Cheap, plentiful U.S. natural gas extracted from shale rock formations is undercutting nuclear power

Energy Journal: U.S. Shale Shifts Out EDF, Entices Centrica

By Ben Winkley

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Two indications of how the North American shale boom is influencing investment.

Cheap, plentiful U.S. natural gas extracted from shale rock formations is undercutting nuclear power as a form of energy for generating electricity. As a result, building and operating new nuclear power plants now looks even riskier and less attractive, damping enthusiasm for a resurgence in the sector.

This has prompted Electricite de France—the world’s largest nuclear power operator—to prepare a strategy to exit its U.S. operations, The Wall Street Journal reports.

EDF, which is controlled by the French government, owns and operates 58 nuclear reactors in France and 15 in the U.K., where it is negotiating to build more. But its U.S. experience has been an unhappy one—some $2.6 billion in write-downs have been booked over the past three years.

The expansion of nuclear power in the U.S. is threatened not only by the abundance of cheap natural gas, but also by problems finding a permanent solution to managing waste. In 1987 a repository was identified in Yucca Mountain, Nevada, but the plug was eventually pulled on that project in 2012.

The U.S. Nuclear Regulatory Commission has said it would stop issuing licenses for nuclear plants until it addresses problems with its nuclear-waste policy.

So EDF is pulling out of the U.S. market, bruised by the gas boom.

But one company’s problem is another’s opportunity—Centrica, the U.K.’s largest utility, is spending big to enter the U.S. gas market. It agreed to pay more than $700 million for the Energy Marketing operations of Hess Corp., which supplies businesses on the U.S. East Coast. Centrica has also pledged to invest another $300 million in the business, meaning the price hits more than $1 billion.

The acquired business sells gas but doesn’t produce any, so it does its best when prices are reasonably low and stable.

The Journal’s Liam Denning says this is a signal that Centrica, which was already on the margins of this sector but has in one swoop become one if its biggest players, is bearish on natural-gas prices, and has implicitly taken a $1 billion short position.

All of which is part of why EDF is heading for the door.


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