Could Virginia Dominion Power be banking too much on natural gas in its energy mix?
Yes, according to a new report by the Union Of Concerned Scientists, an advocacy group of scientists and engineers.
It rates Virginia among the top 11 states in the country that have bought into the natural gas boom too much. One area of concern is that utilities are investing tremendously into new natural gas infrastructure -- Dominion’s $5 billion Atlantic Coast Pipeline project comes to mind -- and could leave ratepayers short.
UCS is concerned that "decades-long financial commitments” involving natural gas could result in "billions of dollars' worth of underused, idled or even abandoned plants and pipelines."
On the bright side, gas-fired electricity emits half as much carbon dioxide as coal-fired, and has been enjoying ultra-low prices for the past seven years.
The main reason for its unexpected dominance is fracking drilling methods that use horizontal methods along with chemicals to get at gas pockets trapped in shale and other rock formations.
Numbers tell the story. In 2008, natural gas futures were trading at almost $14 per million British Thermal Units of energy. They swooned to $3.5 per mm/BTUs in 2009 and now are around $2.50 million/BTUs.
The long-term problem, as the UCS puts it, is that natural gas prices are historically highly volatile. For example, the fracking boom has created a glut that's greatly hampering the fracking boom.
Go to Oklahoma City where the big fracking pioneers are, and you’ll find shut-down wells and companies struggling to find cash. Or, visit Northern West Virginia and Pennsylvania where just a few years ago, fracking turned middle-income rural dwellers into overnight millionaires. The checks have stopped coming.
With prices dropping, no one wants to invest in fracking wells, which are more expensive to operate than traditional ones. The slip side is that what goes down also tends to come up for any number of factors, especially sudden shortages on the world market.
Utilities must consider the relative prices of available fuels, so their choices are often heavily influenced by the price of natural gas. Take coal. For southwest Virginia thermal (electricity) coal to be economically competitive, gas prices have to be about $8 million BTU or higher. Under $4 is a non-starter.
Dominion, like other companies, wants to cash in on the gas boom by building gas plants and with its controversial Atlantic Coast Pipeline project that would run from the Marcellus Shale gas fields of West Virginia and Pennsylvania, over the mountains and through the woods and dairylands of Augusta and Nelson counties, where opposition is strong, and on to North Carolina.
What happens if gas prices suddenly spike? Will Dominion switch to another form of energy? Its official policy is to develop all forms of power.
Yet Dominion is slow to develop renewables although it is picking up its pace somewhat. My guess is that one reason why Dominion finds it easier to switch from coal-fired to gas-fired plants is that it suits their energy setup, which calls for big, muscular plants pumping out electricity galore.
Others believe that the utilities of the future will consist of a far less centralized system of widely distributed and more diffuse points of power generation, even solar panels on single-family homes.
If you want an example, take a drive on a rural road from southeastern Virginia into northeastern North Carolina. In an instant, Old Dominion peanut fields turn into acres of solar panels. Why? The Tarheel state is light years ahead of Virginia in renewable energy.
If you want an example of the dangers of volatile natural gas prices and how they affect projects, consider Cove Point, a liquefied natural gas plant that Dominion bought about a decade ago to export gas to Asia. The original plant was built as an import facility for LNG from Africa and Norway back in the oil-shortage years of the 1970s. It was shuttered for years when fluctuating LNG prices made it unworkable.
So, is the Atlantic Coast Pipeline a white elephant? Time will tell and hopefully ratepayers won’t get stuck holding the bag.