Staying Instrumental

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As the natural gas boom continues in the United States, countries around the world are turning to coal and renewable sources to stay in tune.

January 31, 2013
Danny English

The entertainment industry has made its views on natural gas clear. Within the past two years, two movies have been released, the documentary Gasland and the fictional film Promised Land, showing the underside of natural gas drilling. Gasland features an unforgettable scene, when the film’s director lights water running from a faucet on fire, blaming fracking for the flammable water, while Promised Land shows dead cows on properties where companies had drilled.

Environmentalists eat it up; advocates reject it as propaganda.

The friction over fracking also extends into the music business. Spurred on by the outbreak of the process throughout the United States, Yoko Ono and her son Sean Lennon wrote the song, “Don’t Frack My Mother” during the summer, performing the song on Jimmy Fallon’s talk show.

The pair also created the activist organization “Artists Against Fracking,” which brings Hollywood and the music biz together. More than 200 entertainers have joined the group, from actor Leonardo DiCaprio to singer Lady Gaga.

However, industry officials are marching to a different tune, unimpressed with a group full of celebrities. Star power does not generate electricity; star power does not start cars. Oil and gas do.

The oil and natural gas industry is expected to dominate the energy market throughout the next decade in the United States, as the technology and price for natural gas continues to offer companies the most economic opportunities available, and the effect of the fracking boom will be felt across all markets, from coal to wind.

U.S. Natural Gas

Within the market, there is little question about the current popularity of natural gas production. The United States has nearly half a million hydraulic drilling wells, more than double the amount it had two decades ago, and that number is only expected to grow. According to Energy Information Association (EIA) analysts, the reason for natural gas’ continued success is simple: Its prices (about $2/mfc to $3/mcf) are low, while oil prices have remained high (more than $90/barrel).

Because of the relatively low cost for companies to build and operate drilling rigs, shale gas production has also grown across the country, particularly in Appalachian regions, such as in Pennsylvania and Ohio. Meanwhile, global oil production shows only modest increases in recent times.

The use of natural gas upticks right along with production. By 2025, EIA analysts estimate that consumption will increase by 16%, from 6.8 trillion cubic feet per year to 7.8 trillion cubic feet per year, and more companies will use it to generate electricity. For example, Pennsylvania is planning to build a power plant fueled only by Marcellus shale gas. However, people expecting natural gas to be the prominent source to generate electricity will be disappointed with its slow climb. By 2020, natural gas will account for 27% of the country’s generation, and it will only go up 3% more by 2040, according to analysts.

U.S. manufacturing will receive a significant boost from shale drilling, growing 2% per year for the next 30 years, according to EIA analysts. Along with metals and stone, clay, and glass, the chemical industry, where natural gas is among its highest costs, is likely to be among the biggest beneficiaries.

According to a report from the American Chemistry Council (ACC), “Access to vast, new supplies of natural gas from shale deposits creates a competitive advantage for U.S. petrochemical manufacturers.”

The industry expects to see exports grow 4.7% in 2013, and 6.2% in 2014. Expectations are for overall shipments to reach $794 billion in 2013 and $833 billion in 2014.

Rumors of the death of King Coal in the United States have been greatly exaggerated, despite its dirty, disadvantageous reputation.

Natural gas, which generates cleaner, cheaper energy, has received much of the blame for coal’s perceived downward spiral, but that could change this year. After reaching record levels, natural gas production is slated to drop.

Even with the country eyeing other options, coal is still the United States’ greatest source of electricity. The fossil fuel generates 90% of the country’s electrical power, and EIA analysts project consumption will grow by 6% in 2013, as coal regains its ground.

Domestic demand is expected to decline, which, combined with large coal inventories, will slow down a 10-year price increase. In 2011, the price of coal was $2.40/mmBtu, and it will reach $2.44/mmBtu this year.

The greatest chance for growth comes from abroad. According to International Energy Agency (IEA) analysts, coal will come close to usurping oil as the world’s top energy source, with projected coal consumption reaching 4.32 billion tons of oil equivalent (btoe), versus around 4.40btoe for oil.

Europe’s strong interest in coal stems from comparatively high international prices for natural gas. For example, London-traded natural gas goes for about $11 million per thermal unit – more than tripling the United States’ price. Coal-fired generation, a cheaper alternative, has increased by 14% year over year in Europe, despite suffering through a recession.

However, consumption growth will be fueled largely from the East. China will lead the charge during the next five years, surpassing the rest of the world in coal demand. The country’s coal production accounted for nearly half the world’s total last year, yet imports still increased by 20%, according to a report from Energy and Capital. By 2016, expectations are for Chinese imports to reach about 450 million tons, setting up American companies for business in Asia.

“U.S. coal companies are in position to ship $1.3 billion in coal exports annually to companies already profit(ing) from China’s voracious appetite for coal,” writes Elliot Gue for Energy and Income Advisor.

“Bottom line – coal-fired plants in both the U.S. and global markets will continue to provide the bulk of base load power generation for years to come,” Gue says. “King Coal still sits on the world’s power throne.” And its power is growing.

Solar and Wind

With states like New York implementing laws eliminating state taxes for solar panel businesses, expectations are for solar energy to continue its robust growth; however, it will only deposit a small total amount in overall energy.

Wind, on the other hand, could be the bait natural gas adversaries have been biting for, as it generates clean energy with a relatively small environmental impact. However, detractors usually criticize the aesthetic quality of a turbine.

Wind turbine installations had a remarkable year in 2012, continuing to grow throughout each month. Wind power grew 27% in 2011, and an additional 16% in 2012. Power generation is set to reach more than 8GW, and could go as high as 12GW, most likely beating the total amount generated from natural gas-fueled power plants, and benefiting turbine manufacturers like General Electric.

This year’s outlook largely depended on a federal production tax credit for wind-powered generators. The 2.2 cent/kWh tax credit, set to expire at the end of 2012, received a one-year extension in a last-minute deal, but Congress’ delay in making the decision will have negative effects throughout 2013, according to the American Wind Energy Association (AWEA).

Manufacturers, including Siemens and Vestas, uncertain over what action Congress would take, cut back their supply for the industry. Developers decided not to take the first steps needed to build wind farms this year, saying the profit margin was not great enough without the tax credit.

Many in the industry claim one year is not enough time for developers and manufacturers to build new projects. Executives at AWEA are calling for six-year phase-out of the 20-year-old credit, but Washington has not acted upon the proposal.

Despite the negatives, the extension will save up to 37,000 jobs in the United States and dramatically decrease AWEA’s projected 90% installation drop that would have occurred without the deal.

The outlook for wind energy throughout the world is clearer than it is in the United States, and Latin America is set to see tremendous growth.

According to an IHS Emerging Energy Research study, the region is on track to reach 46GW of total installed wind capacity by 2025. Brazil, thanks to a booming economy, looks to lead the way in development, manufacturing, and supply, with 31.6GW of installed capacity and housing 69% of the total Latin American installed wind capacity. In the short term, Mexico’s wind energy market will continue to boom; however, reduced political support could keep the market stagnate until 2020.

Canada, on the other hand, is expecting a historic year in 2013, with at least 1.5GW in new capacity, and projections to reach 12GW by 2016, according to the Canadian Wind Energy Association (Can-WEA).

Harmonic Energy
Even in Yoko Ono’s home state of New York, her anti-fracking song has gone unheard. A recently uncovered analysis from the state’s Health Department concluded that hydrofracking could be safe there, though the governor has not stated any plans for drilling.

The debate over fracking’s pros and cons rages on, as environmentalists protest it, and industry officials try to sort myth from fact for the public.

Right now, natural gas is the United States’ ace in the hole, setting up the country to produce more petroleum than Saudi Arabia within a decade, seemingly impossible a year ago. With the right technology and innovation, exports could incite an economic bang.

However, it would be foolish for the country to put all of its efforts into natural gas. The global market is expected to catch up, and will have the technology to drill as efficiently and cheaply as the United States does within a short amount of time, meaning American imports will lose their appeal.

Ono’s song has a point, though. Energy producers need to stay mindful of clean energy, especially as countries continue to strive to reduce their CO2 output. They also need to account for the environmental impacts their operations have, whether its fracking mother earth, or polluting landscapes with clunky turbines.

The United States’ salvation is not just in the natural gas industry, just as the world’s is not in the coal industry. Wind production is gathering momentum across the world, even as the United States relies on regulation and incentives.

No one market is a saving grace. Each one is instrumental.

Nuclear Fact, Fiction

Nuclear power has not been uprooted in the United States, despite the popular misconception. Although nuclear power ranks behind both natural gas and coal in electricity generating capacity and output (9% and 19%, respectively), the United States has the most capacity and generation in the world. According to analysts from the International Atomic Energy Agency (IAEA), Vienna, Austria, nearly 800 billion kWh of nuclear generation occurs in the United States. France, the country with the second most nuclear capacity, generates just more than 400 billion kWh; however, France relies on nuclear power for nearly 80% of its electricity, much higher than in the United States.

Although it ranks bronze among U.S. electric generators, nuclear power is not out of the race yet. In fact, the United States is putting a strong emphasis in the energy. Last year, the U.S. Nuclear Regulatory Commission approved Atlanta, GA-based Southern Company’s plan to build and operate two reactors at its Vogtle plant, marking the first time in more than 30 years there has been reactor construction approval. Another project, the Watts Bar 2 from the Tennessee Valley Authority (TVA), which resumed construction in 2007 after a 19-year delay, is on track for its initial operation in 2015.

The U.S. Department of Energy (DOE) is investing money to license small modular reactor designs – 300MW or less – to complement the nation’s current 104 operating reactors. The Nuclear Energy Institute (NEI), Washington, D.C., will match the federal funding support for the program, setting the potential for increased growth in that sector.

“Small reactor technology is scalable and versatile, capable of incremental development and financially viable for a full range of energy companies in this country,” says Marvin Fertel, president and CEO, NEI. “We are likely to see many U.S. nuclear companies active in what promises to be a global market for this technology.”

According to analysis from Frost and Sullivan, authorities across the continent believe increasing nuclear power will help meet the European Union’s (EU) targets on carbon dioxide and fossil fuels. However, countries such as Germany, Switzerland, Italy, and Belgium will most likely embargo nuclear developments within their borders, citing environmental and health risks.

“Dependence on foreign imports, especially gas from Russia, is politically fraught,” explains Neha Vikash, research analyst, Frost and Sullivan Energy and Power Supplies. “Therefore, nuclear energy will be among the few alternatives Europe is left with to meet its energy needs while staying on course to meet its climate change goals.”

Nuclear generation’s greatest growth looks to be coming from China, South Korea, and India, according to WNA analysis. To meet growing electricity demand, China expects to build an average of 7,000MWe per year until 2020. The country currently has 15 reactors in operation, 26 under construction, with plans for another 51.

South Korea, which relies on nuclear power for 35% of its electricity needs, currently has 23 operating units, with four more under construction. The country plans to expand to 35 nuclear power reactors during the next 20 years.

Nuclear power generates the least amount of electricity in India compared to China and South Korea – 4% from 20 reactors. The country has seven under construction, plans for 18 more, and a goal to reach 20GWe by 2020.


Credit: Western Resource Advocates