipelines than anyone has been talking about, especially if we are to prevent the price spikes and supply shortages we’ve been seeing lately.

The major discussions of natural gas in the media and by policy wonks describe the unregulated past, prior to 2000, as having had wild price fluctuations ranging from less than $2 to more than $10 per thousand cubic feet (Mcf). Now, supposedly, the average wellhead price is expected to be stable and remain below $5/Mcf through 2026 and rise to only $6/ Mcf by 2030 (Center for Climate and Energy Solutions).

Unfortunately, this projection does not include the effect of the U.S. re-linking to the global market through LNG export. Within five years, the U.S. will be the biggest player in the world gas market. When that happens, natural gas prices will triple in the U.S. because, like oil, the price will then be set by the global market.

But this wellhead price has little to do with the actual price you and I, and the utilities, pay. Just look at this last week. Prices in New England rose to $77/Mcf because of the cold.

Henry Hub natural gas spot prices may be reasonably stable, just $4.61/Mcf this last Thursday (EIA daily prices), but local prices are definitely not, as exemplified by a $92/Mcf in the Mid-Atlantic on the same day (Rod Adams).

Why is it we never hear about the actual price of gas and only hear the hub price? Ninety-two dollars is a lot different than four dollars. Why is gas allowed to gouge us so deeply when we need it the most?  As we slide into becoming a Natural Gas Nation, we need to understand the risks and the costs we are accepting as the new normal.

It’s just going to get worse.

Note: Henry Hub (HH) is a natural gas pipeline hub in Erath, LA that connects 13 interstate and regional pipelines. Most wholesale natural gas prices are quoted at this delivery point with more added based on local market dynamics, pipeline and transportation costs.

Source: Forbes

 

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Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

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