Update on Gas Supplies

Gas in storage continues to decline at an alarming rate. Natural gas in storage has dropped to 1,000 billion cubic feet. This is 49% below the same time last year, and 46% below the 5 year average. Gas in storage dropped by 195 Bcf last week. Last year in the same week, the gas in storage barely dropped.

Gas consumption has been high due to the cold weather, especially in the densely populated US northeast. Temperatures seem to be rising somewhat, but the long term weather forecast in the most populated areas of Canada, at least, is forecast to be below normal until the end of May. The heating season will be extended, but will not be as intense as the rest of winter.

The result of less gas available is a rather dramatic increase in price. Enbridge, supplier of gas to Toronto, and much of central Ontario has applied for a 40% increase. The price at the benchmark setting Henry Hub has been as high as $7.98, and was $4.67 per million BTU today. This compares with $2.17 two years ago. These are US dollars, so you need to add 10% to convert to $C, so the increase at Henry hub is 236% in Canadian dollars. Home heating price is of course much higher due to transmission and distribution cost.

Demand for gas has increased due to the weather, but also the switch to gas power generation, and even the conversion of fleets to compressed natural gas. Industrial demand for gas has also rebounded, as the North American gas price became cheaper that other places in the world. The increase in price is likely to hold. Simply put, natural gas companies will need the higher price to find and pump and frack enough gas to replenish supplies. LNG export plants, as proposed around the continent, may be negatively affected as we find that perhaps we don’t have the surplus gas we thought we did.

The most efficient gas plant use about .7 BTU of gas per kWh. So that means the fuel cost alone, excluding transmission and distribution is 3.6 cents/kWh. Less efficient plants like the Lennox plant, use 1.1 BTU per kWh. The transmission cost needs to be added, as well as plant operation, depreciation, debt payments etc. The cost of electricity across North America will be higher.

Fortunately, the solar installed in Ontario is starting to wake up. The snow load is diminishing, and we are getting real close to 12 hours of sunshine per day. My 7 KW roof installation is operating at only 50%, due to ice and snow coverage. But it is supposed to rain, and rise to +5C tomorrow. This should help the roof shed the remaining snow, and increase the solar output.

Also, with the spring thaw on the way, water flows to waterpower plants will increase dramatically, further cutting our need for gas to generate power. We can’t rely on nuclear, as 3 reactors remain off line, and the aging plants simply can’t improve their availability reliably. Two reactors are schedule for refurbishment in Q3 2016, and so will be off line for several years.

More solar and wind production allows us to burn less gas to generate electricity. And with the decline in gas supplies, and higher price, this output is increasingly important to curtail the higher cost of generating electricity, heating and other uses of gas. About 32% of natural gas consumption in 2013 in the US was for power generation, which is very significant, and the largest single customer, ahead of industrial and residential home heating demand.

We should get on with building the pipeline of wind and solar projects now.

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