Last year, Canada faced multiple extreme weather situations that were well beyond typical. British Columbia experienced its worst fire season on record. In the east, two thunderstorms caused widespread flooding in Toronto. Montreal experienced more than 70 heat-related deaths due to unusually hot temperatures.
Experts believe that with a warming planet, we can expect to see more events like these — and man-made greenhouse gas (GHG) emissions are one of the largest culprits. What if we can reduce GHG emissions while still maintaining a secure, stable power supply?
The Canadian landscape
Canada is one of the world's largest per capita GHG emitters, but is acting to improve its performance; the Canadian government announced regulations to phase out coal power by 2030, and natural gas is set to play a major role in this transition. There is clear reason to make this shift: natural gas is considered a clean alternative. It burns more cleanly than other fossil fuels, and it has a lower CO2-to-energy ratio than most other fuel types. In fact, it produces half the CO2 compared to coal.
The capacity mix below shows that natural gas is already expected to play a larger role in powering Canada’s economy, growing from meeting about 15 per cent to about 22 per cent of Canada’s total energy needs. Multiple forecasts submitted to the National Energy Board (NEB), along with the NEB’s own analysis of external factors, confidently indicate this shift. The change will be particularly prevalent in provinces currently reliant on coal and/or oil.
Capacity mix by province and territory, 2014 and 2040
According to these projections, natural gas will contribute to 70 per cent of Alberta’s power in 2040 (up from 45 per cent in 2014) and 55 per cent of Saskatchewan’s power in 2040 (up from 40 per cent in 2014).
Transitioning to power generated from natural gas isn’t just a cleaner alternative — it’s also attractive for financial reasons because of relatively low average unit costs.
The total cost of a power generation facility includes fixed and operating costs, as follows:
- Fixed costs: equipment, structures, land acquisition, expenditures related to regulatory approvals, engineering, procuring, constructing and commissioning the plant, etc.
- Operating costs: fuel, labour and maintenance costs.
The table below compares the various technologies and their costs. Natural gas technology has the lowest average capital cost. The technology is well understood and projects carry low risks to gain regulatory approvals and to operate.
Although wind turbines, solar, nuclear and hydroelectric technologies have lower operating costs, they are more capital intensive as they are more sensitive to location (e.g., proximity to adequate rivers, sun energy), take up more land (e.g., hydroelectric power facilities), and require more regulatory approvals due to potential environmental damage (e.g., hydroelectric) or political risks (nuclear).
Adoption of natural gas also has other positive effects, including enabling more electricity generation through renewable sources. Most renewable energy sources are inherently less reliable, due to their reliance on natural processes such as river flows and sunlight. To maintain a reliable supply, a more reliable — and ideally clean — source is required to supplement.
Investments in electrification of natural gas should pay off with stable power prices in the future. A 2018 study by Hydro Quebec shows that average power prices for residential and large customers in major Canadian cities have been increasing over the past few years. The trend is nationwide and could continue in the future.
The bridge to cleaner energy
We believe that with impactful climate action from Canada and encouraging economic fundamentals, it is possible for pure play natural gas producers to become power generators and potentially gain a higher margin on the product. The potential business benefits are substantial, and the contribution to more sustainable energy generation is far-reaching.
Aside from being a cleaner, economically feasible and reliable energy source, natural gas also supports the shift toward more renewable energy sources. Under the right conditions, natural gas could bridge the transition between the past and the future of affordable, reliable power.