Government rules out natural gas

James McLeod
Published on November 2, 2012
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.”

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