Capstone Energy Services

News

Short Term Sufficiency, Long Term Concerns

June 3rd, 2011

OMAHA (Capstone Energy Services) – This last weekend, the German Government announced its intention to permanently close all nuclear power generation facilities by 2022 with 8 of the 17 existing plants coming offline immediately. This decision is in response to the strong anti-nuclear sentiment in Germany, further aggravated by the disaster in Japan. The German decision does raise some questions about the long term direction of the U.S. nuclear industry as well as the long term cost of electricity to industrial and commercial consumers.

U.S. policy emphasis in recent months has been on expanding renewable clean energy for power generation and moving away from coal to natural gas for baseload generation for both new construction and conversions. Nuclear is an even longer term option, but opposition will likely delay permitting and construction beyond current estimates. Solar, wind and other renewable energy generation are expanding quickly, but are expensive and still comprise less than 5% of capacity according to February 2011 EIA data. Existing generation sources and planned additions through 2014 are shown in the charts below.

The majority of new electric generation capability installed in 2010 and planned through 2014 uses natural gas, which will create large, increasing new demand. The discovery of shale gas production throughout the U.S. has identified the required resources to meet this demand. However, horizontal drilling and hydraulic formation fracturing (often referred to as “fracking”) have become the focus of substantial controversy, political investigations, lawsuits and special interest lobbying, the outcome of which remains unclear. As a result, the facilities that will create long term natural gas demand are in the planning and construction process, while the long term domestic supply source still faces regulatory, legal, political and environmental concerns that will need to be addressed.

These long term concerns have not yet materially affected short term market prices for either natural gas or power. The combination of the economic recession and the introduction of shale production created a glut of natural gas on the market, pushing prices to $3.75-$4.75 level where they have remained for the last 18 months. This stability has existed in spite of rapidly rising prices for other energy sources and other commodities. Low prices have lead to a shift away from predominantly dry gas shale production to shale formations that deliver substantial amounts of natural gas liquids and other hydrocarbons, whose market price soared along with the price of crude oil. Nevertheless, sufficient natural gas continues to be produced keeping prices within this historical trading range. The increase in natural gas prices this past week appears to be one more iteration within the current trading range. Most analysts expect the current supply sufficiency to continue into next year, but longer term the supply situation and prices remain a matter for concern.

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By Ed Freeman

Glossary Terms

Glossary Terms

Nominated Volume

The physical quantity of gas requested, typically in MMBtu/day, for a specific contract or for all contracts at a specific point.

Marketing Affiliate

A marketing company that has corporate ties to an interstate pipeline, an intrastate pipeline, or a local distribution company.

Energy Only Providers

Power marketers or other electricity vendors who provide and bill for only the energy component of the electricity consumed by the end-use customer.

Therm

A unit of heating value equivalent to 100,000 British thermal units (Btu).

Real Power

The component of electric power that performs work, typically measured in kilowatts (kW) or megawatts (MW)--sometimes referred to as Active Power.

Injection (Storage)

The process of delivering natural gas into a storage field for future delivery and use.

Price Ceiling

Statutory maximum lawful prices for various categories of natural gas, including gas destined for both the intrastate and interstate markets.

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Energy Delivery Chains

Energy Delivery Chains

Find out more about how your energy is produced and delivered to your business.

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Energy & the Environment

Energy & the Environment

How we assist clients in responding to national environmental concerns.

  • Initiate and manage a "Green" energy procurement program
  • Evaluate national legislative and regulatory initiatives
  • Research state and local energy efficiency programs and incentives
  • Track energy use and related emissions estimate