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Cheap Natural Gas Unplugs U.S. Nuclear-Power Revival

Natural gas killed off new coal and now it’s killing off new nuclear.

The U.S. nuclear industry seemed to be staging a comeback several years ago, with 15 power companies proposing as many as 29 new reactors. Today, only two projects are moving off the drawing board.

What killed the revival wasn’t last year’s nuclear accident in Japan, nor was it a soft economy that dented demand for electricity. Rather, a shale-gas boom flooded the U.S. market with cheap natural gas, offering utilities a cheaper, less risky alternative to nuclear technology.

“It’s killed off new coal and now it’s killing off new nuclear,” says David Crane, chief executive of NRG Energy Inc., NRG +2.19% a power-generation company based in Princeton, N.J. “Gas has come along at just the right time to upset everything.”

Across the country, utilities are turning to natural gas to generate electricity, with 258 plants expected to be built from 2011 through 2015, federal statistics indicate. Not only are gas-fired plants faster to build than reactors, they are much less expensive. The U.S. Energy Information Administration says it costs about $978 per kilowatt of capacity to build and fuel a big gas-fired power plant, compared with $5,339 per kilowatt for a nuclear plant.

Already, the inexpensive natural gas is putting downward pressure on electricity costs for consumers and businesses.

The EIA has forecast that the nation will add 222 gigawatts of generating capacity between 2010 and 2035—equivalent to one-fifth of the current U.S. capacity. The biggest chunk of that addition—58%—will be fired by natural gas, it said, followed by renewable sources, including hydropower, at 31%, then coal at 8% and nuclear power at 4%.

“What utility doesn’t want cheap fuel?” says Steve Piper, associate director of energy fundamentals at SNL Financial, a research company. He predicts natural gas will remain the “default fuel” for as long as gas production remains high and prices stay low.

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The picture looks different in much of the rest of the world. Many developing nations, for example, which don’t have ready access to cheap natural gas, are plowing ahead with plans to build new reactors, according to the World Nuclear Association. Once built, nuclear plants produce some of the cheapest electricity available other than big hydroelectric dams.

In the U.S., even believers in nuclear energy are responding to the allure of abundant gas. Dominion Resources Inc., D -0.32% Virginia’s biggest utility company and operator of seven nuclear reactors, put one new gas-fired plant in service last May and recently got approval to build another that is twice as big. On the drawing board are two more plants that would nearly double the company’s gas-fired generating capacity.

Meanwhile, Dominion is shutting down some old coal-fired plants and only inching forward on a proposal to build a big reactor at its existing North Anna nuclear plant. The company says it is still seeking approval from the U.S. Nuclear Regulatory Commission, but doesn’t expect it before 2015—and may yet kill the project.

“Right now, things are pointing to gas,” says David Christian, Dominion’s chief executive and former chief nuclear officer. He says natural gas’s share of the electricity market, now about 25%, could rise to 30% or 40% in the future.

But like some others in the industry, Dominion’s Mr. Christian worries about relying too heavily on any one fuel, including natural gas. “Even if it’s economical,” he asks, “is it wise?”

There are no guarantees that natural gas will continue to be advantageous over the long term, so momentum ultimately could shift back to nuclear power. Natural-gas prices could spike, as they have before. Already, gas producers are drilling fewer wells because of low prices.

At some point, Congress could impose a fee on greenhouse-gas emissions. Although modern gas-fired plants release only about half as much carbon dioxide as coal-fired plants, they are nowhere near as clean as nuclear plants, which emit almost no air pollution.

Fuel-supply problems also could bedevil gas-fired plants. Though most plants are expected to be built near existing gas-transmission pipelines, there could be disruptions if gas demand outstrips pipeline capacity. That has happened during cold snaps, when home-heating needs, which get priority, increase.

The nation’s 104 nuclear plants, by contrast, never have to compete with households. And nuclear plants typically run 18 to 24 months before stopping to refuel, making their productivity the envy of the rest of the power industry.

Natural-gas companies are working to assuage utilities’ concerns. Steven Farris, chief executive of Apache Corp., points to the current price—about $2.30 per million British thermal units—as proof that gas is abundant. “Obviously, we’ve got more gas than we used to, or we’d have $13 gas,” he says. “We just have a tremendous amount of gas.”

Mr. Farris doesn’t claim natural gas can or should meet most of the nation’s power needs. But he says his industry could furnish enough to replace the 185 biggest coal-burning power plants.

The gas industry’s goal is to “grow demand for their fuel as they grow production,” says John Somerhalder, chief executive of AGL Resources, a big natural-gas distribution utility based in Atlanta. There is no better customer, he says, than the power industry.

Enormous quantities of natural gas have been discovered in the U.S., especially in underground shale formations, where it is being extracted through hydraulic fracturing, or “fracking.” In 2010, there were more than 487,000 wells producing natural gas in 30 states, led by Texas with 95,000 wells, according to the EIA, the statistics arm of the Department of Energy. So-called shale-gas production now accounts for about one-third of U.S. natural-gas supplies.

The new supplies have helped push down prices to just one-third of their level in 2005.

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