Government rules out natural gas

James McLeod
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Jerome Kennedy

No matter how you slice it, Ziff Energy says natural gas won’t work for Newfoundland and Labrador’s electricity needs, because the province is just too small.

Thursday afternoon, the provincial government continued its deluge of Muskrat Falls-related information, releasing a glossy 46-page report from an independent consultant looking at natural gas.

The conclusion was that whether the government tried piping it from the offshore reserves on the Grand Banks or bringing liquefied natural gas (LNG) in by tanker, the economics just don’t add up.

“Natural gas development would also keep the province tied to volatile fuel prices, and anyone who’s been following what’s happened with natural gas in the world in the last number of years can see the volatility,” Natural Resources Minister Jerome Kennedy told reporters at a news conference Thursday afternoon.

When it comes to bringing natural gas to Newfoundland from the offshore, the problem essentially boils down to the fact that it’s really expensive to build a subsea pipeline, and it costs a lot of money to operate an offshore production facility too, the report states. If the province had a lot more people, it might be worth it, but with such a small population, there just isn’t the demand to justify the costs.

When it comes to LNG, the issue is that it’s a world commodity, so the Newfoundland and Labrador government would have to buy liquefied gas on the world market.

While natural gas is relatively cheap in the United States right now, the LNG world market is much closer to the price of Brent crude oil.

Thursday’s announcement was the latest salvo in a barrage of reports and documents from the government supporting the decision to build a hydroelectric dam at Muskrat Falls in Labrador.

Earlier this week, the government released final cost estimates for the project, along with an independent analysis of Nalcor’s work done by Manitoba Hydro International.

The government has also published studies on wind and Labrador mining.

Next week, Kennedy said, the steady march of reports will continue; the government will put out studies on electricity rates, forecast demand, Gull Island and a handful of other possible options.

But the government’s political opponents aren’t impressed.

“The number of reports is certainly part of their PR campaign, there’s no question about that. We all know that,” Liberal Leader Dwight Ball said. “Those reports just didn’t happen to be finished within one or two days of each other. This is part of a PR campaign leading into the special debate on Muskrat Falls.”

Ball said he isn’t questioning Ziff Energy’s credibility, but he’s not convinced that natural gas can’t work as part of the province’s electricity mix.

“What I’m convinced of is that we need to make sure that we pay a lot of attention to natural gas. It’s been a solution for many jurisdictions,” he said. “I’ve always seen that natural gas or LNG — in particular and possibly natural gas — could be part of an incremental solution that could get us to 2041.”

New Democrat Leader Lorraine Michael dismisses the government’s stream of studies as a “farce” and said she’s still convinced the province should be looking more closely at natural gas.

“Everything is being studied and done within their framework which they have created which is all Muskrat Falls focused,” she said. “If you took a longer view and freed it from the discussion of Muskrat Falls, I actually think there’s something very viable there around liquid natural gas, but in the context which they’ve done it, it looks like no, it’s not possible.”

The government did pick up one endorsement Thursday — from the Newfoundland and Labrador Oil and Gas Industries Association (Noia.)

NOIA always talked about Musk-rat Falls in generally positive terms, but it has held out on formally endorsing the project until now.

In a news release, NOIA president and CEO Bob Cadigan said its endorsement is based on documents that government has put forward.

“Nalcor Energy and the Government of Newfoundland & Labrador conducted a thorough analysis, and reviewed all the options,” he said. “NOIA is satisfied that the process and information provided is valid.”

Twitter: TelegramJames

Organizations: Newfoundland and Labrador Oil and Gas Industries Association, Nalcor Energy, Government of Newfoundland Labrador

Geographic location: Newfoundland and Labrador, Muskrat Falls, United States Labrador.Earlier Gull Island

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Recent comments

  • Tim Jamison
    November 03, 2012 - 21:40

    We're going to have one, and then two, high-powered hydroelectric dams soon and we do not have the infrastructure or the money required for NG so here's an idea: Let's sell it to people that already have the infrastructure for it (Americans) and make them pay to pipe it to them. They'll be willing to pay too, if it means keeping the lights on in the homes of the people, affordably, and keeping the factories running. Mo' money for us. They'll pay. They cannot afford any more foreclosures or manufacturing shutdowns

  • Ron Wagner
    November 02, 2012 - 14:16

    Sorry for you folks who will continue to pay high energy prices because of bad leadership. Natural gas is the future of energy. It is replacing dirty old coal plants, and dangerous expensive nuclear plants. It will fuel cars, vans, buses, locomotives, aircraft, ships, tractors, engines of all kinds. It costs far less. It will help keep us out of more useless wars, where we shed our blood and money. It lowers CO2 emissions. Over 2,400 natural gas story links on my blog. An annotated bibliography of live links, updated daily. The big picture of natural gas.

  • NL Guy
    November 02, 2012 - 10:27

    Natural Gas would never work in NL, I support this report. Who would pay for all the retrofits to accommodate the energy source? Plants and pipelines are one thing, how many homes anywhere on the island is setup to house a gas line? It would not be worth it to produce electricity with it either. The population is not there to pay for something that goes up and down more then you can shake a stick at. Newfoundlanders don't need anything else to complain about. Just build muskrat falls, get it over with! 50 years from now, when everyone is looking where to get there power to support growing technology. Newfoundlanders will be laughing. Out with the old in NL, In with the New. The time is now!!

    • John in NL
      November 02, 2012 - 14:13

      NL Guy -- You have missed the point. The discounted proposal would use Natural Gas as a fuel for a gas-fired generating plant to replace the oil-fired equipment currently used in Holyrood. Nobody, even in the Liberal Party of NL, is suggesting replacing furnaces in peoples homes with gas furnaces. ____ Not even the twit who suggested building a gas generating plant two hundred miles offshore (saves a pipeline) on a GBS (or in a really big dory) is that far off base.

  • Gassed
    November 02, 2012 - 09:31

    Seems to be that Jeromey has made a political career of passing natural gas.

  • Brian
    November 02, 2012 - 08:50

    What about Vancouver Island?

  • John in Whitbourne
    November 02, 2012 - 08:35

    I think that it is probably self-defeating for Lorraine Michael to play the farce card. As much as I respect her personally (and I do because she is a wonderful person), the fiscal orientation of the New Democratic Party is a pretty close fit to the definition of 'farce'. The social policies of the NDP are always right on the money but their financial world view has been historically unencumbered by any possibility of realization.

  • John in Whitbourne
    November 02, 2012 - 08:28

    The headline should read: "Reality Rules out Natural Gas". This issue needs to be decomposed into it's parts.____ 1) Feasibility of extracting NL offshore gas for sale on the world market _____ 2) Feasibility of using any natural gas for power generation in a Holyrood replacement. ____The connection of the two in the MF debate is a red herring. Any difference in cost due to transportation is not informative because it is much smaller than the error in the long term forecasts of fossil fuel prices.

  • Alec C
    November 02, 2012 - 08:21

    'Husky's White Rose field, but that the company plans to liquefy that gas and sell it on the global market.' When do they plan on liquefying and selling on the global market or is just an excuse? Surly an application exists for Husky's plan to export? 30 year supply contract 180KM away and Husky's not interested, I don't buy that. If the pipeline isn't economically viable what about transferring the gas via LNG Carrier? Husky wants to make global market prices in sales which is understandable BUT why not lower the royalty rate for NL import LNG? This incentive will lower Husky's initial production cost and Nalcor has had these talks with Husky RIGHT? Put out a tender for a supply contract and see what contracts the LNG exporters come up with. How many shipments would be required annually for LNG? Is it cost effective for extra storage of LNG for winter months to avoid transportation issues that might arise? Total LNG requirements for gas plant? As for the natural gas plant how many gigawatt-hours will it need to produce in a year and its peak load? What size plant is needed in terms of megawatts? Nalcor seems to be under the impersonation they HAVE to build new generation themselves, but a natural gas plant SHOULD be done by private businesses. Let NL Power/Hydro take on negotiations for kWh prices from the private entity. Natural gas for the Avalon offers the ability to replace isolated communities generation from Diesal. The same tender for the Avalon plant can include the many smaller plants for communities that can't get connected to the hydro grid (cost of transmission lines). Haven't heard a pep put out of Nalcor on natural gas and smaller communities, almost like they have been forgotten or ignored.

  • Maurice E. Adams
    November 02, 2012 - 08:03

    Muskrat and natural gas are solutions looking for a problem. Efficiency, combined with small hydro and wind, can most economically get us to 2041. Billions of dollars in borrowing and expenditures for either Muskrat or natural gas will play into the hands of Quebec by (come 2041), weakening us fiscally and by preventing us, our children and grandchildren from benefiting from our near-zero cost Upper Chuurchill Falls power. We got 'locked out' of Upper Churchill once, let's not do again.

  • George S.
    November 02, 2012 - 07:42

    Scope of Work as defined by Government of Newfoundland: Dear Consultant, I have engineered a structure with a basement, four walls, 20 windows, one roof, and two doors. In fact, I have already started to pour cement. We need you to assess whether I should build ahouse or a ferris wheel. These are the only two options. Please advise before our carefully structured debate scheduled for November 2012. Seriously?