Blog

Welcome to Energy Townhall, the place where IER's experts converge to provide timely analysis and commentary on all things energy. Join the conversation.

Is the U.S. Falling Behind in the Nuclear Energy Race? Nuclear

Posted March 31, 2014 | folder icon Print this page

The United States is being left behind in the global quest for nuclear energy. While the United States has retired 4 nuclear reactors recently, plans to decommission several others, and is building only a few new reactors supported by DOE loan guarantees, the world is building lots of reactors, mostly with Russian technology. According to the Energy Information Administration, total world nuclear capacity is expected to double from an estimated 358 gigawatts in 2013 to 717 gigawatts in 2040. China and India each are expected to increase their nuclear generation by about a factor of 20 over the next 25 years.[i]  And, Russia has taken the lead in a $500 billion export market in nuclear technology.[ii]

The U.S. Nuclear Program

According to the Energy Information Administration, the United States now has 100 nuclear reactors, down from 104 nuclear reactors in January 2013. These reactors and several others are being decommissioned because of difficulties getting license extensions from the Nuclear Regulatory Commission and from competition from low cost natural gas. For example, two units at the San Onofre Nuclear Generating Station in California are being shut down due to delays in getting approval to restart them from the Nuclear Regulatory Commission. And, in the fourth quarter of 2014, Vermont Yankee is expected to be retired because it cannot compete as a merchant plant against low cost natural gas, making the Northeast very dependent on natural gas for electricity generation. For more information on these units, click here.

Further, the Nuclear Regulatory Commission has instituted new safety measures at existing U.S. nuclear plants due to the Fukushima accident costing billions of dollars. For example, Exelon, a company that operates 17 of the 100 commercial power reactors in the United States, expects to spend $400 million to $500 million in post-Fukushima upgrades.[iii]

Due to loan guarantees from the U.S. Department of Energy, 4 new reactors are expected to be constructed at two plants:  Vogtle, units 3 and 4 in Georgia, and Virgil C. Summer, units 2 and 3 in South Carolina. The four reactors are expected to be completed in 2017 and 2018. It is very expensive to build nuclear reactors in the United States. For example, Vogtle Units 3 and 4 represent a $14 billion capital investment. They are expected to require about 5,000 on-site construction jobs and 800 permanent jobs.

According to a report by the Center for Strategic and International Studies (CSIS):[iv]

“America’s nuclear energy industry is in decline. Low natural gas prices, financing hurdles, failure to find a permanent repository for high-level nuclear waste, reactions to the Fukushima accident in Japan, and other factors are hastening the day when existing U.S. reactors become uneconomic, while making it increasingly difficult to build new ones. Two generations after the United States took this wholly new and highly sophisticated technology from laboratory experiment to successful commercialization, our nation is in danger of losing an industry of unique strategic importance and unique promise for addressing the environmental and energy security demands of the future.”

Russia’s Nuclear Outreach

Russia has transferred nuclear technology to many countries, including Hungary, Venezuela, Turkey and Iran.  According to the World Nuclear Association, Moscow is building 37 percent of the new atomic facilities currently under construction worldwide and is expected to almost double its own nuclear generation by 2020. For example, Russia is building two new nuclear reactors in Hungary and may lend as much as 10 billion Euros ($13.7 billion) to finance the project. If the deal goes through, Russia will finance 80 percent of two 1,200 megawatt units on a 30-year loan at below-market rates.[v]

Russia has found that many countries need nuclear power but do not have the funds to pay for it or the expertise to build it. By helping these countries finance the purchase of nuclear technology, Russia is opening the door to sales of its nuclear technology and providing the construction and the training of employees.

World Nuclear Reactors

Source: CNBC, http://www.cnbc.com/id/101507755

The Future Global Nuclear Market

According to the U.S. Department of Commerce, the international nuclear market will grow to $740 billion over the next decade. It estimates that every $1 billion in exports supports at least 5,000 domestic manufacturing jobs. According to the Nuclear Energy Institute, there are 71 new nuclear plants under construction worldwide and an additional 160 in licensing and advanced planning stages.

The Center for Strategic and International Studies (CSIS) sees boosting the U.S. nuclear export sector “a national security imperative,” particularly given the encroachment of Russia, and also China and India. According to the CSIS, “U.S. firms are currently at a competitive disadvantage in global markets, due to restrictive and otherwise unsupportive export policies.” The United States provides nuclear expertise via a “123 Agreement” to 21 countries but lacks accords with key demand hubs in Asia and the Middle East where nuclear power is expected to increase the most and where Russia is providing technology and financing. The rules of the agreement also need updating given the current marketplace for nuclear power.

Added to this, of course, is the expertise gained by those who are actually building new nuclear reactors.  In much the same way that China is beating the United States at building new coal plants by constructing them, Russia can also be expected to excel in this technology by building on the information gained in constructing the many plants they have been pursuing worldwide.  Practice makes perfect, in most endeavors.

Conclusion

Russia views nuclear as an excellent export product and is using it as part of its plan to establish itself as a geopolitical economic power while the United States is left at the sidelines, in large part due to opposition to nuclear power. The U.S. nuclear sector has fallen into an advanced state of decline due to federal policies and actions taken by the Nuclear Regulatory Commission. Safety and cost concerns and competition from natural gas in generating electricity have resulted in a downturn in the U.S. nuclear industry, which most other countries are not following. Even the Japanese government has plans to return the nation to nuclear power just 3 years after the Fukushima nuclear accident.[vi]  According to the CSIS, “Without a strong commercial presence in new nuclear markets, America’s ability to influence nonproliferation policies and nuclear safety behaviors worldwide is bound to diminish.”



[ii] CNBC, The real Front in the US-Russia ‘Cold War’? Nuclear Power, March 23, 2014, http://www.cnbc.com/id/101507755

[iii] New York Times, After Fukushima, Utilities Prepare for Worst, March 9, 2014, http://www.nytimes.com/2014/03/10/business/after-fukushima-utilities-prepare-for-worst.html?emc=edit_th_20140310&nl=todaysheadlines&nlid=63692790

[iv] Center for Strategic and International Studies, Restoring U.S. Leadership in Nuclear Energy, June 2013, http://csis.org/files/publication/130614_RestoringUSLeadershipNuclearEnergy_WEB.pdf

[v] Bloomberg Business Week, Russia May Lend $14 Billion to Hungary to Build Nuclear Reactors, January 14, 2014, http://www.businessweek.com/news/2014-01-14/russia-may-lend-14-billion-to-hungary-to-build-nuclear-reactors

[vi] New York Times, Warily Leading Japan’s Nuclear Reawakening, March 20, 2014, http://www.nytimes.com/2014/03/21/world/asia/warily-leading-japans-nuclear-reawakening.html?_r=1

Author:
IER

Bad News for Carbon Tax Fans

Posted March 28, 2014 | folder icon Print this page

Last summer, in advance of Australia’s monumental September 7 elections that served as a repudiation of Australia’s carbon tax, IER published a key study by Dr. Alex Robson on the history and impact of the tax. Robson’s critique of Australia’s carbon tax was particularly relevant for the US policy debate, because he showed none of the promised benefits of a carbon (such as a more efficient tax and regulatory code, or “policy certainty”) actually happened in Australia. We are very pleased to report that a version of Robson’s study has now been through the academic peer-review process, and has been published in the February 2014 issue of Economic Affairs.

When the study first came out, there was a predictable backlash from those pushing for a U.S. carbon tax. After all, it was embarrassing to see that none of their hypotheticals about the wonders of a carbon tax actually came true in the real-world experiment in Australia. But what could the critics do? The author of the IER study, Alex Robson, was an obvious expert, a PhD economist teaching at an Australian university who had published technical articles on the interaction of climate policy and public finance.

In this context, there wasn’t much the critics could do, but they gave it their best. They did things like point out that just because Australia’s unemployment went up hand-in-hand with the new carbon tax, didn’t prove the carbon tax had anything to do with it. (However, in addition to showing a chart with the obvious correlation between the carbon tax and rising unemployment, Robson also provided several anecdotes of business owners who specifically laid off workers because of the carbon tax).

At the time, we walked through the ridiculous objections (some made by critics who complained about the IER study to a reporter but wished to remain anonymous); you can read our full response here. Yet one of the objections is worth revisiting. In September 5, 2013 E&E News article by Evan Lehmann, titled, “Energy group launches political attacks on carbon tax supporters,” here’s how one critic hit back at us and our Australia study:

Ray Kopp, an economist who directs the Center for Climate and Electricity Policy at Resources for the Future, said that the conclusions in IER’s report “simply do not align with the bulk of analyses” on carbon taxes.

“Not to speak disparagingly of IER, but they are not going to get their stuff in the peer-reviewed literature,” he added.

Well, sorry to say Dr. Kopp, but yes, Dr. Robson “got his stuff” in the peer-reviewed literature. Snarkiness aside, it should surprise no one who carefully read the Australia study that (a version of it) was published in a peer-reviewed outlet. Robson is quite meticulous in laying out the standard textbook arguments about a carbon tax, and then simply investigating what actually happened in practice in Australia. Fortunately, some peer-reviewed journals are interested in seeing whether the confident predictions of academics like Kopp turn out to be true.

In closing the present post, let’s review two of my favorite graphs from the Australia study.

Australia: Spike in Electricity Prices and Rising Unemployment

In the year after Australia’s carbon tax was introduced, household electricity prices rose 15%, including the biggest quarterly increase on record. Currently 19% of the typical household’s electricity bill is due to Australia’s carbon tax and other “green” programs such as a renewable energy mandate. The following chart from Robson’s study illustrates this increase:

Australia Carbon Tax 1

The job market had previously been stable, but after Australia’s carbon tax the number of unemployed began rising rapidly. Robson’s chart shows the gory details:

Australia Carbon Tax 2

Conclusion

Last summer, IER published Dr. Alex Robson’s hard-hitting analysis of Australia’s actual experience with a carbon tax. This study was quite inconvenient for those in the US pushing for an American carbon tax, because none of their promises panned out in Australia. At the time, one of the lame objections to the study was that it wasn’t peer-reviewed. Well, now that a version of Robson’s study has been published in a peer-reviewed journal, that objection falls away, just like the others.

The U.S. policy debate needs to start acknowledging the dismal reality of the actual effects of a carbon tax. They’re not pretty. It’s not surprising that Australia’s September elections brought new Prime Minister Tony Abbott to power on his campaign of “axing the tax”—even though elements of the Australia government don’t like the message the voters sent.

Author:
Robert Murphy

Wind Choked When it was Needed Most Wind

Posted March 27, 2014 | folder icon Print this page

Reliable energy sources and a diverse fuel mix are integral to maintaining America’s electric grid and keeping the lights on. The electric grid must be carefully balanced at all times so that supply matches demand or otherwise blackout would occur. This means that the grid needs reliable sources of generation to keep supply and demand matched at all times. New data on the polar vortex that swept the nation in January show how difficult this can be and highlight the perils of government policies designed to replace reliable energy sources with intermittent ones.

What we already know: as temperatures dropped across the country in early January, the cold weather increased demand for natural gas used both for home heating and for gas-fired electric generators. Surging demand, combined with constrained pipeline capacity, led to spiking prices and inadequate natural gas supplies (some customers had their natural gas service interrupted).

PJM-WesternHub

Source: http://www.eia.gov/todayinenergy/detail.cfm?id=14671#tabs_SpotPriceSlider-3

To meet the increased electricity demand and prevent power outages, grid operators relied on coal, nuclear, and even petroleum generating units. Wind energy, on the other hand, actually performed worst when it was needed most, according to new data from the PJM Interconnection. This further debunks the wind industry’s claim that wind energy plays an important role in keeping the lights on during low temperature events.

PJM’s data also highlight a fatal flaw in EPA’s proposed ban on coal-fired power plants. EPA assumes that no new coal plants will be built in the foreseeable future, but EPA failed to see that the problems caused by constrained pipeline capacity and a dwindling number of coal-fired power plants. EPA is causing coal facilities to shutter while subsidized and ill-timed wind power continues to force the premature closure of nuclear plants, creating an absence of reliable alternatives to natural gas and leaving Americans vulnerable to future and more dramatic price shocks.

Wind Choked When it was Needed Most

The PJM Interconnection is a regional grid operator that serves all or parts of 13 Northeastern, Mid Atlantic, and Midwestern states and the District of Columbia. Coal, nuclear, and natural gas together comprise 75 percent of the PJM’s electrical generating capacity (41 percent, 18 percent, and 16 percent, respectively). Wind energy accounts for less than one half of one percent of installed capacity.

In early January, the polar vortex increased energy demand and drove up natural gas prices. As temperatures plunged and demand rose, nuclear and coal generators picked up the slack. In contrast, according to PJM data, wind energy generation dropped from 4 gigawatts (GW) on January 6 to less than 2 GW during demand peaks on January 7 and less than 800 megawatts (MW) on January 9. The following graph from PJM compares grid load to wind generation during the height of the polar vortex.

PJM PolarVortex

Source: http://www.pjm.com/~/media/documents/reports/20140306-january-2014-cold-weather-questions.ashx

While wind production declined steadily as demand rose, nuclear provided a reliable supply of generation to meet demand. Between January 4 and 8, the nation’s nuclear fleet operated at more than 95 percent of capacity, according to the Nuclear Energy Institute.

To illustrate the reliability differences between nuclear and wind, consider this. During the polar vortex, AWEA claimed “wind energy provided massive quantities of extremely valuable electricity when grid operators needed it most,” particularly in Texas, where wind made the “critical difference” in preventing outages. Far from providing “massive quantities” of energy, IER’s analysis found that wind energy operated at just 17 percent of its total capacity in Texas during the polar vortex. AWEA congratulates its industry for production at 17 percent of capacity while nuclear operating at 95 percent capacity goes unrecognized.

PJM’s data demonstrate that wind energy cannot be relied on to provide significant amounts of energy during peak demand. Unlike nuclear, coal, and natural gas, wind is an inherently variable energy source whose output is dictated by Mother Nature, not by consumer demand, prices, or emergency orders. This is why ERCOT, the Texas grid operator, counts only 8.7 percent of its wind capacity toward its reserve level.

Onerous Regulations Threaten the Electric Grid

The polar vortex shows the value of reliable energy to the electric grid. It also highlights the perils of government regulations designed to undermine reliable energy. The Nuclear Regulatory Commission put 38 nuclear units on a retirement list due to a number of factors, including regulatory costs. If all 38 at-risk units were prematurely retired, about one-third of the U.S. nuclear fleet would be shut down. Compounding this problem is the fact that few new nuclear units are scheduled to come on line to replace existing units. This means nuclear power’s contribution to the U.S. energy mix is likely to shrink.

Regulations are also forcing many coal plants into early retirement. EPA regulations will shutter 60 gigawatts, or 20 percent, of the nation’s coal-fired generating capacity by 2016, coinciding with the first year of enforcement for EPA’s Mercury Air Toxics Standards (MATS). But that’s not all, this summer EPA will propose carbon dioxide emission restrictions on existing coal-fired power plants. According to the Energy Information Administration, coal currently provides nearly 40 percent of America’s electricity, but this will decrease under EPA’s regulatory onslaught.

Reliable energy sources like nuclear and coal are needed to maintain the integrity of the electric grid, especially during peak demand. Onerous regulations aimed at shuttering reliable energy sources threaten to undermine grid reliability. In testimony before Congress in December, Philip Moeller, a commissioner for the Federal Energy Regulatory Commission (FERC), warned that the Midwest could experience rolling blackouts in 2016 due a shortfall of coal reserves after the MATS rule takes effect. Given FERC’s central role in ensuring the reliability of the nation’s power grid, policymakers should take notice when Commissioners signal that the grid is facing real reliability issues. Commissioner Moeller did not mention wind energy as a solution to the shortfall.

Conclusion

Reliable energy sources and a diverse fuel mix are essential to the electric grid. When natural gas prices spiked in early January amid record low temperatures, grid operators leaned on nuclear and coal to prevent power outages. These sources performed admirably, with nuclear operating at an average capacity of more than 95 percent.

Wind energy, unlike nuclear, coal, and natural gas, cannot be relied on to provide significant amounts of energy when it is needed most. In fact, wind energy actually became less reliable to the PJM grid operator during the polar vortex as temperatures dropped and demand soared. Even in Texas, where the wind industry claimed victory for the “massive quantities” of wind energy supplied to the grid during the polar vortex, wind energy operated at just 17 percent of its total capacity.

Onerous regulations imperil America’s supply of reliable energy, which in turn threatens grid reliability. EPA regulations, especially the MATS rule, will shutter 20 percent of U.S. coal-fired generating capacity by 2016 and more will close with EPA’s carbon dioxide restrictions. Meanwhile, almost 40 percent of the U.S. nuclear fleet has been put on a list of potential retirements. The polar vortex provides further evidence that government policies should support reliable energy, not undermine grid reliability. Failure to change course will only result in more of the same—price shocks, supply interruptions, and unreliable power.

IER Policy Associate Alex Fitzsimmons authored this post.

Author:
IER

China Exceeds U.S. as Largest Net Importer of Petroleum Oil

Posted March 26, 2014 | folder icon Print this page

Oil Production in the United States has been growing by leaps and bounds due to shale oil production made possible by horizontal drilling and hydraulic fracturing and is now at a 25 year high. Oil production in 2013 totaled 7.5 million barrels per day, a level not seen since 1989. Oil production in 2013 was almost a million barrels per day higher than oil production in 2012—a 15 percent increase and the largest annual increase since 1940. The increase in oil production has brought a boom to other sectors with rail car oil shipments up 83 percent and the oil tanker construction business booming with over 15 tanker orders.  With greater oil production, the United States is importing less crude oil and petroleum– 16 percent less in 2013 than in 2012 on a net basis (imports minus exports).  In fact, as of September 2013, China has replaced the United States as the largest net importer of crude oil and petroleum.

Oil Production at a 25 Year High

The increased oil production in 2013 is mostly due to shale oil production in Texas and North Dakota. The Bakken oil field in North Dakota and the Eagle Ford in Texas together accounted for 83 percent of the oil production increase in 2013. The Bakken oil field averaged 0.9 million barrels per day in 2013 and the Eagle Ford produced an annual average of 1.22 million barrels per day. [i]

crude oil production growth

Source: http://www.wallstreetsectorselector.com/2014/03/u-s-oil-production-hits-25-year-high/

The record crude oil production pushed refinery utilization up to 88 percent for 2013 from 83 percent in 2009.

Due to the higher oil production, net crude oil and petroleum imports decreased to 6.2 million barrels per day—the lowest level since 1987. The 2013 level was 1.15 million barrels per day (16 percent) less than net crude oil and petroleum imports in 2012.  Net crude oil and petroleum imports reached their peak in 2005 at 12.5 million barrels per day and have declined by 50 percent from that peak.

China Exceeds U.S. in Net Petroleum Imports

In September 2013, China’s net imports of crude oil and petroleum products exceeded those of the United States, making it the largest net importer of crude oil and petroleum liquids in the world.  U.S. total annual petroleum liquids production is expected to increase to 13.4 million barrels per day in 2014 – a growth of 31 percent since 2011. With U.S. demand expected to be 18.9 million barrels per day in 2014, its net crude oil and petroleum import level in 2014 would be just 5.5 million barrels per day.[ii] China, on the other hand, is expected to increase demand to over 11 million barrels per day but increase its petroleum liquids production by just 5 percent to a third of U.S. production in 2014, making net crude oil and petroleum imports reach about 6 million barrels per day.

China v US Oil Imports

Source: Energy Information Administration, http://www.eia.gov/todayinenergy/detail.cfm?id=15531&src=email

In recent years, China has been diversifying the sources of its crude oil imports due to its oil demand growth and geopolitical uncertainties. Saudi Arabia continues to be the largest supplier of crude oil to China, providing 19 percent of China’s 5.6 million barrels per day of imports in 2013. China also imports from Oman, Iraq, the United Arab Emirates, Angola, Venezuela, Russia, Iran, Libya, and Sudan and South Sudan.[iii]

U.S. Oil Production Boom Creates Boom in Rail Shipments and Tanker Construction  

The U.S. oil production boom has created a boom in oil rail shipments, particularly given that the Keystone XL pipeline has been delayed by the Obama Administration for over 5 years now. According to the Association of American Railroads, major U.S. railways delivered 434,042 carloads of crude oil in 2013, 83 percent more than the amount shipped in 2012 (236,556 carloads of crude oil).[iv]

The U.S. energy boom is also having an effect on the country’s shipbuilding industry. Just three years ago, the oil tanker market was dormant in the United States, but was changed by the shale oil boom and the need to move the oil to refiners in the United States. According to the American Maritime Partnership, there are more than 15 oil tankers, along with hundreds of smaller tugs and barges, on order at U.S. shipyards across the country.  And it will take years to build them.

For example, two oil tankers are being constructed at the Aker Philadelphia Shipyard for SeaRiver Maritime, a subsidiary of Exxon Mobil, at a cost of $200 million each. To build the tankers, it takes about 1,000 employees, working more than a year.  The shipyard has orders for four more tankers and two container ships.[v]

While the domestic energy supply is booming, oil companies cannot use foreign ships to move oil and gas around the country due to a 1920 federal law called the Jones Act. Due to the Jones Act, vessels can only move between U.S. ports if they are flagged under U.S. law, crewed by American citizens and built in U.S. shipyards.  Since World War II, shipbuilding in the United States has declined dramatically with only a handful of major shipyards now constructing ships, mostly for the Navy. Thus, the industry is having a hard time meeting the demand for merchant ships at an affordable price. The cost of construction is about three times as much at U.S. shipyards as it is in shipyards in China, Japan and South Korea.

Conclusion

Advanced techniques like horizontal drilling and hydraulic fracturing have turned  our shale oil resources into an oil production bonanza that is reducing our dependence on foreign oil and creating a boom in rail shipments of crude oil and oil tanker construction. They have also helped to make the United States rank second to China in net crude oil and petroleum imports since September of last year.

But the industry is being hampered by Federal laws and policies that are making it difficult to move the crude oil around the country and to help our allies. Lack of adequate access to federal energy resources, a ban on crude oil exports in effect since 1975 due to the 1973 Arab Oil Embargo, a 5-year delay in providing a permit for the Keystone XL pipeline, and the 1920s Jones Act are all having  negative effects on the potential growth opportunity that domestic production promises. The Jones Act  has induced the construction of  over 15 tankers in  U.S. shipyards, which will take years to build, and make energy companies rely on rail, existing pipelines and road transport to move domestic oil and gas around the country.



[i] Wall Street Sector Selector, U.S. Oil Production Hits 25 Year High, March 14, 2014, http://www.wallstreetsectorselector.com/2014/03/u-s-oil-production-hits-25-year-high/

[ii] Energy Information Administration, Short-Term Energy Outlook, March 11, 2014, http://www.eia.gov/forecasts/steo/tables/pdf/4atab.pdf

[iv] The Hill, Railway crude oil shipments up over 83 percent, March 14, 2014, http://thehill.com/blogs/e2-wire/e2-wire/200814-railway-crude-oil-shipments-up-83-percent

[v] National Public Radio, A Boom in Oil Is A Boom for U.S. Shipbuilding Industry, March 14, 2014, http://www.npr.org/2014/03/14/289849961/a-boom-in-oil-is-a-boon-for-u-s-shipbuilding-industry

Author:
IER

Coal Fired Units Shutting Down Despite Lower Generating Prices Coal

Posted March 25, 2014 | folder icon Print this page

The Energy Information Administration (EIA) is reporting that over 5 gigawatts of additional coal-fired plant retirements have been announced by owners and operators of the plants since November 2013 mainly to comply with EPA’s Mercury and Air Toxics Standards (MATS). These 5.4 gigawatts of recently announced retirements are above the 40 plus gigawatts that IER reported in this blog and likely part of the 60 gigawatts that EIA expects to be retired as part of its Annual Energy Outlook 2014 forecast, which is based on existing laws and regulations. Unfortunately, these retirements are only going to cause problems for the grid in keeping electricity on during peak demand periods and to increase prices for consumers. States with a significant amount of coal-fired capacity in the Central part of the United States have lower electricity prices on average than those that generate very little electricity from coal in the Northeast and in California.

The latest Announced Coal-Fired Plant Retirements

The 5,360 megawatts of announced coal-fired capacity to be retired include 21 units at 8 plants in 6 states that 5 companies are planning to shut down[i]:

  • The Tennessee Valley Authority (TVA) announced that it was retiring eight coal-fired units at 3 plants in Kentucky and Alabama totaling almost 3,000 megawatts of generating capacity. These 8 units are in addition to TVA’s previously reported retirement plans announced in 2011. While there are no fixed dates for the planned retirements, TVA indicated that these units will not operate beyond the MATS implementation date of April 2015.
  • South Carolina Electric & Gas announced the retirement of 2 units at the Canadys Station generating facility in South Carolina totaling 295 megawatts of capacity, ceasing operations in early November 2013. The company is closing the plant to reduce emissions and to comply with the MATS regulations.
  • Consumers Energy announced the retirement of 7 units at 3 plants in Michigan totaling 947 megawatts of capacity by April 2016.  The company is shutting down the units because the installation of additional emissions controls to comply with EPA environmental regulations would be uneconomical.
  • Energy Capital Partners is retiring 3 coal-fired units at the Brayton Point generating facility in Massachusetts totaling 1,084 megawatts of capacity in 2017. The company failed to reach a deal with the Independent System Operator of New England (ISONE) on a new power-purchase agreement, which expires on May 30, 2016. Energy capital Partners is also retiring a 435 megawatt generator run on natural gas at Brayton Point.
  • Georgia Power announced the retirement of a 155 megawatt unit at its Mitchell generating facility in Georgia before the end of April 2015. The company had considered converting the unit to biomass, but the conversion was determined to be uneconomic.

Coal-Fired-Electric-Generating-Retirements-Table

Source: Energy Information Administration, http://www.eia.gov/todayinenergy/detail.cfm?id=15491&src=email

Coal Was Used Heavily during This Winter’s Frigid Weather

Masses of arctic air from the North Pole drove electricity prices this past winter to more than 10 times the previous year’s average in many parts of the country and threatened some areas with winter blackouts. To keep the lights on and houses warm, many parts of the country turned to coal during this extreme cold weather period.  Due mainly to infrastructure issues in natural gas deliverability, natural gas prices skyrocketed this past winter and coal-fired power plants were called upon since coal is less prone to price spikes and shortages.

For example, American Electric Power, which serves Columbus and a vast area of the Midwest, was running 89 percent of the coal plants that it must retire next year. At Muskingum River, three units of a five-boiler coal plant about 100 miles southeast of Columbus were operated during the cold weather period. Two of the five units need half-million-dollar repairs, which will not be undertaken since they must close before those investments can be recouped. The newest unit, commissioned in 1968, will close because it needs upgrades to comply with EPA regulations that would cost hundreds of millions of dollars.[ii]

In the Pennsylvania, New Jersey and Maryland interchange, 12,000 megawatts of coal-fired capacity is retiring. That independent system operator recently set a peak record for winter energy use of around 140,000 megawatts and its summer record is 168,000 megawatts. Although enough capacity is available and new gas-fired units are being built, the pipeline infrastructure has not been sufficient to get the gas to demand centers when most needed, and pipeline permitting has become more difficult for fossil energy projects .

In December, the Federal Energy Regulatory Commission warned Congress that there could be rolling blackouts by 2016 in the U.S. Midwest due to a projected shortfall in power reserves because of coal plant retirements.[iii] Other areas of the country are having similar concerns.

Without the coal plants, electricity prices in the peak periods of winter and summer will likely be higher, so future periods of cold weather will be harder on consumers’ electric bills. Because an unprecedented amount of coal units are retiring in a short period of time, the change is likely to be accompanied by more price volatility.

It is not only coal that is disappearing from the electric generating mix. So is nuclear energy. Last year, the Kewaunee reactor in Wisconsin was closed because it is a merchant plant and cannot produce power at a competitive rate in the Midwest electricity market. Vermont Yankee, a nuclear power station in Vernon, Vermont, is also scheduled to close because as a merchant plant its cost of production is higher than the market rate for power. In California, at the San Onofre plant, two nuclear reactors are closing because of delays at the Nuclear Regulatory Commission in renewing licenses and approving operation after a down period for maintenance.

During the polar vortex all but 3 of the nation’s 100 nuclear reactors were operating at 90 percent of their capacity.

This winter’s cold weather and the natural gas infrastructure problems have illustrated the need for diverse sources of energy supply. But, the nation’s regulators so far are not fully accounting for the need for that diversity. Or, the regulators could be working to fulfill President Obama ’s vow to make electricity prices “skyrocket.”

Major Coal States Have Lower Electricity Prices

Coal-fired generation is still the largest source of generation in the United States producing about 40 percent of the nation’s electricity. But, onerous regulations by the EPA and low natural gas prices have lowered its share from a high of over 50 percent. The states that use coal for the largest share of their generation have electricity rates that are 33 percent lower than other states.  As the graph below shows the states in the central part of the nation that generate a major share of their electricity from coal had average electricity prices in 2012 at 9.45 cents per kilowatt hour, which compares to California electricity prices at 13.9 cents per kilowatt hour, and electricity prices in the Northeast at 14.5 cents per kilowatt hour.[iv]  California and the Northeast have reduced their coal-fired generation to just one percent, and are relying on natural gas and renewables to generate most of their electricity.

Infographic-PE-USCoalElectricityCheaper_0

Source: https://www.advancedenergyforlife.com/article/how-coal-can-alleviate-pain-at-the-plug

Conclusion

Coal-fired power plants are closing at an alarming rate due to EPA’s MATS rule, and the regulatory blizzard is just beginning. These units were used heavily during this past winter to supply power when infrastructure problems caused natural gas prices to skyrocket. Grid operators are warning the country that electric power may be insufficient to meet demand next winter due to these retirements and those of several nuclear reactors. Yet, the EPA is not letting up on its onerous regulations regarding coal-fired power plants with more to come this spring/summer.   A looming storm is building for electricity production in the United States, and few policy makers have been paying attention.  Consumers are not apt to be happy with rapidly accelerating electricity bills and an increased likelihood of insufficient supply.



[i] Energy Information Administration, Planned coal-fired power plant retirements continue to increase, March 20, 2014, http://www.eia.gov/todayinenergy/detail.cfm?id=15491&src=email

[iii] Bloomberg Business Week, Polar Vortex Emboldens Industry to Push Old Coal Plants, March 10, 2014, http://www.businessweek.com/news/2014-03-09/polar-vortex-emboldens-industry-to-push-old-coal-plants-energy

[iv] Advanced Energy for Life, How Coal Can Alleviate Pain at the Plug, https://www.advancedenergyforlife.com/article/how-coal-can-alleviate-pain-at-the-plug

Author:
IER

Ukraine: An Important Transit Country for Natural Gas and Petroleum

Posted March 24, 2014 | folder icon Print this page

The Ukraine produces some oil, natural gas, and coal that it uses for domestic consumption, but it must also import these fuels in order to meet demand. The Ukraine’s major importance, however, is as a natural gas and petroleum transit country due to its geographic position and proximity to Russia. In 2013, about 3.0 trillion cubic feet of natural gas flowed through the Ukraine to countries in Eastern and Western Europe, providing 16 percent of Europe’s natural gas consumption. Three major pipeline systems move natural gas from Russia through the Ukraine to Europe and another pipeline moves petroleum.

Ukraine’s Energy Supply and Demand

Most of the Ukraine’s primary energy consumption is fueled by natural gas (40 percent), coal (28 percent), and nuclear (18 percent). In 2012, the Ukraine consumed 1.8 trillion cubic feet of natural gas, producing 37 percent domestically and importing the rest from Russia. A relatively small portion of the country’s total energy consumption is supplied by petroleum and renewable energy sources. In 2012, the Ukraine consumed 319,000 barrels per day of liquid fuels, producing 25 percent domestically and importing the remainder primarily from Russia with some deliveries coming from Kazakhstan and Azerbaijan.

The Ukraine obtains almost half of its electricity from its 15 nuclear reactors and most of the remainder comes from fossil fuels (46 percent) and hydroelectric power (6 percent).  It generates some electricity from wind power (less than 1 percent). The country consumed 78.5 million short tons of coal in 2012, with 90 percent produced domestically.

Payment issues between Russia and the Ukraine have caused Russia to stop deliveries of natural gas and crude oil to the Ukraine in the past with the most recent stoppage over oil deliveries occurring in January 2014 and over natural gas deliveries in 2009.

The Ukraine has an estimated 128 trillion cubic feet of technically recoverable shale gas that could provide the country with a means to diversify its natural gas supplies away from Russia if developed. In January 2013, Shell agreed to explore an area that the government estimates holds about 4 trillion cubic feet of shale natural gas. The Ukraine is planning to develop its shale gas resources by 2020.

Pipelines Transecting the Ukraine

The Bratstvo (“Brotherhood”) and Soyuz (“Union”) pipelines move natural gas from Russia to Western Europe. The Bratstvo pipeline, Russia’s largest natural gas pipeline to Europe, crosses from Ukraine to Slovakia and then splits into two, supplying northern and southern European countries. The Soyuz pipeline links Russian pipelines to natural gas networks in Central Asia and provides natural gas to central and northern Europe. A third major pipeline delivers natural gas from Russia through the Ukraine to the Balkan countries and Turkey.

Nat Gas Pipeline Ukraine

Source: Energy Information Administration, http://www.eia.gov/todayinenergy/detail.cfm?id=15411

In 2013, Russia supplied 30 percent of Europe’s natural gas consumption totaling 18.7 trillion cubic feet.  That includes the natural gas consumption of all of the members of the European Union and Turkey, Norway, Switzerland, and the Balkan states. Based on data reported by Gazprom and Eastern Bloc Energy, EIA estimates that 16 percent of the total natural gas consumed in Europe passed through the Ukraine’s pipeline network. Natural gas shipments vary by season, ranging from almost 12 billion cubic feet of natural gas per day in the winter compared to 6 billion cubic feet per day in the summer.

In the past, as much as 80 percent of Russian natural gas exports to Europe transited the Ukraine. That was changed in 2011 when the Nord Stream pipeline that directly links Russia with Germany under the Baltic Sea came on line, reducing that number to 50 to 60 percent.

The southern leg of the Druzhba oil pipeline moves Russian crude oil through the Ukraine, supplying most of the oil consumed by Slovakia, Hungary, Czech Republic, and Bosnia. In 2013, about 300,000 barrels per day of oil transited the pipeline, about 75 percent of its capacity. Crude oil and petroleum products from Russia are also shipped by rail through the Ukraine for export out of the country’s ports.

Can U.S. Abundant Energy Help?

Policy makers are calling on the United States to help with the developing energy crisis in the Ukraine and potentially Europe.  Some of the recent remarks include:

  • Sen. John Hoeven wants the United States to put together a broad strategy to help the Ukraine become more energy secure and reduce its dependence on Russian natural gas.
  •  Sen. Chris Murphy was speculative about the imposed sanctions, “I mean there’s no doubt that if you cut off Russian gas to Europe, it will hurt. There’s no doubt that if you freeze Russian assets in places like Germany and Great Britain, it will hurt them.”
  • Senator Richard Lugar, formerly head of the Senate Foreign Relations Committee, indicated that exporting LNG and building the Keystone XL oil pipeline are strong signals the United States is still invested in fossil fuels. While the politics of both are tumultuous, and any gas exports will “have to strike a balance” with businesses that rely on cheap natural gas in their production processes, “American interests diplomatically and strategically are clearly to get more permits. The fact is we do have the ability and that could make a huge difference because we can send this gas strategically in various directions, and a lot of it.”

In 2012, Russia exported $160 billion worth of crude, fuels and gas-based industrial feedstocks to Europe and the United States. These exports are a major part of the Russian economy, but as can be seen above, European countries are very dependent on their imports of these fuels from Russia. According to Germany’s Chancellor, Angela Merkel, Germany is willing to take the pain that Russian retaliation to sanctions would bring. But that may not be the case for other European countries, who together imported 32 percent of their raw crude oil, fuels and gas-based chemical feedstocks from Russia in 2012. But, this crisis is making the European Union more eager to secure access to U.S. oil and natural gas supplies, which means lifting the ban on oil exports and approving more liquefied natural gas (LNG) export terminals.

The U.S. Department of Energy (DOE) has approved 6 applications for LNG export terminals and the Federal Energy Regulatory Commission has approved a permit for one of those facilities that should beginning operating by the end of 2015. The other 5 may not begin operating until 2017 or 2018. Another 22 applications are awaiting DOE approval. Thus, none of these facilities will be able to help the current crisis with Russia and the Ukraine. Further, most of the early LNG imports are expected to go to Asian buyers under long-term contracts where LNG prices have been about 50 percent higher than in Europe.

It is also not clear that the companies wishing to build these terminals at this time will find it beneficial once the approvals are complete. It is very expensive to build LNG export terminals and those upfront costs will have to be recouped in the price of the LNG. Also, while U.S. natural gas prices are low at this time due to hydraulic fracturing, it is not clear if U.S. natural gas prices will remain at their current $3 or $4 per million Btu level into the future when the companies of these export terminals will still need to recoup their upfront costs. EIA is forecasting that U.S. natural gas prices at the Henry Hub will increase at a rate of 3.7 percent per year between 2012 and 2040.

Conclusion

European countries, including the Ukraine, are dependent on Russia for natural gas and petroleum, and the Ukraine is a major transit country for pipelines and other transshipment of these fuels from Russia. The current crisis in the Ukraine is indicative of the importance of diversity of energy supply and the sources of that supply. For example, the fact that the Ukraine gets almost half of its electricity from nuclear power and mines most of its own coal is beneficial given its dependence on Russian oil and natural gas.

While the United States is a major producer of natural gas, oil, and coal, it is difficult for it to be responsive to current European natural gas needs when the only approved LNG export terminal will not be operating before the end of 2015. But, what the United States can do is formulate an energy strategy for the future for meeting both U.S. needs and those of our allies, as well as exporting the policies and technologies that created the hydraulic fracturing revolution and attendant oil and natural gas boom in the United States. Ensuring a diverse energy portfolio that includes nuclear and coal should also be at the forefront of that strategy.

Author:
IER