Natural Gas Demand Up if Coal & Nuclear Aren't Built

Roadblocks to building new coal and nuclear plants in the United States have some industry observers expecting a natural gas boom that could contribute to higher energy prices in Ontario over the coming decade.

Dozens of proposals for new coal and nuclear plants from U.S. utilities have been shelved or cancelled because of rocketing construction costs, financing risk, regulatory uncertainty and community resistance:

San Francisco-based Coal Moratorium Now reported last month that 59 coal plant proposals in the United States were derailed in 2007.

Nuclear power projects are also losing steam.

Just last week MidAmerican Energy Holdings Co. said it was abandoning plans to build a nuclear plant in Idaho because costs were too high.

By the end of 2009 the U.S. Nuclear Regulatory Commission expects to receive 21 applications to build 32 new reactors. So far the NRC has received only four applications to build seven reactors.

The New York Times reported Tuesday that U.S. utilities are getting frustrated and beginning to choose a path of least resistance: natural gas.

They're further motivated by the fact that investment banks Citigroup, JPMorgan Chase and Morgan Stanley said Monday that decisions whether to finance new plants will weigh potential charges for carbon emissions and other financial and project risks.

The attraction to gas is that plants are much easier to build.



"Gas can be built in smaller increments and more quickly, and you reduce your risk by not committing as much capital up front," said Paul Mortensen, natural gas analyst with the National Energy Board.

Natural gas contains roughly half the carbon emissions of coal and burns cleaner, though relying more heavily on gas for power generation could come at a premium.

"All the historical evidence would say there would be a profound impact on price, and that's obviously concerning," said Revis James, a spokesperson for the U.S. power industry's Electric Power Research Institute.

Norm Rubin, an analyst with Energy Probe, said such a trend would also affect Ontario businesses and consumers, who rely on natural gas for heating and will grow more dependent on it for electricity as the province moves to phase out all coal-fired plants by 2014.

"Increased demand for natural gas will not only drive up the price, but it will drive us more toward liquefied natural gas," said Rubin, adding that increased reliance on so-called LNG means relying on imports coming in by ship – and, as with oil, being left more vulnerable to the volatility of global trading markets.

Rubin said energy is required to liquefy the natural gas and some of the fuel – what he calls "fugitive methane emissions" – is lost during transportation, bringing it closer to coal in terms of greenhouse gas emissions.

It's also unclear whether LNG would be enough to bridge the supply-demand gap that will drive up prices.

"Our preliminary analysis is that LNG will help but it won't be able to handle everything, because there's a lot of global demand for it as well," Revis said.

The Ontario Power Authority's long-term power supply plan, now in hearings before the province's energy board, anticipates 6,000 megawatts of new natural gas plants coming into service between 2011 and 2018 – assuming that nuclear reactors at Pickering B have been refurbished on time.

Amir Shalaby, vice-president of system planning at the power authority, said natural gas now generates about 8 per cent of Ontario's electricity and will nearly double as part of the province's 20-year plan before settling back down.

This comes as the National Energy Board, in a recent report, warned that Canada's role as a natural gas exporter is being hurt by "relatively flat to declining overall production and growing natural gas demand," mostly for power generation and oil-sands extraction.

But Shalaby said Ontario, compared to many U.S. states, will be somewhat sheltered by price increases because of its diverse energy mix. He added that new natural gas plants will also be used sparingly.

"Our strategy is to not use it very much, not run it very often, knowing precisely that we're vulnerable to price fluctuations," Shalaby said. "We're building it only as a flexibility option."

Consumers and businesses that rely on natural gas for heating would likely feel the greater impact, experts say, forcing many toward conservation or alternatives such as solar thermal, geothermal, heat-recovery systems and co-generation.