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First it was Pioneer, the carbon capture retrofit at the Keephills 3 coal plant scuttled last week by TransAlta Corp. Now Ottawa-based Iogen Corp. and Royal Dutch Shell PLC have scrapped plans for a cellulosic ethanol plant in Manitoba.

Taken together, the decisions add up to a bad run for carbon abatement in Canada, writes Shawn McCarthy at the Globe and Mail. But they also underscore the profound impact that shale gas in particular, and unconventional fuels in general, has had on North American markets.

TransAlta singled out Alberta’s negligible $15-per-tonne levy on carbon emissions as one reason it cannot proceed with Pioneer, but the same factors that have battered natural gas stocks – namely, record supplies and an unseasonably warm winter – invariably mean the company is earning less on each megawatt of power it generates in select markets.

Notwithstanding a mid-January blowout, spot electricity prices in Alberta averaged C$60 per megawatt-hour through the first quarter this year, compared to $82 in 2011, according to TransAlta’s securities filings. Ontario prices averaged $20 for the quarter, down from $32 the year prior. In the Pacific Northwest, prices averaged US$22, on par with the previous year.

Partially as a result, TransAlta booked a $34 million inventory write down during the three months ending March 31. In the fourth quarter last year, the company’s generation gross margins fell by $17 million, in part because of soft power prices in the U.S.

In a statement, TransAlta chief executive Dawn Farrell acknowledged that low natural gas prices are affecting the firm’s U.S. assets. Comparable earnings for the first quarter of 2012 were $45 million, or 20 cents per share, down from $75 million or 34 cents for the same period in 2011. “We are working hard to ensure our capital programs and arrangements with suppliers adjust to these new realities …” Farrell said.

Capital Power Corp., a partner in the Pioneer scheme, managed to dodge the brunt of lower power prices. It reported earnings (after one-time adjustments) of $27 million, or 46 cents per share, for the first quarter of 2012, compared to $11 million (34 cents) for the same time last year.

Even so, chief executive Brian Vaasjo signaled that soft prices, particularly in New England, where the firm recently bought three merchant gas plants, could soon register on the corporate balance sheet.

“Should these weaker power prices continue for the remainder of the year, we expect our financial performance for full year 2012 will be slightly under the low end of our target range for normalized earnings of $1.50 to $1.70 per share,” he said in a statement.

None of this suggests there is a direct link between shale gas and the decision to abandon Pioneer. But shale gas and its tight-oil cousin, in one way or another, have forced companies to re-examine old assumptions. Rather than investing in ethanol, for example, Shell is targeting onshore tight oil production.

And TransAlta? While the company said it cannot justify the expense of CCS, with natural gas prices languishing at decade lows, it is moving ahead with plans to build a combined-cycle gas plant to replace part of its coal-fired generating complex on the south shore of Wabamun Lake.

Alberta Oil Magazine, 1 May 2012

see also: Peter Foster: Burying carbon storage