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The US Nuclear Industry has a bad case of Gas

Attached is a very good article from the Wall Street Journal which outlines the negative impact that the emergence of cheap and plentiful shale gas is having on the anticipated renaissance of the nuclear power industry in America.

Cheap Natural Gas Unplugs U.S. Nuclear-Power Revival  (Wall
Street Journal)


The U.S. nuclear industry seemed to be staging a comeback several years ago,
with 15 power companies proposing as many as 29 new reactors. Today, only two
projects are moving off the drawing board.

What killed the revival wasn’t last year’s nuclear accident in Japan, nor was
it a soft economy that dented demand for electricity. Rather, a shale-gas boom
flooded the U.S. market with cheap natural gas, offering utilities a cheaper,
less risky alternative to nuclear technology.

“It’s killed off new coal and now it’s killing off new nuclear,” says
David Crane, chief executive of NRG Energy<>
Inc., NRG -1.14%<>a
power-generation company based in Princeton, N.J. “Gas has come along at
just the right time to upset everything.”

Across the country, utilities are turning to natural gas to generate
electricity, with 258 plants expected to be built from 2011 through 2015,
federal statistics indicate. Not only are gas-fired plants faster to build than
reactors, they are much less expensive. The U.S. Energy Information Administration
says it costs about $978 per kilowatt of capacity to build and fuel a big
gas-fired power plant, compared with $5,339 per kilowatt for a nuclear plant.

Already, the inexpensive natural gas is putting downward pressure on
electricity costs for consumers and businesses.

The EIA has forecast that the nation will add 222 gigawatts of generating
capacity between 2010 and 2035—equivalent to one-fifth of the current U.S.
capacity. The biggest chunk of that addition—58%—will be fired by natural gas,
it said, followed by renewable sources, including hydropower, at 31%, then coal
at 8% and nuclear power at 4%.

“What utility doesn’t want cheap fuel?” says Steve Piper, associate
director of energy fundamentals at SNL Financial, a research company. He
predicts natural gas will remain the “default fuel” for as long as
gas production remains high and prices stay low.

The picture looks different in much of the rest of the world. Many developing
nations, for example, which don’t have ready access to cheap natural gas, are
plowing ahead with plans to build new reactors, according to the World Nuclear
Association. Once built, nuclear plants produce some of the cheapest
electricity available other than big hydroelectric dams.


In the U.S., even believers in nuclear energy are responding to the allure of
abundant gas. Dominion Resources<>
Inc., D -0.14%<>Virginia’s
biggest utility company and operator of seven nuclear reactors, put one new
gas-fired plant in service last May and recently got approval to build another
that is twice as big. On the drawing board are two more plants that would
nearly double the company’s gas-fired generating capacity.

Meanwhile, Dominion is shutting down some old coal-fired plants and only
inching forward on a proposal to build a big reactor at its existing North Anna
nuclear plant. The company says it is still seeking approval from the U.S.
Nuclear Regulatory Commission, but doesn’t expect it before 2015—and may yet
kill the project.

“Right now, things are pointing to gas,” says David Christian,
Dominion’s chief executive and former chief nuclear officer. He says natural
gas’s share of the electricity market, now about 25%, could rise to 30% or 40%
in the future.

But like some others in the industry, Dominion’s Mr. Christian worries about
relying too heavily on any one fuel, including natural gas. “Even if it’s
economical,” he asks, “is it wise?”

There are no guarantees that natural gas will continue to be advantageous over
the long term, so momentum ultimately could shift back to nuclear power.
Natural-gas prices could spike, as they have before. Already, gas producers are
drilling fewer wells because of low prices.

At some point, Congress could impose a fee on greenhouse-gas emissions.
Although modern gas-fired plants release only about half as much carbon dioxide
as coal-fired plants, they are nowhere near as clean as nuclear plants, which
emit almost no air pollution.

Fuel-supply problems also could bedevil gas-fired plants. Though most plants
are expected to be built near existing gas-transmission pipelines, there could
be disruptions if gas demand outstrips pipeline capacity. That has happened
during cold snaps, when home-heating needs, which get priority, increase.


The nation’s 104 nuclear plants, by contrast, never have to compete with
households. And nuclear plants typically run 18 to 24 months before stopping to
refuel, making their productivity the envy of the rest of the power industry.

Natural-gas companies are working to assuage utilities’ concerns. Steven
Farris, chief executive of Apache Corp., points to the current price—about
$2.30 per million British thermal units—as proof that gas is abundant.
“Obviously, we’ve got more gas than we used to, or we’d have $13
gas,” he says. “We just have a tremendous amount of gas.”

Mr. Farris doesn’t claim natural gas can or should meet most of the nation’s
power needs. But he says his industry could furnish enough to replace the 185
biggest coal-burning power plants.

The gas industry’s goal is to “grow demand for their fuel as they grow
production,” says John Somerhalder, chief executive of AGL Resources, a
big natural-gas distribution utility based in Atlanta. There is no better
customer, he says, than the power industry.

Enormous quantities of natural gas have been discovered in the U.S., especially
in underground shale formations, where it is being extracted through hydraulic
fracturing, or “fracking.” In 2010, there were more than 487,000
wells producing natural gas in 30 states, led by Texas with 95,000 wells,
according to the EIA, the statistics arm of the Department of Energy. So-called
shale-gas production now accounts for about one-third of U.S. natural-gas

The new supplies have helped push down prices to just one-third of their level
in 2005.

Natural gas serves three major markets in the U.S.: home heating, electricity
production and industrial uses such as the manufacture of chemicals and
plastics. In 2011, the power industry used about the same amount as the
industrial sector, but it is expected to pull ahead in coming years.

One reason utilities are finding it hard to resist cheap gas is that there is a
surplus of gas-fired generating capacity in many parts of the nation, the
result of a building boom that lasted from 1998 to 2005. Due in part to
deregulation and inexpensive capital, in 2001 alone utilities added 60,000
gas-fired megawatts, equivalent to more than 120 big plants.

But the 2002 collapse of Enron Corp., the big energy marketer, led to a credit
squeeze that eventually pushed some of the biggest and most indebted
power-plant builders into bankruptcy court, including NRG Energy; Calpine<>
CPN +1.12%<>Corp.;
Corp.’s PCG +0.37%<>National
Energy Group; and Mirant Corp.

“The beauty of inexpensive gas now is utilities are able to take advantage
of overbuilding 10 years ago,” says Curt Launer, managing director of
equities research at Deutsche Bank Securities Inc. in New York. “Any
utility that can use gas is trying to use more of it.”

Only two big U.S. utilities, Southern<>
Co. SO +0.04%<>and
Corp., SCG -0.27%<>are
pushing ahead with nuclear construction plans. Each plans to build two reactors
called the AP1000, developed by Westinghouse Electric Co., which is
majority-owned by Toshiba<>
Corp. 6502.TO +2.74%<>They
are doing so in partnership with smaller utilities that will share the costs
and take some of the electricity.

Southern won its final approvals in February to build two reactors at a site
next to its existing Vogtle plant in Georgia. The company expects to spend $6.1
billion for its 45.7% share of the roughly $14 billion project.

Southern’s chief executive, Tom Fanning, says he is confident the two reactors
will look smart over their 40- to 60-year lives. “While gas looks cheap
today, it’s looked cheap in the past, only to disappoint” when prices
rose, he says.

Georgia regulators approved the project based on the company’s projections that
the reactors would cost $1 billion to $6.5 billion less than coal-fired or
gas-fired plants over the many decades plants would run. Regulators require
such comparisons so utility customers don’t get saddled with unnecessary costs.

Scana hopes to clear a final regulatory hurdle within weeks so it can build two
units in South Carolina.

Nagging cost worries, however, are creating friction on both projects. Shaw
SHAW +1.70%<>a
Baton Rouge-based construction company hired by both Southern and Scana to
build their reactors, recently notified the two utilities it had unanticipated
costs, which may exceed $400 million for the two companies, and wants to
discuss who should absorb them.

Shaw spokeswoman Gentry Brann says the company’s utility agreements date from
2008. “There have been multiple regulatory changes since then that have
increased the cost” to Shaw, she says, including higher labor costs. The
utilities say they expect to resolve the matter amicably.

One of Scana’s partners is having reservations about its participation level.
State-owned Santee Cooper is one of South Carolina’s biggest power producers
and furnishes most of its electricity to electric cooperatives and city-owned
utilities. It took a 45% interest in Scana’s planned nuclear project some years
back, thinking demand would keep rising.

“That was about the time the economy tanked,” says Mollie Gore, a
spokeswoman for Santee Cooper.

Now the company wants to trim its stake to 20% because it doesn’t need as much
power, and it is negotiating with Duke Energy<>
Corp. DUK -0.09%<>and
other utilities, hoping to shift some of its obligation.

The U.S. Nuclear Regulatory Commission is actively reviewing license
applications from nine utilities for 18 new reactors, says David Matthews,
director of new reactor licensing for the agency. But the agency doesn’t expect
to be overseeing much actual construction soon.

Utility executives say they are seeking permits to preserve development
options. Clearing regulatory hurdles at the NRC takes a minimum of four years.
If the economics of natural gas change, they say, they want to be ready to

DTE Energy Co., for example, is seeking a license to build a reactor at its
Fermi site in Michigan. Although it hopes to get the license next year, it
hasn’t yet made any decision about whether to build a plant.

Corp., PPL +0.28%<>in
Allentown, Pa., has been seeking permission for several years to build a
reactor adjacent to its Susquehanna reactors at Berwick, Pa. Bill Spence, PPL’s
chief executive, says he thinks the new reactor now could cost $13 billion to
$15 billion—a sum so large that he would need investment partners. So PPL isn’t
in any hurry to get the license, he says.

Meantime, the company is jumping on the gas bandwagon. In February, it bought a
705-megawatt gas-fired power plant in Lebanon, Pa., for $304 million, including
debt assumption. That is about half what it would cost to build a similar unit,
the company says.

“Our plan is to stay flexible,” he says. “Nuclear is an option
for the future—but I don’t have to decide now.”

—Daniel Gilbert contributed to this article.




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