Shale gas driving power prices down: Alcoa

The shale oil and gas boom in the United States is helping to reduce electricity costs and give big power consumers, such as aluminum smelters, more clout in rate negotiations, according to Alcoa Inc. chairman and chief executive officer Klaus Kleinfeld.

But Kleinfeld warned that policymakers should be cautious about granting too many export licenses for natural gas until the country’s reserves are better understood.

"We don’t want to create an environment where we sign export licenses and ship the stuff and then find out there probably isn’t enough in the ground," Kleinfeld said during a question-and-answer session at the New York-based aluminum producer’s annual shareholders’ meeting May 3.

Kleinfeld’s comments dovetail with policies advocated by America’s Energy Advantage. The nonprofit group, which includes Alcoa and Charlotte, N.C.-based steelmaker Nucor Corp., argues that exports of natural gas should be monitored carefully (amm.com, March 27).

But while Kleinfeld warned of the risks of exporting shale gas, he also called the shale drilling boom "God’s gift to America" and a development that has brought natural gas prices down "in an enormous way."

Lower natural gas prices mean that even hydropower is cheaper in the United States than it had been before the shale boom, Kleinfeld said, because when energy prices were higher, utilities preferred to sell power on the spot market instead of signing long-term contracts.

"Now they are suddenly seeing that the market is changing. They are faced with the reality that they might not have a buyer for their electricity," he said. That change has seen utilities return to the "old days" of looking for an "anchor tenant" capable of providing a baseload of demand. "Given the high energy intensity (of producing aluminum), we are such anchor tenants ... and this has become something of value again."