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Natural Gas to Electricity Is Like Bread to the
Swine
January 25, 2006
by Bolko von Roedern
The natural gas commodity price reached $14 per million
BTU on September 28, and since then fluctuated dramatically, but
with an apparent bottom near $9 per million BTU. $14 per million BTU
corresponds to a fuel cost of $0.041 per kilowatt-hour (kWh). When
utilities use natural gas that costs $14 per million BTU to produce
electricity in a standard gas turbine that is 33% efficient, the
fuel cost per electric kWh is over $0.12 per kWh. (The fuel cost for
electricity is more than $0.08 per kWh in a 50%-efficient
combined-cycle turbine generator).
Years ago, we snickered at the inefficiency of the
communist economic system, citing examples where farmers fed their
pigs bread instead of grain because the bread was cheaper. Now the
United States generates about 20% of its electricity with a fuel
having a higher commodity price than the average U.S. retail
electricity cost (recently revised upwards by DOE-EIA to $0.094 per
kWh for 2005), suggesting that a market economy can be similarly
insensible.
Our job now is to promote renewable energy like wind,
solar hot water and heat, and PV, and argue against climate-damaging
options such as more coal-fired plants. For years, the renewable
energy and energy efficiency advocates have predicted that we will
run out of fossil fuels and prices would rise. As this is beginning
to happen, we should not allow ourselves to be caught by "shock and
awe," but rather rejoice realizing that these developments have made
some renewable energy technologies cost-effective over night.
We can also highlight that high fossil fuel prices are
an unavoidable necessity for balancing supply and demand. If we had
done it by increasing taxes (on motor fuels, or a carbon tax) and by
higher efficiency standards, we would have reaped a benefit for our
society from such policy. Such policy would not have increased cost
to the end user, because the higher taxes would have merely
compensated the increases in commodity prices necessary to balance
supply and demand, and higher efficiency standards would have
enabled the average American to buy less and save. Instead, we are
now paying much more entirely to the fossil fuel supply chain, which
uses some of the increased revenues in desperate attempts of trying
to increase production, thereby accelerating the arrival of the day
when we will have run completely out of North American oil and gas. |
