With nuclear plants shut down in Japan, and possibly in other countries if safety weaknesses show up, natural gas generating plants would likely be the quickest and most economical source of replacement electricity.
As the nuclear disaster in Japan is slowly brought under control, focus is shifting to another big challenge: how to replace the power once produced by crippled reactors.
Global markets seem to be betting that the answer will involve natural gas, the cleanest of the fossil fuels and one that just happens to be in surplus supply in Canada and the United States. Japan is already the world’s biggest consumer of liquefied natural gas, or LNG, and gaspowered generators could be a quick, economical fix for its electricity shortage.
A more gas-intensive world energy picture could represent yet another boost for a Canadian economy that has found more and more of its vigour in the resource sector over the past decade.
That’s especially likely since the expanded market for natural gas will extend well beyond Japan.
With heightened concerns about safety, Germany has announced the shutdown of its oldest nuclear plants for safety checks, the United States is taking a second look at nuclear security, and even authoritarian China is taking a second look at its nuclear expansion plans.
That creates significant long-term opportunity for Canada, the world’s third-largest producer of natural gas.
Global prices for gas jumped last week, as investors bet that Japan would have to increase imports steeply to make up for a 20-per-cent shortfall in electricity-generating capacity, notes Peter Buchanan, an economist with CIBC World Markets.
Even in North America, which right now has no ability to export LNG, prices of conventional gas have been drifting upward on speculation that imports designated for U.S. users could be diverted to Japan.
Certainly the profit potential for future exports is good.
Gas prices in North America have been depressed for the past few years since the discovery of vast new supplies caused a glut, points out Earl Sweet, senior economist with BMO Capital Markets. In this environment, said Sweet, it’s possible to sell gas in Asia for two to three times the North American price, which now hovers around $4 per million British thermal units.
But of course, it’s not quite as simple as that, or else this price differential wouldn’t exist.
The most obvious obstacle is transport. While the easiest way to transport gas is by pipeline, overseas markets must be served by ship. For this, exporters must liquefy gas at ultralow temperatures, packing more energy into a smaller space. Then the LNG can be transported on specialized ships.
Even before the nuclear scare, companies in the United States and Canada had begun working on plans to do just that.
In Canada, for example, En-Cana, a major gas producer, has just bought into a $4.7-billion LNG export terminal that’s aiming to begin exporting by 2015 from Kitimat, B.C. EnCana’s partners in this project are two U.S. firms, Apache Corp. and EOG Resources.
Any serious impact from exports of LNG will take several years to show up, since export terminals take some time to be built, but the case for stronger long-term demand is a strong one, many analysts believe.
With nuclear plants shut down in Japan, and possibly in other countries if safety weaknesses show up, naturalgas generating plants would likely be the quickest and most economical source of replacement electricity.
One megawatt of naturalgas generating capacity can be built in about a year for about $1 billion, estimates Buchanan, but a replacement nuclear plant could take five years and $4 billion or more.
A coal plant would also be costlier and slower to build, and would be much dirtier in its emissions, which raises a second big new area of market potential. Coal is now a key source of generating power all over the world, but with gas highly competitive and far less damaging in terms of pollution and greenhouse gases, there is likely to be a gradual shift toward gas-powered plants, Sweet believes.
If natural gas were to get a substantial boost from such new demand, it would reverse a severe slump in the industry that has seen it fall from Canada’s second-biggest export earner six years ago to an also-ran.