Nuclear's Decline is Good for Gas
July 2017
Nuclear power accounts for about 20% of electricity generation in the United States. Yet, the sector is facing its biggest decline in years, with an increasing number of nuclear units being retired on economic and environmental concerns. However, bad news for the nuclear power sector means good news for natural gas producers.

According to the Energy Information Administration (EIA), natural gas consumption for power generation in the US has increased by nearly 150% over the past 20 years—from 314Mcmpd, in 1997 to 773Mcmpd in 2016. But the shift towards natural gas is just getting started.

It’s not only because of the environment 

While the Trump administration has exited the Paris climate agreement and promised to dismantle the Clean Power Plan, power providers are independently pushing ahead with plans to shift away from new nuclear and coal-fired units towards natural gas, on the basis of pure economics. The abundance of shale gas supply will maintain gas feedstock prices relatively low and competitive with coal for years, even as exports of liquefied natural gas (LNG) pick up. Therefore, gas has been the fuel of choice for substituting nuclear and supporting intermittently available renewable power from wind and solar. 

Since nuclear generation does not emit carbon dioxide, most of the nuclear retirements reported so far are based only on economic considerations. The unit cost US$/MWh of nuclear fuel uranium is very cheap, but older nuclear units are costly to maintain in compliance with strict safety rules. Furthermore, nuclear plants find it hard to compete with gas-fired units in a de-regulated market. Gas turbines are highly flexible. Their output can easily be ramped up or down to meet the minute-by-minute demand of the market. 



A Case for Substitution 

Six nuclear units have been decommissioned since 2012, and the long-term future of US nuclear doesn't look too good either. Four new nuclear units now under construction, which are already billions of dollars over budget and years behind schedule. and could face possible cancellation. Several more nuclear plant retirements are planned for the coming decades. The six retired units had a combined capacity to generate more than 4.6GW, and further rounds of retirements could make this figure jump to as much as 25GW by 2025. 

Historically, increased electricity generation from natural gas and coal made up for the reduction in nuclear output in the months following plant shutdowns. While a lot of wind and solar capacity has been added to the system for the first time, monthly electricity generation from wind and solar exceeded 10% of total electricity in the US – the output from these sources is intermittent by nature. These sources need to be backed-up by thermal power or energy storage facilities to increase the reliability of the system. Gas-fired power plants, especially combined-cycle units that capture the steam exhaust from gas turbines to produce additional power, have emerged as the favored choice for new generating capacity. 

A 1.2GW combined-cycle plant operating only 70% of the time consumes about 5Mcmpd of natural gas. Adding another 20GW of gas-fuelled generation capacity could add roughly 80Mcmpd to gas demand in the US by 2025 , which is more than Spain's whole consumption. This is still not a massive game changer for the 2,038Mcmpd US market, but a real boost in demand for gas producers, especially in the Marcellus and Utica shale gas plays which are closest to where most of the nuclear retirements are taking place. Even without considering the possible nuclear units retirement, at least 15GW of new gas-fired capacity is expected to come online in the US by 2020, consuming over 55Mcmpd, adding to roughly 10GW already commissioned since 2014. Natural gas dominance as a electricity generation fuel in the US are just getting started.