Last Thursday, nuclear safety experts from across the globe have met in Brussels. They discussed the potential hazard of fissures that have been discovered in the reactor vessel of the Doel III nuclear power station near Antwerp in Belgium. The conclusion of the meeting was that the experts will meet again in October as another one and half months are necessary to assess the extent of the problem in Doel. International experts joined the Belgian nuclear whizzheads as 11 more power stations across Europe and 10 in the US have vessels constructed by the same Dutch firm as the suspicious vessel in Doel.
For buyers of energy in Europe, this means one and a half months of uncertainty regarding power prices. Worst case, the researchers could discover that the fissures problem extends beyond the vessels built by the Dutch firm. If the problem is limited to the Dutch firm’s vessels, it could mean the shutdown of 11 nuclear power stations in Europe, added to 8 power stations shut down last year in Germany in the wake of the Fukushima disaster. Forward markets seem to anticipate such shutdowns and have risen. In Belgium, the Cal 13 baseload rose 6,25%, but eased a little bit in the last two days of this week. If the problem with Doel turns out to be bad, these price rises might be justified. But the Doel worries can also turn out to have been preposterous. The Doel vessel may have been made “on a Monday” and the other vessels produced by the Dutch firm could be of excellent quality.
It is also possible that somewhere during the next two months the nuclear experts come out with a totally different report. A report that plays down the hazard of the fissures that have been discovered. Already, the general director of FANC, the nuclear inspection authority in Belgium, has said that the fissures were very small and superficial. He also claimed that they have discovered the problem only now because new measurement technology was applied. Who knows, a report might blame the problem on faulty (interpretation of) measurements, rather than a real hazardous problem. We, “the general public” have no clue about the exact character of this potential problem, yes potential. Neither have the traders that drive up the markets. And, judging from the briefness of their press release and the long period they take for extra research, it looks like the experts don’t really have a clue either. This problem will very probably continue to haunt the forward power markets for the next months, the time it takes to get some more clarity about it. And it will also affect gas markets. As we have seen with Fukushima, the shutdown of nuclear power plants leads to an increase of power production in gas-fired power plants. This causes gas demand and hence gas prices to increase. The Cal 13 gas prices on NBP, TTF, ZEE, NCG and GPL have reached the upper limits of their 18 months horizontal trading bands.
I live in a town some 70 kilometers from Doel. I own a business that has about 50% of its clients in Belgium and the South of the Netherlands. If I come to think about it, I should be extremely worried about this Doel issue. A Fukushima-scale nuclear incident would cause considerable radiation hazards for my family. It could also render the port of Antwerp unusable (the power station of Doel is right in the middle of it). This would severly disrupt the Belgian and Dutch economies. It could bring a lot of my clients into severe problems. What frustrates me a lot, is that I completely lack the scientific knowledge to make a judgement on whether I should be really worried or not. When it comes to things like nuclear safety, we have to put our confidence in the judgement of “the experts”. We easily do that, the thought that “the experts are dealing with it” eases the fears caused by our lack of knowledge. Politicians know this as was proven by the speed with which they came up with press releases on the experts’ dealing with it.
If I want to avoid nightmares and nights without sleep, I have to put confidence in the experts’ capabilities of correctly assessing the hazard caused by these fissures. We prefer to think that scientists can find a “one plus one is two solution”. That it is just a matter of all these smart physicists and engineers from across the globe looking at the data and than coming up unisono with the one and only correct equation that proves whether it is bad or not bad. However, as the long history of scientific controversy has proven, such unisono agreement is rather rare. Very probably, some of the experts around the table will claim it is bad, others will claim it is not. Without questioning the integrity of these people, their opinion will not be unbiased. Proponents of nuclear energy will downplay the risks, opponents will drive them up. Unfortunately, this is what we see again and again when potential safety and/or environnmental risks are being discussed among experts. Those with a deeper conviction of the fundamental desirability of a technology, such as nuclear power, hydraulic fracking or wind power, look for arguments that it is safe for man and environment. Those who think the implementation of the technology is overall a bad thing look for arguments to declare it unsafe.
As far as nuclear power is concerned, this biased debate is further complicated by the extreme risk mathematics of nuclear power, according to the formula:
R = % x PC
With R being risk, %: the chances that an accident happens, PC: the gravity of the potential consequences.
In case of nuclear power risk, % is very low, but PC is very high. Just think again about my personal risk perception of the Doel power station. An accident in Doel would have devastating consequences for both my family and professional life. A Tchernobyl or Fukushima scale incident in Doel is probably the worst disaster that can happen to my country. Bear in mind that Doel is situated right in the heart of one of the most densily populated areas of Europe. However, I do fall asleep at night, as I know that the chances that Doel will explode that night are extremely small. Proponents of nuclear power will emphasize the small chances factor, its enemies will recall the catastrophes awaiting us when it happens. As both parties are focusing on a different factor of the equation, the result is often a non-discussion.
Nuclear experts tend to be proponents of the technology. You don’t make the extreme sacrifices necessary for mastering nuclear physics if you hate nuclear power. People go and study to become a nuclear physicist or engineer because they are fascinated by nuclear power production. Moreover, they will often go and find a job at a nuclear power producer. I don’t know them, but many of the nuclear experts that are sitting around the table to make a judgement on the Doel reactor vessel probably have a background in the nuclear power production sector.
Willy De Roovere, for example, the Director-General of FANC, the Belgian nuclear inspection authority that discovered the fissures problem, has worked for the owner of the Doel power station, Electrabel, for 30 years, a.o. as general manager of the Doel power plant. For anti-nuclear activists, this makes the judgement of such experts highly suspect. However, to me it is reassuring. I wouldn’t like the safety of nuclear power plants to be inspected and judged by people that have never been inside one. You want people with the necessary experience, which entails that they have probably worked in a nuclear power plant. However, this will mostly mean that they fundamentally believe in the desirability of nuclear power production. Which means that they are biased. We have to confide in their intellectual honesty and professional integrity that the bias will not derail and become fact-blindness. This is why institutes like the FANC are in need of solid political patronship. You need politicians to check the ethics applied by the experts, preferably politicians of parties that are anti-nuclear. (Let me put this very clear to you: I have not the slightest indication to question the integrity of the FANC, and this is not my point. I just want to make the point that it is an illusion that experts make unbiased judgements.)
Blindness can also be enhanced by another phenomenon, namely the different risk apprehensiveness of insiders and outsiders. I observed this once in the Barcelona traffic. Watching it from sidewalks and taxi’s, I used to think that driving a scooter in Barcelona was extremely risky. Until I drove one myself. “It looks a lot less risky from the scooter than from the taxi”, I told my friend during a break, and nearly crashed into a car when we left again … I’m not a psychologist, but I guess this is a basic phsychological survival strategem. When we get into risky situations, we have to tune down our risk apprehensiveness to avoid becoming dysfunctional. If you work in a nuclear power plant, and you worry about the gravity of potential accidents every second of the day, you will probably go mad within a month. It is better, therefore, to focus on the small chances of an accident happening if you want to stay functional. This different risk apprehensiveness of insiders and outsiders has dangers on both sides:
We need experienced experts to get quality advice, but because of their experience, that advice will be biased, that is the dilemma we are facing. If the experts come with their advice, the opponents of nuclear power will question the impartiality of the experts. The proponents will question the level of expertise of the critics. We see the same phenomenon today in the discussion in the US regarding shale gas (at least they have a discussion). Josh Stone, the anti-fracking activist that made the Gasland documentary, continually attacks his critics by finding out who was paid how much money by which company at what moment. The scientists and engineers of the shale gas lobby have by now scientifically falsified almost every single argument poor theaterman Josh Stone has made. I read a tweet yesterday, that in the US, a member of an expert panel on hydraulic fracturing was put into question because he had worked for an oil / gas major (ConocoPhillips). So what? The man is to pass judgement on gas well integrity! Having worked for a gas company means he knows what he is talking about.
Because of this expertise vs. bias dilemma, some people will put most confidence in the ‘defecting insiders’. A good example of this could be M. King Hubbert, the Shell petro-geologist that came up with the peak oil theory. There are probably some examples also of nuclear engineers or physicists that have worked for a power producer and then quit because they became convinced that nuclear energy is too risky. However, such ‘defecting insiders’ might suffer ‘convert zeal’. They want to make up for their years in the dark by becoming the fiercest opponents of nuclear power production, meaning that they end up just as biased as before, but now on the other side of the fence.
Some events in the markets have the quality of being paradigm shifters. Think about the news in 2006 of over-allocation in the emission rights markets. The two year bull run in gas markets caused by the first Russian-Ukranian gas dispute in 2006 also. The effects on demand for energy of the 2008 financial crisis. What Fukushima did to world LNG prices. Maybe, in two years time, we will look back on the events in Doel in the summer of 2012 as another such event. But it could also be that in a few months time we look back on it as a non-event. It’s impossible today to say anything sensible about what the outcome will be. And of course we all wish that some panel of experts can come up with the definite solution as soon as possible. That will not happen. They have already made clear this week that they need time to study the problem. And past experience has learned that their answer will not come without controversy.
(Some remarks on conversations I had with clients this week, discussing whether they should make some forward hedges at this moment. One client called me to ask: “could you please give me your opinion on how this incident in Doel will influence the markets in the next months”. Another one said: “I’m convinced that this fissures problem will not be as bad as the press is making it look like, I’m not going to buy”. A client called me and said: “so you want me to make a price fixing because you believe they will shut down 22 nuclear power plants”. Well, if this incident is showing one thing again, it is the total unpredictability of energy markets and that our best buying strategy is one that fully incorporates that unpredictability. Anyone expressing an opinion today on what the outcome of the Doel III incident will be is utterly foolish. He is claiming that either he has access to more data than the nuclear expert panel, or he is so much smarter than all these PhD’s in physics and nuclear engineering that he can read more from a more limited data set.
So, to anyone that wants me to say anything about whether the fissures will cause the shutdown of nuclear power plants, I can only answer: “if the experts need another one and a half months to study the problem, how would I know?”. There is only one thing you can say with certainty today: this incident could turn out both ways. Maybe in a few weeks, we will look back at it and laugh about what a non-event it all was. Maybe in a few months, they will have shut down twelve nuclear power plants due to this. But even if this happens, we are still not sure whether this will drive up prices and by how much. When Germany shut down 8 nuclear power plants in 2011, the 2012 forward contract rose to 60 euro per MWh on anticipations of power shortages. By the end of 2011, this price dropped back below 50 as decreasing power demand, rapid growth of renewable and cheaper coal prices undid the effect of less nuclear power plant capacity. The weather is unpredictable, energy markets also. And your best chances for success in buying energy is acknowledging that. Buy some electricity (and gas) today because the Doel III incident might drive up prices. But don’t buy too much, as it also might not.)