Betting big on natural gas
Posted December 22, 2011 at 9:06 am 
Filed in: Today’s Marketplace section of the WSJ has two articles well worth reflecting on. The first, by Ryan Tracy and Deborah Solomon, reports on the formal issuance of what’s commonly referred to as the Clean Air Act Mercury MACT rule — for maximum achievable control technology — the Clean Air Act phrase that gave EPA the statutory authority for the rule. The B3 piece’s title and subtitle say it all:
EPA Orders Deep Cuts in Emissions: Rule is Big Win for Health Advocates; Republicans Vow to Continue Fight
Tracy and Solomon report the substance well:
“The rule would require deep cuts in emissions of mercury, acid gases and soot from coal-fired power plants and is likely to reshape the industry as companies turn off old plants and decide whether to clean up existing ones or switch to cleaner-burning fuels such as natural gas.”
Note well that last bit about fuel switching. Back when EPA started working on a mercury rule during the Bush 43 Administration, “fuel-switching” was something to be avoided. At that time, the fear was that utilities would be forced to switch to more expensive natural gas, whose price volatility would wreak havoc with the electricity markets.
Today it’s a different story, and one reason that fears about blackouts in the face of the rule are wildly overblown is because at today’s gas prices, in some places, utilities are directly combusting cheap natural gas without modifying their coal-fired units at all. They’re paying a big inefficiency price, but the economics still work, and fuel-switching has become a good thing (except for coal miners). So an orderly shutdown of dirty old coal plants and a restart of idle gas plants — or a retrofit or new build where there aren’t any idle ones — means this rule is likely to have little negative impact on electricity reliability at all. As Tracy and Solomon note, the largest grid operator, PJM Interconnection, “said the process would allow it to maintain reliability.”
That is, of course, if natural gas prices stay low and stable, or only rise slowly and steadily over time. And that leads us to the piece on B7 by Tennille Tracy: Gas Exports Ignite a Feud: Energy Firms Promote Exports, but Manufacturers Fear Their Costs Will Climb.
Tracy alerts readers to a very important EIA analysis to be delivered “in a few weeks” as to “whether exports will drain U.S. supplies and inflate domestic prices.”
Stay tuned for that, but of course exports can’t possibly “drain supplies.” The extent to which prices rise as we connect a North American natural gas market to the global market, however, will have serious implications for both manufacturers (some of whom both consumer electricity and use natural gas as a production input) and your average rate-payer alike.
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