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Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: "IssueAlert" <IssueAlert@scientech.com< X-To: X-cc: X-bcc: X-Folder: \Drew_Fossum_Dec2000_June2001_1\Notes Folders\All documents X-Origin: FOSSUM-D X-FileName: dfossum.nsf http://www.consultrci.com ********************************************************************* Dear Subscriber, Over the past seven years, I have become acquainted with many of you both personally and on the phone. You have provided our strategic and competitive intelligence group with many interesting requests for information. Today, our analysts and writers also respond to your requests through our electronic media. We feel that this interaction between writer and reader is an important key to our future success as well as yours. We have accelerated our response times, answering your questions both=20 personally and through Special Reports, Consulting, and SourceBook Weekly. Please do not hesitate to continue to e-mail us your questions and requests= . Also, click through to SourceBook Weekly and take advantage of our Special Offer during the month of December. Sincerely, Chris Vigil Director of Client Services ************************************************************************ SourceBook Weekly December 4, 2000 Issue:=20 http://www.consultrci.com/web/rciweb.nsf/Web+Pages/SBEntrance.html ************************************************************************ =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH IssueAlert, December 7, 2000 Natural-gas Prices Hit Astonishing Highs; Will Coal and Nuclear Benefit? By: Will McNamara, Director, Electric Industry Analysis =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D According to a Dec. 5 report in the Wall Street Journal, natural-gas prices= , which already had been rising all year, shot up 11.4 percent to an all-time high of $20 per million BTUs on Monday at the New York Mercantile Exchange. Today, reports are circulating that spot prices at the Southern California border reached an astounding $41 on Wednesday, breaking the Daily Gas Price Index's all-time record high of $39. The sharp increases are viewed as a reaction to cold weather in the Northeast and forecasts of more to come. Projections continue to indicate that natural-gas customers will see sharp increases in their heating bills very soon. The current increase has result= ed from a volatile mixture of rising demand and decreased supplies for natural gas, which has driven up prices by a total of 218.9 percent, or more than $5, since a year ago. The uncertain future of natural-gas supplies may be a contributing factor to an unexpected resurgence of interest in coal-fi= red and nuclear power. ANALYSIS: Unfortunately, we are starting to see real evidence of the projec= ted rise in natural-gas prices, just as temperatures start to take their downwa= rd slope across most of the United States. Two months ago, the Department of Energy predicted that households using natural gas would see the largest year-on-year percentage increase in their bills, with prices rising about 40 percent on average. We've actually been seeing the price increase since June of this year, when natural-gas hit a then-unprecedented mark of $4.686 per million BTUs. At that time, it was a shock to see those kinds of spikes for natural gas, especially since the energy source is typically used mostl= y in the wintertime for heating. Yet, now as we move into the coldest months of the season, I project that the all-time-highs of $20 to $40 per million BTUs are something that might become all too common for the near term. The Wall Street Journal article on the price spikes also reported that the American Gas Association estimated that, as of Nov. 24, there were about 2.502 trillion cubic feet of gas in storage. This represented an 11-percent decrease from the five-year average for that date. The United States is mostly self-reliant when it comes to natural-gas supplies and, as I've discussed in previous columns, the fact that a reported 60 percent of federal lands has been placed off limits for natural-gas drilling certai= nly adds to the concern about future supplies. The Clinton administration and environmental groups have been fiercely protective of federal reserve lands and prohibited drilling for natural gas (or oil) in states like Alaska, where some 36 trillion cubic feet of gas is known to be locked underground. Yet, at the same time, substitute forms of power generation, such as coal and nuclear, have been restricted or downgraded in favor of natural gas, which has only exacerbated the current demand on supply. EPA standards have become so pro-natural gas over the last decade that few coal-fired plants have been built in the last 10-20 years. Certainly, the public=20 resistance toward nuclear power has been well documented, which has thwarted any plann= ed production of a new nuclear plant. Ironically, it seems to me that we now find ourselves at a crossroads in this industry that may in fact lead to a resurgence of coal-fired and nucle= ar power. Especially in states such as Texas and Oklahoma, which are very reliant on natural-gas supplies, the current uncertainty about the=20 availability of natural gas and reasonable prices poses a major dilemma. Despite the recent trend of moving away from these two forms of power, I can point to several developments indicating that the current predicament could creat= e a forced reliance on these power substitutes. First, let's look at coal. It's been widely postulated that coal is cheaper and easier to produce than natural gas, and its supplies are certainly more abundant. As recently as this year, coal has accounted for about 54 percent of the electricity produced in the United States, although that majority-hold over power production has come under attack. Emission=20 requirements have forced many generators to shut down or minimize the use of their=20 coal-fired generating stations. In fact, a group of seven utilities=01*AEP, Cinergy, Illinois Power, Southern Indiana Gas & Electric, Southern Company, and Tampa Electric Company=01*have been hit with a lawsuit by the EPA, claiming that they contributed to some of the most severe environmental problems facing certain parts of the United States. Specifically, the EPA has claime= d that the utilities violated the Clean Air Act with emissions from their coal-fired power plants. Currently, while natural-gas prices have soared, coal prices have remained comparatively low and stable. In addition, clean coal technologies are being put into place to reduce the amount of particulates released from coal-fired plants. As a result, many generating companies are hedging their bets that the rise in natural gas prices will continue by maintaining or increasing their coal-fired generation. For example, AEP is the nation's leading consumer of coal. Reportedly, about 67 percent of AEP's electric generation is made at coal-fired plants. In response to the natural-gas price spikes, AEP confirmed that it will continue to operate all of its coal-fired plants at full capacity, despite the ongoing lawsuit from the EPA. Proponents of coal are using the so-called "natural gas crisis" as an=20 opportunity to argue that electricity from coal can be provided at about half the cost of other fossil fuels and is less costly and more reliable than intermitten= t power sources such as wind and solar. In addition, coal proponents say that the cost of electricity would double if the United States were to replace all existing coal-generated power plants with alternative forms of power. Nuclear power also could stand to benefit from the comprised supplies and high prices of natural gas. Following the growing interest among several European and Asian countries, several U.S. utilities have expressed recent interest in expanding their nuclear assets. Corbin McNeill, co-head of Exelon Corp., on Monday stated that new nuclear plants are needed and one will definitely be built in the next five to 10 years. McNeill also noted that the question of whether a new nuclear plant was built would depend on a sustained increase in prices for natural gas, which remains the curren= t fuel of choice for new power plants. However, he rejected the notion that building new nuclear plants would require the Energy Department's Yucca Mountain spent fuel repository to be operational, an event that probably won't happen until 2010. Entergy is another example of a company that continues to aggressively pursue nuclear power and may spark other companies to do the same in respon= se to high natural-gas prices. In late November, Entergy announced that it would submit a counteroffer for the Vermont Yankee nuclear plant, which is already in the midst of being sold to rival buyer AmerGen Energy (the joint venture between Exelon and British Energy). Entergy, which has been developing a strong nuclear platform for some time, believes that the=20 Northeastern United States offers a strong market potential for nuclear power, and plans to increase its offer for the Yankee plant and trump AmerGen's standing offer of $93.8 million. The next few months, especially as temperatures continue to drop, should be very telling on two counts. First, will we continue to see the=20 record-breaking prices for natural gas? (I say yes). Second, what impact will these price spikes have on coal and nuclear? I think they should only have a positive impact on future development of these two forms of power. However, the question is whether or not new production of coal and nuclear can be put into place fast enough to minimize the potentially disastrous impact from the low supplies and resultant rising prices of natural gas. Only time will have the answer to these questions. =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D SCIENTECH is pleased to provide you with your free, daily IssueAlert. Let us know if we can help you with in-depth analyses or any other SCIENTECH information products. If you would like to refer a colleague to receive our free, daily IssueAlerts, please reply to this email and include their full name and email address or register directly at: http://www.consultrci.com/web/infostore.nsf/Products/IssueAlert =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D Feedback regarding SCIENTECH's IssueAlert and SourceBook Weekly should be sent to wmcnamara@scientech.com =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D= =3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D=3D ********************************************************************* Reach thousands of utility analysts and decision makers every day. Your company can schedule a sponsorship of IssueAlert by contacting Nancy Spring at nspring@scientech.com or (505)244-7613. Advertising opportunities are also available on our website. ********************************************************************* SCIENTECH's IssueAlerts are compiled based on independent analysis by=20 SCIENTECH consultants. The opinions expressed in SCIENTECH's IssueAlerts are not intended to predict financial performance of companies discussed or to be the basis for investment decisions of any kind. SCIENTECH's sole purpos= e in publishing its IssueAlerts is to offer an independent perspective regard= ing the key events occurring in the energy industry, based on its long-standing reputation as an expert on energy and telecommunications issues. Copyright 2000. SCIENTECH, Inc. If you do not wish to receive any further IssueAlerts from SCIENTECH, pleas= e reply to this message and type "delete" in the subject line.
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