Weeks ago, a provocative letter to the editor talked about the rapid change in energy markets as a result of the “shale gale,” the huge expansion of U.S. natural gas production as a result of fuels from massive shale gas fields.
The letter had a simple thesis: things are changing quickly in the energy export industry, and the Muskrat Falls project should be considered in light of those changed baselines.
Now, support for that argument can be found in a very interesting place: in a report filed by the very consulting company that Nalcor hired to review its analysis of the Muskrat Falls project.
Other report
Interestingly, three days after Nalcor released consulting firm Navigant’s study on the Muskrat Falls project, Navigant’s American arm was delivering a much different energy analysis for a company that wants to ship liquified natural gas out of the United States — a report that says that shale gas exploration will provide 100 years’ worth of
phenomenally cheap gas that will replace many other sources of electrical power in the United States.
Abundant gas, Navigant says, will also make wind power and solar generation much more feasible by filling in the gaps when that renewable power is not available.
It’s a very different view of what energy demand will do off this electrically isolated island.
The report was done for Dominion Cove Point LNG LP, and filed with the United States Department of Energy.
“Navigant projects that the overwhelming majority of growth in natural gas demand will come from the electric generation (EG) sector of the market. EG is expected to grow at an annual rate of 2.1 per cent through the study period, with a higher rate of 4.9 per cent through 2015. These expectations are based mainly on expected coal-fired power plant retirements.”
Interestingly, coal plant retirements have been cited as one of
the reasons higher-priced Muskrat Falls power will find a market in the United States.
Gas advantages
Natural gas wouldn’t just be cleaner than coal; under Navigant’s forecast, it would be cheaper, too.
Navigant also talks about the fact that shale gas will not require the creation — and green-field construction costs — of a whole new infrastructure.
“Demand will also be supported by the existing pipeline network throughout North America. The delivery infrastructure for natural gas is mature and, with the exception of a few highly urban areas such as greater New York City, relatively cost-effective and quick to expand.”
The report is also quick to point out that natural gas is more environmentally friendly then coal, and that quick-fired gas turbines have an excellent fit with intermittent solar and wind power.
“Natural gas is also well-
positioned to support renewable generation. For the support of wind and solar generation, dispatchable gas-fired generation is ideal to ‘shape’ the output profile or support the intermittency of both these forms of renewable electric generation.”
Or, in more detail: “Gas demand growth in our forecasts is also supported by growth in the deployment of renewable electric generation. Gas, being transported continually in pipelines, is far more suited to respond in real time to intermittent generation from wind and photovoltaics than coal.
“Coal-to-liquids and coal-to-gas technologies still appear to be expensive and energy-intensive. Oil and its products are not seen as viable electric generation fuels in any circumstance due to price. … While renewable technologies will improve and may be augmented
by improved electrical storage,
and coal technologies may also improve, Navigant’s opinion is that gas-fired generation will be the dominant mode of smoothing intermittent electric generation for the foreseeable future.”
Dollars and sense
But of all of the factors in the Navigant report, cost is the most interesting.
Navigant is forecasting that natural gas prices will hold steady right through 2040 at roughly US$6.01 per million British thermal units, or MMBtu. That number rises to US$6.83 per MMBtu in the case of extreme demand, with no new gas sources. (And 2040, you might remember, is just one year before rights to super-cheap power from the Upper Churchill revert to this province.)
In energy terms, US$6.01 is roughly equivalent to oil at $36 a barrel, or as Navigant puts it “well below oil prices.”
Current gas prices hover around US$4 per MMBtu, while comperable oil prices are US$15 MMBtu, or US$91 per barrel. That kind of disparity makes natural gas more than attractive.
Now a caveat, I’m a journalist, not a mathematician or an economist. But if I’m reading energy unit conversion tables properly, converting US$6 MMBtu natural gas to kilowatt hours brings the simple conversion rate to a cost of around US $0.02 per kilowatt hour.
Two cents a kilowatt hour.
That’s admittedly only raw feedstock, without the capital costs and financing costs of building new gas turbines and without the inevitable losses of energy that occur in production and transmission — but, as Navigant points out, natural gas-fired would be unlikely to need major new pipeline infrastructure. Or, for that matter, any new electrical transmission infrastructure.
You don’t have to get the power to market: it’s already there. (By comparison, Muskrat Falls power is pegged at 14.3 cents a kilowatt hour before transmission costs beyond Nova Scotia.)
Two different reports
Does that mean that Navigant’s Dominion Cove report is right and Navigant’s Muskrat Falls report is wrong?
No. The two energy reports are looking at vastly different markets, so it’s like comparing apples and oranges.
The problem comes when part of what you want to do is to export oranges into an apple market.
Does it mean that Muskrat Falls is a bad project?
The jury’s out on that.
What it does mean is that
the energy landscape is changing incredibly quickly, and that assumptions made even a year ago may not hold true any longer.
There’s a campaign in Nova Scotia to get out of the Muskrat deal in favour of cheaper hydro power from Quebec. Likewise, if the U.S. has so much shale gas it can export huge volumes of liquified natural gas, it might even be able to export electrical power.
One thing’s for sure. The way the deal is structured now, consumers in Newfoundland and Labrador will pay to build Muskrat Falls, and will pay the interest on money borrowed to build it.
World capital markets are
in flux, and energy markets
are extremely fluid. American researchers are saying shale gas gives their country the opportunity to regain its own energy security — producing its own power internally at competitive prices and shedding its dependence on foreign sources. And, they’re saying, for America, that’s a very good thing.
As far as consumers on this island are concerned, a power corridor to the rest of North America may not make us any less isolated than we already are.
If we do it, we’re still going it alone. Paying for it alone, too, and therefore through the nose.
Russell Wangersky is The Telegram’s
editorial page editor. He can be reached by email at rwanger@thetelegram.com.
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