Block’s Indicator of Sustainable Growth

by Ray Block

With the US moving to a low carbon economy, the  new found enthusiasm for natural gas may seem odd at first, given that it is a fossil fuel.

 But it makes a greal deal of economic sense, at a time when carbon abatement in coming years becomes the prevailing theme in energy pricing.

And when you combine natural gas with renewable energy, you have an ideal  interim solution to CO2 reduction, for natural gas has only about half  the fossil fuel emission levels of coal. Natural gas is also cleaner than oil.

The Potential Gas Committee now says US natural gas reserves have increased to 2,o74 trillion cubic feet,  equal to about 100 years supply. This is more energy than all the known oil reserves in Saudi Arabia.

Much of the 44 per cent estimated gas increase in shale rocks, which drilling companies have only recenly learned how to tap is tremendously important for a country like United States, which regards energy security as a major preoccupation.

Enter the difficult- to- get- on- with T Boone Pickens, the billionaire who made his money out of oil and greenmail. Now a champion of both natural gas and wind energy, the Pickens Plan had proposed in 2008 a large expansion in wind power, with natural gas being shifted from power generation to fuel CNG trucks and other heavy vehicles.

The ideal location of wind towers in the US outside the coastal regions is the Great Plains, the prairies with large wind resources.

The states involved comprise  Colorado, Kansas, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming. It also includes the Canadian provinces of Alberta, Manitoba and Sasakatchewan, and into Mexico.

Pickens had proposed the US spending $1 trillion to build 200 GW on wind energy, and true to the man, he intended to develop in his own right a giant wind farm of 10 GW at a cost of over $10 billion.

Conditional on Pickens plan, the economics of wind power was justified only when natural gas prices were rising, such as in 2008, when gas prices were dovetailing the rise in West Texas oil(WTI) prices to over $140 a barrel. At the then prevailing gas price level, wind energy was competitive with natural gas.

But after the fall in oil prices to their low point below $33 a barrel in February 2009, and now more than doubling since then, gas prices have tanked.

Part of the oil price rise is due to financial speculators, and part of the gas price collapse is due to a 30 per cent expected rise over the next couple of years in world LNG supply.

As for Pickens, Newsweek (August 9 2009), asks what is he going to do with the 667 wind turbines he bought from General Electric for $2 billion, which are due for delivery in 2011. He says that when the natural gas price goes below $7 per cubic feet, it’s hard to finance wind energy, particularly when the gas price hits $4.

Michael Kanellos of Greentech Media says that a small but growing number of utilities are beginning to supplement natural gas power plants with solar thermal systems. “Unlike a standard solar thermal plant, a hybrid plant can provide electricity 24 hours a day.”

Some solar thermal developers add molten salt systems to their plants to save heat harvested in the daytime to make power at night. The existing solar thermal plants in California’s Mojave Desert are already hybrids, because they have small gas turbines.