Alaska Diary | Loss for nuclear power is a win for LNG traders with reserves to sell

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Much of Europe is keen to go green in the coming years, setting net zero emissions targets and shifting away from fossil fuels for power generation.

But much of Europe also wants to turn off its nuclear power plants.

Paths are likely to cross, creating the risk of an electricity crisis and higher tolls for electricity users in the short term.

Natural gas is a popular alternative fuel for power plants until renewables can meet demand, but there isn’t enough to go around this winter. Producers and marketers of liquefied natural gas with cargoes to sell — those not committed to long-term contracts at lower prices and available to the highest bidder — are enjoying a lucrative winter.

A decline in nuclear power at the same time as the shortage of natural gas makes winter painfully costly for Europe, where spot market rates for liquefied natural gas have bounced off the walls of traditional price ranges to reach between $30 and up to $50 per million Btu.

That’s more than 10 times what the same methane molecules cost in the United States this month, more than enough to cover the cost of liquefaction and transport across the ocean, as well as a considerable profit. Spot prices in Europe have been so high in recent weeks that traders have taken the opportunity to divert some shipments already en route to Asia, sending them across the Atlantic instead.

Even halfway through this winter’s spot market price range in Europe, new LNG export projects, such as the state-backed Alaska LNG proposal to market gas from the North Slope, would extremely profitable. But only if they could count on high prices for long enough to pay off the mortgage, which is doubtful because supply and demand will rebalance as they do in commodity market cycles.

In addition, project developers and investors are unlikely to be able or willing to take the risk of relying on the uncertainty of cash sales, rather than the traditional financing model of locking in sales as part of long-term contracts at less volatile prices.

Alaska Gasline Development Corp. continues to work to commercialize its $38 billion project, along with some 20 other companies on the U.S. Gulf Coast, Canada’s East and West Coasts, Africa, Australia, Qatar and Russia. Regardless of this winter’s record spot price anomaly in Europe and Asia, the cheapest LNG projects are the ones attracting new customers, which continues to leave the most expensive projects at a competitive disadvantage.

Meanwhile, many officials in Europe are reminding the public that until more renewable energy sources take over, the continent will need nuclear power to keep the lights on as countries reduce their use of the coal, oil and natural gas to reduce greenhouse gas emissions. at target levels.

The UK and Germany, however, are closing their nuclear power plants; although France, which gets about 70% of its electricity from nuclear, is heading in the opposite direction with plans to build more plants.

Germany plans to shut down all of its nuclear power plants by the end of this year, increasing its dependence on coal-fired power plants and other energy sources. On December 31, it closed three of the six nuclear power plants still in operation.

Germany’s decision to phase out nuclear while switching from fossil fuels to renewables dates back to 2002, with some changes along the way.

The new centre-left government that took power last month plans to phase out coal “ideally” by 2030, filling the void with cleaner gas until enough renewable energy becomes available to meet the demands of Europe’s largest economy.

But efforts to build LNG import terminals in Germany have been delayed by market uncertainty over how the country will navigate between meeting emissions targets and tackling rising fuel costs. ‘energy. Developers avoid uncertainty.

Germany’s new climate minister told reporters on January 11 that the country faces a “gigantic” task if it is to meet its greenhouse gas emission reduction targets while ensuring sufficient power supply for its energy-intensive industries.

Germany currently gets 43% of its electricity from renewables, such as solar and wind, but needs to nearly double that number to meet emissions targets in 2030, said Greens party member Robert Habeck. , to reporters on January 11.

The task will become even more difficult if electricity consumption increases significantly as people switch to electric cars and install electric heat pumps to heat their homes, he said.

Not everyone in Germany supports a complete shutdown of nuclear power, with proponents saying power plants can help Germany meet its climate goals of cutting greenhouse gas emissions.

The European Union’s internal market chief, French Commissioner Thierry Breton, has also spoken out in favor of nuclear energy – combined with investment in renewable sources – as crucial to achieving the goal of zero emissions. net of the EU by 2050.

However, this will require more than $50 billion invested in nuclear by the end of the decade, and possibly 10 times that by 2050, Breton said in an interview with the French weekly Journal Du Dimanche.

“Achieving carbon neutrality will really require a step up in carbon-free power generation in Europe,” Breton said.

And while the country remains heavily invested in nuclear power, a French company, Electricité de France, decided last year to shut down its Dungeness nuclear power station in the UK, seven years ahead of schedule. The two 40-year-old reactors had been out of service for about three years due to “significant” technical challenges.

The closure means five of the UK’s eight nuclear power stations will be permanently closed by 2024.

The shutdowns further tighten electricity supplies amid wider energy challenges in Europe.

Britain can generally rely on power from France, but prolonged outages at the neighbor’s nuclear power stations across the Channel are limiting supply this winter.

Elsewhere in Europe, Austria also opposes nuclear power, while the Czech Republic and Finland, as well as France, see nuclear as crucial to phasing out carbon dioxide-emitting coal-fired power plants.

Larry Persily can be reached at [email protected].


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