Big chill ahead for Ontario energy

Cutting coal-fired plants questioned
Policy could leave us out in the cold

Toronto Star - February 24, 2004
by John Spears

Closing Ontario's coal-burning power generating stations will force the province to increase natural gas-fired generation by five to eight times at a time when Canada's gas supply is dwindling, according to analysis by the federal geologist.

Using National Energy Board figures and other published projections, David Hughes of the Geological Survey of Canada paints a startling picture of an impending energy squeeze in Ontario.

And the Liberal government's promise to close all coal-burning plants by 2007 will create unprecedented pressure on gas supplies, Hughes says.

So far, the province has insisted it will stick with its promise to close the coal-fired plants, starting next year with the Lakeview generating station in Mississauga, and extending within two years to other stations, including the giant coal-burning plant in Nanticoke on the shores of Lake Erie.

Hughes' analysis, recently presented to provincial officials, outlines the implications of shutting down the coal-fired generating plants.

Last year, Ontario generated 24 per cent of its electricity from coal, according to the Independent Electricity Market Operator, or IMO. The IMO doesn't break out separate gas figures, but other sources indicate gas-fired plants account for about 8 per cent or less of Ontario's electricity production.

Replacing lost coal-fired production, certainly in the near term, means burning more gas, according to Hughes' analysis of National Energy Board data and projections by other experts.

Gas-fired plants can be built much more quickly than nuclear or hydro plants — although several proposed gas-fired plants in the Toronto area continue to languish at the drawing board.

Energy board figures, however, also show that Canada's natural gas production peaked in 2001, and is already in slight but steady decline. The production drop in 2003 alone was 5.3 per cent; exports to the United States dropped by more than 15 per cent.

Meanwhile, NEB figures show that gas wells are becoming ever less productive as current fields are depleted. Canada is on a treadmill of drilling more wells for less gas.Under the most optimistic scenarios, conventional gas supplies start to fall off much more sharply starting around 2015. (Those include Alberta, Atlantic offshore production, Mackenzie Valley gas and possibly some liquefied natural gas.)

Under more pessimistic assumptions, the steep decline in gas production begins in 2009, just two years after Ontario has closed its coal-fired plants and is committed to increased generation from other sources.

In either case, assuming a slow growth in over-all demand for electricity, gas-fired energy generation would have to increase by five to eight times from current levels.

Put another way, boosting Ontario's gas-fired power generation to make up for lost coal-fired plants would require a 10 per cent increase in Canadian gas output, while current projections show production trending lower.

Even this analysis has some interesting assumptions built in to it.

For example, Hughes's most optimistic forecast shows gas-fired electricity production jumping by 470 per cent in Ontario almost immediately as the coal-fired plants are shut down.

But it also assumes that nuclear-powered electricity production will double over the next 20 years.

That would mean a huge nuclear building boom, especially as every one of Ontario's existing nuclear plants will reach the end of its normal operating life in less than 20 years. Doubling nuclear capacity would likely mean overhauling existing generators to extend their lives, plus aggressively building a string of new stations.

Whether that's a realistic assumption is questionable.

Atomic Energy of Canada Ltd. is pushing a scheme to build eight new reactors in Ontario, but the province has already been badly burned by reactors that chronically were late, had huge cost overruns and were unreliable.

Another assumption in Hughes' analysis is that power production from renewable sources will jump about 12-fold by 2025.

If atomic production doesn't double, or renewable sources don't develop, the pressure on gas-fired power generation will be even more severe. Higher demand in the face of diminishing natural-gas supply invariably will translate into increased prices.

Increased hydro-electric generation is not seen as new supply source, since Ontario has already developed most of the sites suitable for big hydro projects.

The Hughes analysis ties Ontario's electricity supply directly into the over-all North American energy picture, since natural gas is traded on a continental market basis.

The squeeze on natural gas is not confined to Canada. The United States, too, is facing tighter gas supplies, Hughes points out.

The Americans are building more gas-fired generators, even though their natural-gas output peaked in 2001 and has been declining at an annual rate of 1.1 per cent ever since. Despite sagging production, the Energy Information Administration projects a 1 per cent annual increase in gas production through 2010 in order to meet U.S. needs.

Gas producers are eager to drill in the Pacific Ocean, off British Columbia, but even if that goes ahead and the expected deposits materialize, Hughes notes that the total estimated reserve would only be equivalent to about five months' worth of U.S. consumption.

"If supply and demand forecasts are to be believed, there appear to be serious shortfalls in continental natural gas coming," says Hughes' report.

One solution could be to import more liquefied natural gas by tanker from outside North America. But that would require a huge new investment in facilities to chill the gas to liquid form, ships to carry it to market, and terminals to receive and distribute the gas.

The process also involves boiling off methane contained in the gas into the atmosphere — and methane is among the most potent greenhouse gases. Alternative fuels to natural gas are coal — which Ontario has ruled out — and oil whose reserves are also low.

Another way of preserving natural gas as a fuel is to shut down industries that use it as a feedstock — but that would knock a huge hole in North America's fertilizer and chemical industries that use it as a raw material.

Extracting methane by drilling into coal beds is another option, but existing production is negligible and even a big effort to boost production would only stall the decline in gas output for a few years.

What about oil? Worldwide, discoveries peaked in 1965, and since about 1980 consumption has outstripped new discovery.

"We've been eating into the oil bank account," says Hughes. "We're using at least two barrels of oil for every one that's being added to the reserve bank."

Canada and Venezuela have huge oil-sands reserves, but extracting oil from them is costly and, ironically, requires large amounts of energy. Moreover, building the plants to refine heavy oil is slow.

The energy board projections on which Hughes bases his analysis show steadily rising demand for energy. That could be moderated by improved conservation and efficiency, Hughes says, but it's unlikely to be the whole solution.

Ontario's task force on electricity supply and conservation — which had access to the Hughes presentation — calls for a "balanced approach" to eliminating coal, with new gas-fired generators, more renewable power and added nuclear and hydro-electric capacity.

Hughes' analysis shows it won't be easy getting there.

Visit the Toronto Star newspaper today