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More nuclear power in our futures (thankfully)
The following analysis is an encouraging outlook for continuing the
expansion of nuclear power.
Strategic Forecasting Inc
Global Market Brief: Oct. 25, 2004
October 24, 2004
Electricite de France (EdF), the French national electricity monopoly,
announced Oct. 22 that it would begin construction of France's first
third-generation nuclear power plant at Flamanville in Normandy in 2007.
Unlike the 900 megawatt second generation-plants that France began
building in 1977, the new EPRs (European Pressurized Water Reactors) are
capable of producing an additional 700 megawatts of power at lower cost,
with higher safety ratings -- and have design safeguards so that (in
theory) a direct hit from a hijacked airliner would not crack the
reactor core. EdF plans for the Normandy reactor to be the first of
many, and envisions them ultimately replacing all of France's 58
existing nuclear power reactors. About three-quarters of those older
reactors will need to be replaced by 2020. The new third-generation
reactors will have a 60-year life span.
Nuclear power has been a fact of French life for decades. Between
Charles de Gaulle's political desire to preserve independent foreign
policy options, the economic tragedies of the 1973 and 1979 oil shocks
and continuing concerns for the security of energy supplies, France has
always kept its civilian nuclear option up and running. Consequently,
France obtains 39 percent of its primary energy supplies -- and 78
percent of its electricity -- from nuclear power, and with the exception
of France's Greens, there is broad political support from across the
French political spectrum to keep the atoms splitting.
But France is the anomaly in Europe.
Unlike Asia where nuclear power is popular and on the march, in Europe
the environmentalist movement has succeeded in making "nuclear" a dirty
word. Germany -- where the Greens are in the ruling coalition -- has
pledged to phase out all of its nuclear power facilities and most other
European states are following suit. Aside from France, only the Czech
Republic and Finland are bucking the trend.
This is no minor shift. As a whole, Europe receives 13 percent of its
primary energy from nuclear power. Replacing that large of a chunk of a
region's energy mix -- particularly if the region is to maintain
economic growth -- is no minor feat. Europe already depends upon
imported oil and natural gas for more than three-quarters of its fossil
fuel needs. Once nuclear power is pushed to the sidelines, those
proportions -- and Europe's economic vulnerability to developments in
the Middle East -- will only increase. Never forget that while the 1973
oil embargo certainly hurt the United States, it nearly crushed Europe.
There is yet another bugaboo on Europe's energy horizon. On Oct. 22 --
at European urging no less -- the Russian Federation ratified the Kyoto
Protocol. The international climate treaty will force Europe to slash
its greenhouse emissions by some 8 percent from 1990 levels by 2012. And
in a grand testimonial to not thinking things all the way through,
nuclear power creates very few greenhouse emissions at all; coal and oil
-- the source of 57 percent of Europe's energy mix -- produce the most.
The only comparable "greenhouse-free" fuels -- alternative fuels such as
wind and solar -- are simply not ready for prime time. In addition to
being much more expensive than conventional fossil fuels, they are not
reliable. No matter how much the technology improves, wind and solar
farms will never generate power on still nights. Unsurprisingly, even
after years of effort at diversification, Europe only receives 1 percent
of its energy from renewable sources.
There is, in fact, but one solution to Europe's nuclear/Kyoto imbroglio:
natural gas. Natural gas burns clean and smog free and produces only
about 60 percent as many greenhouse emissions as coal.
Of course, natural gas brings its own problems. For one, Europe does not
have much of it left. Indigenous onshore production has fallen in all of
the EU states to the point that local production is almost considered
exotic, and Europe's great energy reserve -- the North Sea -- is past
maturity and its output is now slowly declining. Algeria is shipping all
it can under the Mediterranean Sea, but even Algiers' most aggressive
expansion plans will not be able to keep up with the North Sea fall off.
Liquefied natural gas will undoubtedly be able to cover some of the
shortfall, but total global supply of LNG in 2002 was 150 bcm, only 40
bcm of which came to European shores. In that same year, Europe as a
whole used some 450 bcm of natural gas.
Phasing out nuclear power (outside of France) and replacing it with
natural gas could well increase total demand to 570 bcm.
But even this number assumes that there is no effort to reduce coal or
oil consumption in order to reach Kyoto targets, an impossibility if the
protocol is to be implemented. It also assumes that total EU energy
consumption will not increase, another impossibility considering the
rapid growth being experienced by the EU's newest members. Even assuming
that the demand growth rate of the past 25 years shrinks by one-third,
by 2025 Europe will need some 775 bcm.
Europe will most definitely need another source of natural gas; there is
only one available: Russia.
With proven reserves of nearly 50 trillion cubic meters and annual
production in excess of 540 bcm Russia is the world's largest natural
gas power. It is also already Europe's single largest source of the
stuff, sending about 185 bcm annually.
And it fully intends to send more. Gazprom, Russia's state-run natural
gas monopoly, is going through a massive reorganization and expansion
which will see it absorb -- among other things -- large pieces of Yukos,
Russia's largest oil producer, and Unified Energy Systems, the state-run
power monopoly. Between this and government plans to increase the price
of domestic natural gas and power, Gazprom plans to clamp down on
Russian consumption and free up oodles of natural gas for export to Europe.
Gazprom's logic is simple. At home is it forced to sell its natural gas
below cost to power the country. Anything it is able to export, it gets
hard currency for.
So Gazprom has the means, the motive and -- should Europeans prove
willing to stump for some new export pipelines -- the opportunity to
help Europe out of its self-imposed energy fix. The only question is:
What is the catch?
Gazprom is not a normal firm. It is in the midst of using its political
connections -- Alexei Miller, Gazprom's CEO, is a loyal ally of Russian
President Vladimir Putin -- in a so-far successful effort to band all of
the state's energy assets
into one massive megafirm. Similarly, it is using its connections to
benefit from the political war that the Kremlin is waging against
Mikhail Khodorkovsky, the oligarch behind Yukos, by picking up large
pieces of that faltering firm. It is also using its size and political
weight to force its way into pre-existing consortiums
that have operated for years in places such as Sakhalin Island. In
short, Gazprom is feeling its oats, making it very clear that Russia --
all of Russia -- is its backyard and that anyone who wants to do
something there must do so with Gazprom riding -- free of charge -- in
the passenger seat.
Of course, Gazprom is a state firm, so there are aspects of its policy
that are crafted with political considerations in mind. The Kremlin has
often used Gazprom's control over its neighbors' energy supplies to
pressure for different behavior in Belarus, Ukraine, the Caucasus, the
Baltics and Central Asia. If the neighbors did not do what Moscow
wanted, the lights simply went out.
That will lead most of the EU's newest members -- many of them until
recently under direct Soviet rule -- to resist the inevitable European
energy connections to Russia. Luckily for Europe, an energy partnership
is something the Kremlin wants. Decades-long policy in Moscow has been
to establish firm European-Russian economic links in order to water down
U.S. influence over Europe. While Russia will certainly try to use its
energy lever for political reasons, it will be to cement relations, not
to act the enforcer. But try telling that to the average Latvian or Pole.
Nuclear power would have provided a neat way to square Europe's energy
circle, but only France has decided to take advantage of it. For the
rest, it is a decision between achieving some measure of energy
independence and meeting environmental goals. Europe cannot have both.
Copyrights 2004 - Strategic Forecasting, Inc. All rights reserved.
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