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Energy industry warns about focus on natural gas

An eSolar power plant in the desert city of Lancaster, Calif.

REUTERS

Leading U.S. power executives are warning that North America's shale boom is undermining the competitiveness of nuclear and renewable power for electricity generation, and could leave the system dangerously dependent on natural gas.

"The single biggest challenge we have is the pressure from regulators to build all gas, all the time, and I think that is going to be a mistake," James Rogers, chief executive officer at North Carolina-based Duke Energy Corp., told an energy conference in Houston on Thursday.

He said he expects price volatility of natural gas to return at some point in the coming decades, and diversity of the supply mix is a critical goal for power producers.

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The shift to gas will be good news for North America's hard-pressed natural gas producers, who can expect new sources of demand from the power sector and fuel switching in transportation, particularly with long-haul trucks and urban delivery fleets.

The North American power system is undergoing a dramatic transformation arising from the twin pressures of environmental concerns and the glut of gas that has driven down prices and made it the fuel of choice for new power plants.

Canadian politicians point to the high use of carbon-intensive coal in providing American electricity, part of an effort to deflect criticism from the high levels of greenhouse gas emissions in the oil sands.

But coal's share of the U.S. market has declined sharply as aging coal plants have been shuttered and existing ones idled due to lower-priced power from gas.

As well, economic and environmental pressures have stalled efforts to build new coal-fired plants. As recently as five years ago, the industry planned to build 100 new coal plants, but virtually none of them have proceeded.

The U.S. Environmental Protection Agency is in the process of finalizing new emission rules that will prohibit any new construction of a new coal-fired plant unless it includes carbon capture and storage – a move Canada made a year ago.

As a result, coal's share of the U.S. power market has dropped to 40 per cent from a more than 60 per cent, and may go to 30 per cent or lower within 20 years.

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The declining use of coal has contributed, along with the economic slump, to a sharp decline since 2007 in U.S. greenhouse gas emissions. In 2011, emissions hit their lowest level in 16 years.

In the face of cheap gas, the market for renewable power has been saved by the determination of many states to maintain renewable portfolio standards, which require a certain portion of a utility's output to be met through wind, solar and small hydro.

In California, the state requires a third of a utility's electricity to come from renewable source, a mandate that is driving up prices to customers, Anthony Early, CEO at PG&E Corp., told the CERAWeek conference. However, Mr. Early said the burden on consumers can be greatly reduced by energy efficiency measures that can lower the total bill even as prices rise.

Duke Energy's Mr. Rogers said nuclear should remain an important part of the energy mix, given its ability to provide reliable base-load power while emitting zero greenhouse gas emissions.

The nuclear industry is still recovering from the disastrous impact on its reputation from Japan's Fukushima plant meltdown two years ago and, in the United States, utilities are still trying to figure out what to do with their radioactive waste.

As in Ontario, the U.S. nuclear plants are aging, and decisions will have to be made in coming years about how to replace them when they reach the end of their commercial life.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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