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Gas Could Nick Big Gains From Coal in Canada

Natural gas only has to make a small dent in the energy market shares of coal and oil to score major gains, say Canadian boosters of the cleanest fossil fuel -- and they are picking up hammers with apparent government support at least in Ontario, where plans to phase out coal-fired power are speeding up.

The Canadian Gas Association (CGA), representing local distribution companies, took a swing at growing its market share in a submission to Parliament's finance committee at summer hearings in Ottawa on the forthcoming 2010 federal budget. The distributors are working on fitting natural gas into a politically fashionable tax credit scheme for "alternative energy solutions" such as wind and solar power with benefits for items such as natural gas vehicle fueling installations or power and heat systems that cut greenhouse gas emissions.

Potential increases in gas demand are huge if Ontario sets a trend across North America, according to Peter Tertzakian, a Calgary-based analyst with a wide following as chief energy economist at ARC Financial Corp. and author of two books in circulation across the United States and Canada.

At a summer launch ceremony for his latest tome -- The End of Energy Obesity (Hoboken, NJ: John Wiley & Sons) -- Tertzakian estimated that gas use will rise by 1.5 Bcf/d for every 1% of the overall energy market it takes away from coal. For every percentage point of fuel switching that comes out of oil's market share, gas consumption will grow by 3 Bcf/d, Tertzakian added.

The CGA is urging adoption of national "full fuel cycle" carbon emissions standards and information for all federal conservation, alternative energy, measurement, equipment regulation and labeling programs from home insulation incentives to green insignia for efficient appliances. CGA also recommends federal government promotion of "an integrated community energy systems approach" to low-emissions housing and power generation, including dedication of a share in a recently created, C$1 billion (US$900 million) "clean energy fund" to neighborhood demonstration or pilot programs that include local gas distributors.

While only time will tell whether the national government will act on declared clean-energy intentions, Ontario put out a signal last Thursday that gas promoters are on the side of the political angels. Provincial Energy Minister George Smitherman announced an accelerated schedule for phasing out coal-fired power plants and replacing them with gas, wind and solar installations.

Government-owned Ontario Power Generation will close two of eight 500 MW coal generators at its Nanticoke station on Lake Erie and two of four 500 MW coal units at its Lambton plant near Sarnia in 2010 -- four years earlier than previously planned. Smitherman also repeated Liberal provincial government pledges to phase out all Ontario coal-fired power eventually. The province already does about 80% of its generation with nuclear and hydroelectric plants plus a small but growing number of wind farms.

ARC is putting some of its money where the gas industry's hopes are, Tertzakian said. The Calgary investment house's portfolio includes producers involved in fledgling shale gas development programs in northern British Columbia and eastern Quebec, he disclosed.

"This business is not static. There is change coming from every direction," Tertzakian told his book launch audience. In his outlook the moving parts of the gas puzzle support ARC's investments relying on a gas market and price recovery. Conventional wells are seen as depleting at a faster rate than shale sources grow, with the current drilling slump leading to a combined net loss of 3.25 Bcf/d in total Canadian and American supplies this year.

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