A new Canadian market is expected to develop swiftly for natural gas in Alberta electricity generation, thanks to low prices and expectations that surpluses will hold down costs of the cleanest fossil fuel for years to come.
Two of the province’s three operators of coal-fired power stations, Transalta Corp. and Atco Group in Calgary, are speeding up switching plants to gas by as much as a decade. The third, Edmonton’s Capital Power, is working on an accelerated conversion schedule.
The Canadian Association of Petroleum Producers has estimated that replacing the 55% of Alberta’s power supply generated from coal, with a combination of fuel conversions and “renewables,” will increase gas demand by 1.5 Bcf/d.
TransAlta President Dawn Farrell, in stepping forward with the first announcement, predicted that accelerated gas conversion “will position us as a leader in clean power generation and improve our competitive position as we consider a future where carbon is a high-cost input.”
Alberta’s climate change policy, announced in late 2015, gave the investor-owned utilities until 2030 to phase out coal. But the program, supported by a national initiative announced soon afterward, lit a fire under conversion planning by creating a financial penalty for procrastinating.
The province’s left-leaning New Democratic Party government started collecting a carbon levy of C$20 (US$15) per ton of emissions as of Jan. 1.
The federal Liberal regime in Ottawa increased the conversion incentive by announcing a national carbon tax starting at C$10 (US$7.50) in 2018, followed by annual jumps of C$10 to C$50 (US$37.50) as of 2022. To the extent that provincial carbon taxes fail to keep up with national increases, the federal treasury will collect the differences.
Alberta’s policy enables gas to fill at least one-third of the gap left by coal and sets a goal for wind- and solar-power stations to take two-thirds, to the extent that they can compete using assistance from evolving public utility regulation. Proposals are currently being sought for an initial 400 MW of renewable energy projects.
Regional results of the Canadian coal phaseout are uneven, stoking political disputes over federal versus provincial jurisdiction and effects on consumers that have yet to be fully calculated or resolved.
Ontario already mothballed coal-fired power in favor of relying on old hydroelectric and nuclear sources plus new gas conversions, wind turbines and solar installations, with the switching supported by consumer subsidies. British Columbia, Manitoba and Quebec have more than enough hydropower and export surpluses to the United States. Smaller power markets in Saskatchewan and the Atlantic provinces are working on conversions.
TransAlta has told its shareholders it will save C$1.5 billion (US$1.12 billion) as a result of avoiding carbon levies by switching to gas as of 2022, which will cut power plant emissions by 40% or more. Atco, setting a 2020 target for switching to gas, agrees that savings will far exceed conversion costs.
Prices fetched by Alberta and BC gas production continue to hover in a bargain range of C$2.50-2.80 (US$1.88-2.10) per MMBtu. Regional analysts such as Calgary’s GMP FirstEnergy suspect the market will stay below C$4.00 (US$3.00).
The bargain outlook partly stems from prolonged delays by liquefied natural gas (LNG) export projects on the northern Pacific Coast of BC, which have obtained regulatory approvals but remain stalled by high costs and reduced overseas prices.
Results of BC’s provincial election Wednesday further darkened the LNG outlook. Voters pared the Liberals, keen supporters of tanker gas exports, down to a 43-seat minority government in the 87-member legislature. The NDP took 41 seats, and the Green Party emerged holding the balance of power.
While the National Energy Board has jurisdiction over exports, the province has authority over production and neither BC opposition party is enthusiastic about increased exploitation of northern shale supply sources.
“Most of BC’s natural gas is produced using hydraulic fracturing,” said the BC NDP’s election platform. “With the potential of a significant expansion of gas production in the years ahead, we will appoint a scientific panel to review the practice.” The Greens’ campaign platform disdained Liberal pro-growth gas policy as fuel for obsolete energy megaprojects and pledged creation of a natural resource commission to enforce sustainable development ideals.
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