SB123 a natural gas price trap
May 23, 2013
Nevada is being led into a natural gas price trap under the wrappings of "environmentalism." Senate Bill 123 is leaning toward a NV Energy-mandated electrical production ratio of 60 percent natural gas to 40 percent renewables. On the surface, this looks great — no more dirty coal and an increase in renewables. But this is a trap that will lead to much higher electricity prices.
The assumption is that natural gas price will remain low. That is not what the Department of Energy predicts, nor is that what the gas industry is expecting. In its Annual Energy Outlook for 2013, the DOE stated:
"After 2018, natural gas prices increase steadily as tight gas and shale gas drilling activity expands to meet growing domestic demand for natural gas and offsets declines in natural gas production from other sources. Natural gas prices rise as lower cost resources are depleted and production gradually shifts to less productive and more expensive resources … spot natural gas prices (in 2011 dollars) reach … $7.83 per million Btu in 2040."
That is basically a doubling in natural gas prices from today and a massive increase in electrical costs to the consumers.
The second major reason natural gas dependency is a trap is the track record of manipulation of prices by the natural gas industry. Natural gas prices doubled between April 2012 and April 2013. Why? Well, when natural gas prices started dropping in late 2011, the producers started capping wells all over the country. They dried up the supply enough to double the price. They are no guarantees that they won't do that again.
It makes more sense for Nevada's electricity to be 60 percent renewables and no more than 40 percent natural gas. Over any long-term period, our big three renewables (geothermal, solar thermal, and solar photovoltaic) will have very stable prices. The biggest costs are up front. Once installed, they never go up due to fuel prices. And none of the big three renewables are ever subject to price spikes, price manipulation, and availability such as natural gas has been, still is, and will be in the future.
Natural gas dependency is a financial trap. Nevada needs to stop being exploited by out-of-state suppliers of coal and natural gas, and strive for energy independence. Nevada Energy's 60 percent mandate means higher electricity prices for the next 25 years.
John Scire is an energy policy adjunct professor at the University of Nevada, Reno. He can be reached at email@example.com.