Posts Tagged ‘natural gas’

Natural Gas Subcommittee Issues Interim Report

Saturday, August 27th, 2011

On August 11,  the Natural Gas Subcommittee issued its 90-day interim report of “Improving the Safety & Environmental Performance of Hydraulic Fracturing.”  The Subcommittee’s 180-day final report is expected on November 18, 2011. There is still time to comment.

I have not read the report yet. If there is interest, I may do so and post my analysis here. Anybody is welcome to provide their opinions and analyses on this blog either before or after I do so. I stand ready to assist clients file formal comments with DOE or understand the economic and policy implications of this report.

HEK

The Marcellus Shale Formation Is Grabbing Attention

Tuesday, September 29th, 2009

Click here to visit Powell's Books!

National Public Radio had a three-part series on natural gas in the US last week (“Rediscovering Natural Gas By Hitting Rock Bottom,” http://www.npr.org/templates/story/story.php?storyId=113043935&ps=rs).  You can read the transcript or listen.  It focuses on the deep gas in shale formations,  particularly the Marcellus field, but also does a good job of explaining the gas industry and its lack of clout in Washington.  Within the confines of a 20 minute presentation, that is.

HEK

“Getting Real on Wind and Solar”

Monday, May 11th, 2009

This is the title of an op-ed piece, by James Schlesinger and Robert L. Hirsch, which appeared in the Washington Post several weeks ago (http://www.washingtonpost.com/wp-dyn/content/article/2009/04/23/AR2009042303809.html).  I have been pondering their words for several weeks now.  I believe their main points are correct, but their analysis is incomplete. Of course, an op-ed column is not a manuscript or treatise and not all can be said within the word limit.

In describing our demand for electricity, Schlesinger and Hirsch say,  “We expect the lights to go on when we flip a switch, and we do not expect our computers to shut down as nature dictates.”  And since the wind does not always blow, the sun does not always shine and storage is still very inefficient, we will continue to use hydrocarbons.  In their words:

“The United States will need an array of electric power production options to meet its needs in the years ahead. Solar and wind will have their places, as will other renewables. Realistically, however, solar and wind will probably only provide a modest percentage of future U.S. power.  Some serious realism in energy planning is needed, preferably from analysts who are not backing one horse or another.”

It is good to be reminded that we do expect electricity on demand.  But this is not the end of the story.  Some consumption can be shifted to when the wind does blow and the sun does shine.  It can be done through time of day pricing, i.e., peakload pricing.  This is hardly a new concept, but the electric industry has always been reluctant to try it.  We now have better technology to accomplish this goal through the “smart grid.”  Peakload pricing is not Nirvana.  It makes it harder to set rates and may create shifting peaks, which requires further rate analysis and correction.  It may be a cliche, but a journey of one thousand miles still starts with the first step, and the first step has been delayed by at least a half  a century.

Also, leaving the economics aside for a moment, the reason we use coal is that we can stack it up in a big pile (or leave it in railcars) and burn it when we need it.  Natural gas molecules are “stacked up” in a pipeline to be used as necessary.  So we can have our energy when the sun is not shining and the wind is not blowing.

However, there is no technical reason why we cannot pile up a supply of biomass for the same purpose.  Or waste products such as plastic bags.  Here the economics does really matter.  Although some would argue, probably correctly, that the price of our hydrocarbon fuels does not cover the cost of the negative externalities, they are currently cheaper than the biomass and waste alternatives, which also create negative externalities.  These alternative solutions are capable of being transported, stacked up and burned just as is done with coal and natural gas.  Reject them on economic grounds if you must, concern yourself with their negative externalities as you should, but do not exclude them from broader consideration as a potential part of the energy equation.

Nuclear power should be considered also.  In a broader sense it is “stacked up” and used when we need it.  I have seen much written about the spent fuel costs, but almost nothing on the environmental costs of mining uranium, which certainly cannot be zero.

As the authors say, some serious realism is needed.  That requires looking at all aspects of energy planning.

HEK

Fixed Price Residential Gas Service

Thursday, March 26th, 2009

Natural gas wellhead prices are way down from their peak last summer.   This is documented by the New York Times (“Natural Gas, Suddenly Abundant, Is Cheaper” by Clifford Krauss, March 20, 2009, http://www.nytimes.com/2009/03/21/business/energy-environment/21gas.html?_r=1&th&emc=th), as well as many other sources.  In the United States, spot gas prices are around  $4.30 per dekatherm down from a peak of more than $13 last year.  World spot prices for LNG cargoes have come down by more than two-thirds since last summer according to this NYT article.

Meanwhile, back in the world of natural gas retail semi-competition, my local gas utility (or more accurately, the marketing arm of my utility) has offered me a fixed price of $87/month for either a one or a two year contract.  I’m sure other users have been offered similar contracts  for a different fixed rate than what I was offered.   I am not sure how this number  is developed, although the advertisement told me it was based upon past usage for my household.  I do not know if  competitors have access to the information, but perhaps I should contact my regulatory authority to find out.  I am somewhat concerned that my gas company gives access to my usage data without my specific permission.  I had assumed a “Chinese wall” between the utility and its marketing arm.
The winter heating season is almost over and I suspect part of  my 2009 winter bill includes gas prices that are much higher than today’s spot price, given that there are almost always lags between cost occurrence and cost recovery.  The gas company could sign long term agreements with suppliers, most likely for some amount greater than the spot price, and lock in the supply it needs to serve my needs over the next year or two, depending upon which time period I chose.    I am not going to sign up for this fixed rate, because I think my yearly expenditures will be lower if I am billed monthly as I am now.   But some customers most likely will, because this fixed price “protects” them from price increases .   So the gas company will do well, and some producers who need the cash flow, will do better than they would have otherwise.
There is one thing that is troubling me.   If customers sign up for a fixed monthly bill, what is the incentive for them to lower the thermostat at night, add insulation, keep the water heater at a lower temperature, etc?  I am sure the gas company will send plenty of reminders about how everyone must save energy together with conservation tips, but any energy saving the customers do will flow to the gas company’s bottom line.  If I were paying a fixed price, I’d sleep with the thermostat on 70 F instead of 62 in January.   I simply would not care how much gas I used, because, well… I am insured against higher prices.  Moral hazard and all that theoretical stuff.
If the public has an interest in long term energy conservation, are fixed rate contracts really in the public’s interest?   Energy conservation, meet energy competition, 2009 style.  Al Gore, take notice.  The globe may become warmer.
HEK