Sunday, January 16, 2011

Wind Power Makes No Economic Sense - Blog from Harvey Enchin

Blog from Harvey Enchin

Natural gas is fuel of the future - analysis of the potential for natural gas taken from column in The Vancouver Sun Jan. 15, 2011

When legendary oil tycoon T. Boone Pickens embraced wind energy in 2008, and placed a $2-billion US order for turbines with General Electric to build America's biggest wind farm in Texas, he won applause from environmental alarmists around the globe. Al Gore expressed hope that other business leaders would follow his example.

None did and for good reason. Wind power makes no economic sense.

Turns out the 83-year-old Pickens was having a senior's moment. He briefly forgot that you create wealth by investing in a real business. The wind "industry" isn't a business; it's a boondoggle that sucks in government subsidies.

When Pickens came to his senses, he cut his GE order in half and is expected to dump the remaining turbines on someone oblivious to market realities. Fortunately for him, Ontario fits the bill in the sucker-born-every-minute category. Premier Dalton McGuinty has embarked on a foolish wind energy program that forces Ontario consumers to pay higher rates for electricity to subsidize foreign wind power companies.

Meanwhile, Pickens and others who have seen which way the wind is blowing have set their sights on natural gas. Greenies don't like natural gas because it's a fossil fuel which, by definition, makes it bad.

Nevertheless, it will be our principal energy source for many decades to come because there's lots of it, and, compared to the alternatives, it's inexpensive.

British Columbia is blessed with a vast supply of natural gas, particularly from unconventional sources, specifically, shale basins. According to the B.C. Ministry of Energy Mines and Petroleum Resources, conventional natural gas resources are estimated at 91 trillion cubic feet (Tcf). The potential for shale gas is between 500 and 1,000 Tcf at Horn River, 200 Tcf at Cordova Embayment and 450 Tcf in B.C.'s portion of the Montney play, which straddles the B.C./Alberta border.

To appreciate how huge these reserves are, consider that B.C. produces about one Tcf a year.

The development of technology that has made the exploitation of shale gas economically feasible dramatically changes the energy picture in North America and has major implications for natural gas producers and consumers globally. For example, North America has sufficient natural gas that can be produced at reasonable cost to meet its needs for the foreseeable future, John Deutch, professor of chemistry at the Massachusetts Institute of Technology and a former U.S. Undersecretary of Energy, wrote in a recent issue of Foreign Affairs magazine.

If the U.S. becomes self-sufficient in natural gas (recent estimates put the volume of technically recoverable natural gas at 2,500 Tcf), and perhaps even begins to export it, Canada will have to find other markets for its own prodigious production. Indeed, that process is underway with construction of a $3.5-billion liquefied natural gas export terminal near Kitimat to serve markets in Asia. A second LNG project is in the planning stages.

Deutch points out that because Asia imports most of its natural gas, where it competes with oil to generate electricity, the price is set relative to a benchmark price of oil imports to Japan. In North America, where demand is satisfied by domestic production, the price is based on the value of coal. The price disparity makes Asia an attractive market for natural gas exporters.

Speaking of prices, the spot price for natural gas at the Henry Hub (the pricing point for natural gas futures traded on the New York Mercantile Exchange) was $4.41 US per million BTUs mid-week. The equivalent price of oil (based on 5.8 million BTU per barrel of oil equivalent and a crude spot price of $91.81 a barrel) was $15.83.

As natural gas begins to displace oil (and coal) in heating, transportation, petrochemicals, power generation and industrial uses, its price may increase, and the gap between gas and oil may narrow. But the price would have to more than double for any of the renewable energy sources to become cost-competitive.

In its most recent forecast, the U.S. Department of Energy sees natural gas reaching up to $7 per million BTU by 2035 (when fossil fuels will continue to account for more than three-quarters of the U.S. energy supply).

Environmentalists can take some solace in that burning natural gas to produce electricity releases 40 per cent less carbon dioxide than burning coal. To be sure, extracting natural gas from sedimentary rock involves a process called fracking, which may have environmental impacts that need to be addressed.

However, the environmental record of natural gas is surely better than that of wind farms, which according to the American Bird Conservancy, kill birds at a rate of up to 14 birds per megawatt per year. By comparison, the death of a few hundred ducks in the Alberta oilsands tailings pond was insignificant.

Millions of bats are also killed by wind farms each year, not by colliding into the blades, but from the rapid drop in air pressure that causes their lungs to explode.

Bats consume one-third of their body weight in insects each night at a rate of several hundred insects every couple of hours. A colony of 1,000 bats would eat four tons of insects a year.

Clearly, wind farms do more harm than good.

Fortunately, wind power appears to be running out of steam. Installation of new wind capacity in the United States dropped by 72 per cent in 2010 and is forecast to fall by another 50 per cent in 2011.

The substitution of natural gas for oil will not only bring economic benefits but will improve the outlook for energy security.

If North America makes the necessary infrastructure investments to use natural gas as the main fuel for transportation, heating and power generation, it will lessen the political influence of oil-rich dictatorships, freeing the West from the grip of tyrants, terrorists and human rights abusers.

The answer is not blowing in the wind.

It is under our feet. There is sufficient natural gas to see us through the next century and beyond if governments get their heads out of the clouds and encourage the private sector to make the necessary investments to secure our energy future.