Warning to the nuclear industry: beware the gasman

If there are any problems with refurbishment, gas is waiting in the wings ready to replace nuclear generation.

I gave a talk on the status of nuclear power at the CERI Natural Gas conference in Calgary this week and learned a lot about the situation of the Natural Gas (NG) industry. Frankly I hadn’t realized the world had changed so much in a few short years.

The development of increasingly sophisticated and effective technologies for the fracking extraction of gas has led to a profound revolution in gas markets. There are now vast reserves of gas available at low prices. As one person at the conference said “we are awash in cheap gas”. For example, just the state of Pennsylvania has gone from producing about 0.7 Bcf/day (billion cubic feet per day) in 2009 to almost 10 Bcf/day in 2013, a production level similar to that of Alberta. That state has gone from an importer of gas to a major exporter in a few years.

Such rapid and dramatic changes have come about from the fracking exploitation of large areas of gas deposits (“plays” as the gas people like to call them) such as the Marcellus and Utica plays in the US northeast just to the south of lakes Erie and Ontario. Consequently the geography of gas markets has shifted. The gas now used in Ontario is increasingly imported from US Marcellus producers rather than from Alberta.

In the last few years, very large gas deposits exploitable by fracking comparable in size to the Marcellus formation have been identified in north east British Columbia and Alberta notably the Montney and Horn River Basin plays. The BC government is encouraging the export of this gas via pipelines to the coast and then by LNG (Liquefied Natural Gas) tankers to Asian markets. However, this plan requires a big capital investment for new pipelines and LNG terminals and several years to obtain permits for their construction. Until then, this gas is stranded.

Therefore, Canadian producers are looking hard for new markets for large amounts of cheap gas. Electricity production is one possibility. Alberta will likely replace its current coal-fired generators with combined cycle gas generation but this would make only a small dint in the available supply. Replacing Ontario’s nuclear generators with gas-fired generation would consume a lot more gas. One panelist at the conference openly expressed the view that if refurbishment failed (with the implicit hope that it would) then a significant opportunity for gas would arise.

In the nuclear industry, we’ve always been told gas wasn’t a feasible base load generation option for Ontario because there wasn’t enough gas and it would cost too much. The revolutionary changes in gas supply and pricing mean that neither statement is true any longer. Now it would be possible to negotiate long (say 30-50 year) attractively priced gas contracts to generate electricity at rates competitive with today’s nuclear plants. Combined cycle natural gas generating plants can be built rapidly (about 2 years from green field) at low capital cost (about $ 1 billion for 800 MW) for electricity at similar wholesale or lower rates to nuclear plants. It appears to me that such a transition from nuclear to gas would now be feasible. I would imagine this issue is discussed in the Bruce Power board since it is partly owned by Trans Canada, a major player in gas and gas transmission.

Of course, nuclear generation still has the advantage that unlike gas generation it doesn’t produce green house gas emissions. However, if the refurbishment projects start to incur large cost overruns and schedule slippages, I’m not sure how well the climate change argument would hold up with politicians and the public. Incidentally, it seems Quebec hydroelectric exports to the US north east are declining making another a source of “green” electricity available.

The refurbishment projects must be delivered on time and on budget for Canada’s nuclear industry to survive. Complacency based on past attitudes such as “they need the reactors back on line so they’ll pay anything” would be fatal with the gasman watching so closely.