All That Gas | How Alberta Companies are Establishing New Markets for Natural Gas
The newfound abundance of natural gas is forcing the industry to do something it’s never done before – nurture new markets
by Anthony A. Davis
So while GM announced at last year’s Detroit Auto Show that it would introduce some light-duty trucks that run on CNG, in North America, “It’s still something which vehicle manufacturers are looking at in a limited way,” says Nantais, unless consumers here start loudly demanding such vehicles.
“There’s been a big shift in how we think about our business.”
– Tim Wall
Over at the Canadian Natural Gas Vehicle Alliance, whose 18 corporate members include manufacturers, after-market engine converters and gas producers and distributors such as EnCana, Atco Gas and Enbridge Inc., there’s more optimism. “When it comes to greenhouse gas emissions,” says CNGVA president Alicia Milner, “transportation is second only to the tarsands. It’s a sleeper issue.” One she says the public and governments must soon wake up to. Heavy vehicles account for 70% of all vehicle emissions in Canada. And while so far heavy vehicles in Canada will remain exempt from new tailpipe emissions restrictions expected in 2011 here and 2012 in the U.S., Milner believes the growing population of transport trucks in Canada will eventually force governments to act.
Canada, which put the world’s first CNG bus on the road in Hamilton, Ont., back in 1984, “has a lot of capability to produce natural gas vehicles,” says Milner. Heavy truck manufacturers have begun to build some NGVs. Last year, Mack Trucks announced it would manufacture garbage trucks using CNG-compatible engines from Vancouver-based Cummins Westport Inc. Milner is convinced that with abundant and stably low-priced natural gas, combined with growing awareness about the economic and environmental advantages of natural gas vehicles, it’s just a matter of time before they become relatively common here. “I definitely see all the elements lining up for that.”
Big oil seems to be betting on it, or at least hedging against it. The potential for natural gas as a transportation fuel may have been a motivating factor behind Exxon Mobil Corp.’s blockbuster acquisition of shale gas leader XTO Energy in December and, just a few weeks later, Total SA’s takeover of Chesapeake Energy.
Peter Tertzakian, chief energy economist with Calgary-based Arc Financial Corp., envisions natural gas as the clean-burning fossil fuel that will substitute for oil and act as a “bridge fuel” to a future when renewable energy sources – wind, solar, biomass – power the world. “The turning point was about a year ago that we came out of the denial phase and more and more people began to believe that, yes, this is a real resource that’s potentially got a few hundred years of natural gas here at reasonable prices. There are still deniers out there and people who challenge this. I’m not one of them.”
But the more immediate opportunity may not to be a substitute for oil but for a still dirtier fuel, coal, in the generation of electricity. To compare fossil fuels, natural gas produces 25% less CO2 per unit of energy than oil, but almost 50% less than coal.
On a whiteboard in his boardroom, Gary Holden jots out equations illustrating the advantages of natural gas over coal-fired electricity generation. “Coal is dead. There have been 110 coal plants cancelled in the United States in the last two years,” says Holden, CEO of Calgary electrical utility Enmax Corp. Many cancelled plants will be replaced with natural gas-fired plants. And not just to supplement peak-load power for operating coal plants as they once did. The new gas plants will generate base-load power because, Holden asserts, “The presence of shale gas makes it even more certain that gas will be competitive with coal for a long, long time.” By some estimates, the U.S. could quadruple its electrical output from natural gas without building a single new plant, simply by running its existing peaking plants full out.
Holden sees electrical generation as the most obvious use for shale gas, “because it also solves our CO2 problem. If there was a mass conversion of coal to gas, Canada would be below our 1990 levels of CO2 production just by Alberta and Saskatchewan alone making a conversion.”
What has so far kept coal’s black lungs belching, from the standpoint of electricity generation, is that it is still cheaper and more abundant than natural gas. Power producers themselves typically own the mines, so they control the cost of the raw material, whereas gas must be bought on an open market that is subject to price spikes. Last year gas soared to US$13 per thousand cubic feet, and then fell to a low of $2.51. That volatility unnerves power producers. “Electric utilities,” notes Tertzakian, author of the recent bestseller The End of Energy Obesity, “don’t like unpredictability of their input fuel. The beauty of coal is that it is generally very stable in price and generally very low cost. So why would you switch to gas?”
Back at his whiteboard, Holden introduces some new equations. The average cost of building a coal-fired plant, Holden explains, is 2.5 to three times as much as a comparable natural-gas fired plant and uses five times the water to operate, a critical factor in water-constrained regions. Coal plants also consume twice the amount of gigajoules of energy to produce the same amount of electricity as a gas plant; in other words, coal plants are typically half as efficient.
Coal may be a far cheaper fuel than naturalgas and, compared to gas, royalty-free. Typically it sells for between $2 and $3 per gigajoule of energy it can produce, compared to natural gas, which in January 2010 was selling for about $5.50 per gigajoule. But over the lifespan of a generation plant, natural gas, because of lower capital costs (and not counting any future carbon costs that might be levied against coal), still comes out cheaper in the end. Moreover, like many in the exploration and production industry, Holden believes the newfound ability to rapidly increase the output of gas from shale has put a cap on prices, probably in the $8 per thousand cubic feet range. Hence price spikes are a thing of the past.
While it’s stuck in contracts until 2020 with two coal-fired mega-plants that currently account for about 85% of its electrical generation, Enmax is expanding its battery of gas-fired electrical plants to accommodate growth in demand. A 120-megawatt gas-fired plant in Crossfield was completed last November and the downtown Bonnybrook gas-fired station comes online in 2011. The 800-megawatt Shepard gas plant in east Calgary is scheduled for completion in 2013.
Though he doesn’t view the fracking of shale gas as quite the same game-changer that Holden and others do, Tertzakian believes that natural gas is set to become the prime fuel in the 21st century as issues such as energy security, climate change policies and consumer demand for greener power sources eventually squeeze out oil’s dominance, even in oil-addicted North America. “Natural gas consumption [overseas] is growing twice as fast as oil,” says Tertzakian. “So we may benefit indirectly by selling our gas abroad. Exporting our abundant gas to the Asian market, so we can participate in that global growth, will be far faster than the demand growth of natural gas here in North America.”
Even environmentalists are warily embracing natural gas. While the Pembina Institute’s national policy director, Chris Severson-Baker, believes Canada could convert completely to zero-emission renewables in 20 years if there was the political will, “Natural gas is definitely better than burning coal. It’s better from a greenhouse gas perspective and a whole host of other pollutants.” He sees it as a “stepping-stone” on the way to an all-renewable energy system.
At EnCana, besides scouring North America for new natural gas markets, Marsh is working hard to advocate for natural gas, dispelling public misconceptions that it’s just another polluting fossil fuel. “We’ve actually done surveys on levels of understanding about natural gas, and it’s not overly high. I think the public needs to be aware of the opportunities we can use natural gas for, and I think the significant thing is that it’s a domestic product.”
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