Natural Gas Disrupts the Energy Industry

01/18/2011 02:30:42 PM

Got an energy problem? Natural gas is the answer- unless you're in the coal, nuclear, alternative energy, or railroad industries. If you're in one of those industries, natural gas is very much the problem.

First the facts:

The Department of Energy is now predicting that electricity prices in constant dollars will DECLINE though 2016 because the marginal price is dependent on the price of natural gas used for peaking and increased natural gas use at low capital and fuel costs is likely. No subsidies for natural gas are required. A switchover to natural gas for a significant portion of electricity generation and transportation and home heating will reduce our carbon footprint – and no mandates are needed since the technology exists, the supply is secure, and the economics are already favorable. The balance of payments deficit goes way down; dependence on oil from unstable places could be significantly reduced by some combination of natural gas vehicles and electric vehicles running on incremental electricity generated from natural gas. We don't have to worry that natural gas extraction in the US or the building of pipelines will be outsourced to China. We can eliminate the subsidies to competing energy sources including coal, nuclear, oil, and alternatives; where their economics are or become favorable, they can go back in the mix.

BTW, natural gas works very well in tandem with wind or solar in places where deployment of those technologies is justified. Since the capital cost of a gas plant is low and it can spool up or down quickly, you save gas when the wind blows or the sun shines and burn it when they don't.

So what's not to like?

Some will object that natural gas is a fossil fuel and will someday run out. Experience tells us, however, that someday will be further away than we think and time to develop other technologies is our friend.

Some will object that natural gas is a hydrocarbon and burning it produces carbon dioxide. However, if your goal is rapid reduction in current emissions, there is no better way to achieve it than by the relatively easy switch from oil and coal to natural gas. Insisting on the slow and expensive deployment of solar (or nuclear, for that matter) rather than the fast increased use of natural gas is making the perfect the enemy of the good.

People in the nuclear, coal, and alternative energy construction industries will not be happy to have a subsidy-free competitor for new generating capacity – especially if their own subsidies are removed as logic and budget dictates. Current subsidies to build new US nuclear plants are proving not to be sufficient given the falling projections for electricity prices. The railroad industry likes to haul coal and doesn't like pipelines. The oil industry will find their prices pressured if natural gas can be used increasingly to power transportation.

Look for increased lobbying to protect all these interests. There will be "environmental" objections both to building pipelines and to the technologies which are making shale gas accessible. The federal government does have a role in setting reasonable standards for these technologies and should do so quickly and invite states to subscribe to them uniformly. Enforcement needs to be effective and better than panicked reaction. The challenge will be in keeping the regulation of natural gas extraction and pipeline building from becoming a weapon for those who wish that the gas would just stay in the ground and stop interfering with their own business plans.