By Joel McKay
Doug Stout has a tough job on his hands.
The Vancouver-based executive needs to figure out how to get more people in B.C. to use natural gas.
That’s no easy feat in a province where people have enjoyed cheap hydroelectricity for decades and, like the rest of North America, are addicted to ample supplies of gasoline and diesel.
On top of that, the province has turned away from natural gas as a power source, and past attempts to install natural gas fuelling stations have met with little success.
But Stout, vice-president energy solutions and external relations at FortisBC (formerly Terasen), believes abundant gas resources in northeast B.C.’s Horn River and Montney basins could be coupled with other existing resources to create a more balanced energy grid.
“If you don’t want transmission lines built through your backyard, then how do we better use all the other resources we have on a more system-integrated approach?” said Stout.
FortisBC is just one of many companies looking to sell more gas to more customers in B.C.
A decade ago, the province’s gas industry was virtually non-existent.
But advancements in horizontal drilling techniques, more commonly known as fracking, have allowed companies to tap gargantuan shale gas reserves in northern B.C.
Almost overnight, the province has created a $6 billion fossil fuel industry, generating jobs and attracting investment from energy giants the world over.
Last month, the province and the National Energy Board published a joint report that more than doubled a previous assessment of gas resources in B.C.
The province believes there is 78 trillion cubic feet of shale gas in the Horn River Basin alone, enough energy to fuel the country’s needs for 26 years.
At the same time, massive gas reserves have also been discovered in the U.S., meaning that country is unlikely to look north of its border for supply any time soon.
That leaves B.C. gas companies with two options:
- export the resources to Asian markets; and
- create demand at home.
Plans are already underway for a $3 billion liquefied natural gas (LNG) export terminal near Kitimat.
But that facility, if approved, is still years away from being built.
Until then, B.C.’s gas resources are land-locked.
“There is more opportunity here for B.C. to be its own best customer,” said Gary Weilinger, vice-president strategic development and external affairs at Spectra Energy.
Despite an immediate lack of demand, Spectra is bullish about B.C.’s prospects.
Between 2009 and 2011 it will invest about $1.5 billion in natural gas infrastructure in this province.
Still, the only realistic markets for gas consumption in B.C. are transportation and heat and power generation.
“What we think is the biggest opportunity, and we’re aligned with Fortis on this, is … large fleet natural gas vehicles where there’s return-to-base or point-to-point [movements],” Weilenger said.
The idea is simple.
Focus on truck companies that have hauling routes restricted to the Lower Mainland and Fraser Valley.
That way natural gas fuelling stations don’t need to be installed on every corner, but could be built at fleet headquarters and topped up as needed for the day’s operations.
“The operating cost savings for the end user is probably 30% to 50%,” Stout said of natural gas vehicles.
FortisBC already built a gas refuelling station for Waste Management in Coquitlam.
The company has 20 compressed natural gas trucks picking up garbage and recyclables throughout the Lower Mainland.
In Abbotsford, Vedder Transport has invested in 50 LNG-powered vehicles that it says are cost-efficient and cleaner burning.
Still, they have a hefty price tag.
Stout said a natural gas truck could cost $80,000 to $90,000 more than its traditional diesel counterpart.
Although the cost difference has steered customers away in the past, FortisBC isn’t giving up.
“We’ve provided incentives through our energy efficiency programs, demand-side management, to cover the incremental cost of that capital,” said Stout. “We’ve offered to build our own [fuelling] stations.”
But getting companies to make the switch to natural gas power vehicles isn’t easy.
Westport Innovations (TSX:WPT), a natural gas engine manufacturer in Vancouver, continues to sell most of its products outside of B.C.
“The fact is there just hasn’t been the drive, incentive and interest locally … to move to natural gas,” said Westport spokesman Darren Seed.
If the transportation option doesn’t work out, gas companies are also keen to look at power production.
Spectra met with the provincial government last month to talk about the benefits of natural gas power generation.
According to Spectra, natural gas generation costs between $60 and $80 per megawatt hour compared with more than $100 for biomass, wind and solar sources.
Natural gas plants also provide a consistent power base, whereas renewable sources are often intermittent, Spectra said. At a time when BC Hydro is looking to increase power rates 32% over the next three years to pay for $6 billion in capital upgrades and the province is charging ahead with its $7.9 billion Site C hydroelectric project, gas proponents say it might be financially wise to consider other options.
But Simon Fraser University professor Mark Jaccard is concerned the business case for natural gas power in B.C. is so positive that the government might ignore its own clean energy policies and embrace it.
“I think there’s an excellent business case for burning natural gas, which is why there’s a risk that stupid humans would do it,” said Jaccard, the former chairman and CEO of the B.C. Utilities Commission and a renowned climate change expert. “There is no environmental or save-the-planet case for burning natural gas in British Columbia.”
In 2009, the Gordon Campbell government closed the door on future natural gas power generation when it relegated the 900-megawatt Burrard Thermal plant in Port Moody to “back-up” status.
Energy Minister Rich Coleman said he’s reviewing all economic opportunities for natural gas in B.C. He’s keen to see the transportation sector use more natural gas, but said the province’s hydroelectric plans could negate the need for future gas power production.
“At this stage of the game we’re not in need of the power, because we’re going to build Site C,” Coleman said.
Even if the province were to consider future power production from gas, it would have a number of political and environmental hurdles to overcome. The David Suzuki Foundation hasn’t been quiet about the fact that natural gas power plants emit “dangerously small” particulates that can harm human health.
There is also rising concern about the effect fracking is having on the environment.
In December, New York halted fracking in the state over concerns the process, which injects sand, water and chemicals into the ground, could affect drinking water.
In B.C., the provincial government has said it will conduct a health review focusing on the impact of the northeast’s extractive industries. But one of the biggest risks to B.C.’s natural gas industry is that the cost to extract the resource is sometimes more than the prevailing market price.
One analyst told Business in Vancouver it costs between $4 and $6 per thousand cubic feet to extract gas from a well. The Alberta spot price for natural gas is $4.02.
Encana (TSX:ECA), one of B.C.’s largest shale gas players, has hedged some of its price contracts at higher rates to weather the low price environment. But as more and more gas reserves are found, it’s difficult for anyone to say when prices might climb out of the current supply gut.
Encana spokesman Alan Boras said exports to Asia, where gas can be sold for $12 per million cubic feet, would be a major boon for the long-term viability of the industry.
But with export terminals a few years away, the industry remains on tentative grounds.
Stout and Weilenger believe the low-price environment creates more incentive for greater natural gas use.
But Tyler Bryant takes a different stance.
“It just doesn’t seem there’s a lot of economic sense to that gas,” said Bryant, an energy policy analyst at the David Suzuki Foundation. “For some reason we have this natural gas industry which doesn’t seem to be that competitive.”
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