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A real money quote

I’ve often fumed about everyone in the power business picking natural gas over every other fuel source. The problem is that they’re all running to the same side of the boat. Now, gas is good stuff. It’s way cleaner than coal. Gas fired power plants are far easier to start and stop than either coal or nuclear plants. Plant construction is less than a quarter as much as a nuclear unit of comparable size. And, for now, gas is cheap.

But as Jay Apt of Carnegie-Mellon University was recently quoted as saying, “The surest route to $6 or $8 gas is for everybody to plan on $4 gas.”

What Apt means is this. If everybody thinks gas will remain cheap forever, they’ll build more and more gas plants. And each new power plant increases gas consumption a lot. We’re talking a million and a half horsepower for one big gas plant, and that’s large by any standard. Do this a few score tmes around the country, and suddenly you’re trying to burn more gas than the industry can physically supply. When that happens, prices soar.

And it wouldn’t be the first time the electric power industry has suffered through a boom and bust cycle with natural gas. Also, don’t count the greenies out. They may yet be able to make hydraulic fracturing illegal, and the price of gas would go right back up.

The power industry is in some respects similar to the financial industry. It’s better to be overly cautious than to risk poverty by betting all your money on one seemingly enticing investment. Diversity is the key to long term security. If American utilities become too reliant on natural gas for electric generation, then the specter of disruptions in gas supply become nightmarish.

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