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Coal plant closings worry chemical sector

Jobs and profits at risk, industry says
Natural gas supply could be squeezed

Toronto Star - March 23, 2004
by John Spears

Canada's $20 billion-a-year chemical industry says Ontario's commitment to stop burning coal to produce electricity threatens jobs and profits in the sector.

Chemical producers have joined the line of those lobbying Ontario Energy Minister Dwight Duncan to reconsider his government's pledge to shut down the province's coal-burning plants by 2007.

The industry fears electricity generators will start burning natural gas instead of coal, squeezing supplies and driving up prices. That could have a severe impact on the chemical industry, which uses gas both as a source of raw material and to power chemical-manufacturing plants.

"What bothers us is the assumption that natural gas is going to be abundant and affordable for electric generation," said Michael Bourque, vice-president of the Canadian Chemical Producers' Association. That's not the case, he insisted. And that assumption worries chemical producers because natural gas accounts for about 60 per cent of their costs, Bourque said in an interview from Ottawa.

Backed by environmentalists, Duncan has argued the health costs of pollution from burning coal outweigh the benefits of continuing to use coal for electricity.

The problem is the short deadline the Liberals have set themselves to stop burning coal. They need to replace about 7,500 megawatts of generating capacity by 2007 to keep their pledge. That's close to 25 per cent of Ontario's total capacity.

Nuclear plants need at least seven or eight years for regulatory approval and construction. Hydro-electric generators need almost as long, and there are few good hydro sites remaining. Imports can't cover the gap, and renewable sources or conservation plans need time to start up.

Building new gas-fired plants looks like the most realistic short-term option, but would boost demand for gas in Ontario more than five-fold.

Meanwhile, gas from traditional fields in western Canada is diminishing. Even with the addition of new sources, Canada's supply is likely to peak between 2010 and 2015, according to one projection.

More optimistic forecasts say Canada has an 80-year supply of natural gas, but chemical producers are still worried.

Graeme Flint, vice-president of Nova Chemical Corp., said the supply of natural gas is "already tight."

Low-priced chemicals extracted from gas fields in the Middle East are being imported by Chinese companies, which turn them into film and plastic bags that compete in North American markets, Flint said in an interview from Calgary.

Methanol, used in adhesives and other industrial products, is also mostly made from natural gas. "The methanol business in North America is virtually shut down because it's unable to compete because product can be produced in lower-cost areas of the world and imported into North America," Flint said.

Ammonia extracted from natural gas, which is used in fertilizer, faces similar pressure, Flint added.

Canada's chemical industry is centred in Ontario, with about $8.5 billion a year in output. Quebec produces about $6 billion worth of chemicals a year, and Alberta makes $5 billion worth. The chemical sector employs 24,000 people in Canada.

U.S. chemical producers pay roughly the same prices as Canadians and face similar raw-material costs. But, said Bourque, U.S. plants have one advantage: They can burn oil as an energy source, whereas most Canadian plants burn only gas. So higher gas prices give U.S. plants a competitive advantage.

"We've lost markets offshore because the price of natural gas is much lower elsewhere, so their production is cheaper," said Bourque. "Now we're almost entirely dependent on the U.S. as our export market. ... If we're not competitive we'll lose that as well."

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