The provincial government rolled out a detailed study of natural gas in the province, laying out why neither Grand Banks gas or liquefied natural gas (LNG) are viable options for Newfoundland and Labrador electricity.
Ziff Energy based out of Calgary was hired to look at natural gas.
Natural Resources Minister Jerome Kennedy held a news conference this afternoon to explain it all to reporters.
Ziff concluded that natural gas isn't a viable way to generate electricity in Newfoundland and Labrador.
“Ziff provided commentary on the availability and feasibility of natural gas as it relates to LNG and a pipeline from the Grand Banks as a source for power generation for the Island,” Kennedy said.
"Ziff concluded that, at this time, natural gas is not a cost-effective, economically viable option to replace the Holyrood facility and address our province’s energy needs.”
The report says that Grand Banks gas is not an option because it is “stranded.”
Oil companies with production licences offshore essentially own the resources under the ocean floor. Because of that, the government can't just take the natural gas that oil companies aren't currently using.
Another problem is that Newfoundland and Labrador is a small market, and so only a low volume of gas could be used. However, a pipeline from the Grand Banks would be expensive to build; it could be economically viable if there was a critical mass of consumers, but the province just isn't big enough to make it work.
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LNG is a different ball of wax, but it won't work either, Ziff reported.
“Nalcor did an extensive review and screening of alternatives at Decision Gate 2 in November 2010 and natural gas, both offshore and LNG, were screened out at that time,” said Ed Martin, Nalcor CEO. “We were appreciative of Ziff's analysis and the results confirmed Nalcor's initial screening. We are focused on delivering the least cost alternative to consumers and that remains Muskrat Falls with a transmission link the Island.”
Because LNG is a world commodity, it tends to be tied to oil prices — generally 80-90 per cent of Brent Crude prices.
If the province was running on LNG it would cost essentially the same amount of money as burning oil at Holyrood.
Ziff reported that for practical purposes, the United States shale gas — which tends to be cheaper — doesn't really affect the world price of LNG.
All of this comes as part of a steady deluge of information from the provincial government explaining why the Muskrat Falls project is the cheapest source of electricity for Newfoundland and Labrador.
Earlier this week, the government released final cost estimates for the Muskrat Falls project, and Nalcor recommended that the provincial cabinet sanction the project.
This week the government has already released reports on wind power and Labrador mining electricity needs.
More coverage in Friday’s print edition.
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You are correct. Natural Gas is selling at a long-term low because of increased supply due to the application of 'fracking' to gas fields in the US (and elsewhere). The current market rules out development of NL offshore gas for the same reasons that Hibernia was non-viable when oil prices were very low. Interesting argument about long-term gas prices. It is reasonable to believe that gas prices will track oil prices over the long term. There is a long track record of both sets of prices. The data can verify or disprove the statement. Gas and oil are substitute goods, like butter and margerine. In the short term, gas prices will rise and oil prices will fall (all other things being constant) because industry will shift from oil as to gas as a fuel. This shifting takes longer than switching from butter to margerine because engines take some time to modify or replace. In the long term the two prices will be positively correlated.