Natural gas and Canadian energy security

In mid-February, members of the G8 industrialized nations met in Moscow to discuss energy security in a time of high world energy prices. At the end of the meeting, the Canadian government announced its support for a deal between PetroCanada and Gazprom to ship liquefied natural gas (LNG) from St. Petersburg in Russia to Gros Cacouna in Quebec.

Supplying Canada with natural gas from Russia may seem like shipping coals to Newcastle, given that in 2004 Canada was one of the world's largest producers of natural gas (a distant third behind the Russian Federation and the United States). Canada's natural gas production increased from under 6 billion cubic feet per day in 1970 to over 18 billion cubic feet per day in 2002; the greatest period of growth occurred between 1985 and 2000, driven largely by the introduction of various free trade agreements with the United States. Today, about half of all natural gas produced in Canada is used in Canada, while the rest is exported to the United States.

The length of time a region or country can produce natural gas depends upon the rate of production, the rate of new discoveries, and the size of its reserves. If the rate of production exceeds that of new discoveries, the reserves will decline, leading to the inevitable depletion of the resource. This pattern is occurring around the world; perhaps the best known is the UK's North Sea sector, where both natural gas production and the size of the reserves are in rapid decline.

There is no reason to believe that Canada's natural gas industry will be any different: Canadian production appears to have peaked around 2002, while at present rates of production, Canada's known reserves of conventional natural gas will be exhausted within nine years. There are other indigenous, non-conventional sources of natural gas that will help extend Canada's production, including natural gas from the Mackenzie Delta (although most of this will be used for the production of synthetic crude oil from Alberta's oil sands) and coal bed methane, primarily from southern Alberta (the production of which is expected to have long-term, detrimental effects on Alberta's agricultural sector).

The choice of Gros Cacouna as the Canadian terminus for the proposed LNG regasification facility may come as a surprise to many living in Atlantic Canada, given the rapid decline in Sable production, the lack of natural gas volume in the Maritimes and Northeast pipeline, and the difficulty in finding a secure supply of LNG for any of the three proposed regional LNG facilities: Bear Head (Anadarko), Goldboro (Keltic Petrochemical), and Saint John (Irving Oil). Despite these perceived "advantages", building an LNG facility at Gros Cacouna will allow the natural gas to meet some of the energy needs of Canadians in Ontario and Quebec, whereas any LNG facility built in the Maritimes will supply almost all of its natural gas to the New England states.

When it comes to natural gas, Russia is and will be the world's dominant supplier well into the twenty-first century, given its vast reserves of natural gas. Russia's geographic position, with existing or planned pipelines to both Europe and Asia will allow it to play "both ends against the middle", commanding the highest price from its consumers. Russia demonstrated its willingness to play the energy card in early January by reducing supplies to Europe in order to extract concessions from Ukraine. By entering the LNG market, Russia's energy muscle will be felt around the world. The fact that PetroCanada and the federal government are willing to negotiate with Gazprom and the Russian government should be taken as an indication of the state of Canada's energy security.

Energy security will not be achieved through entering deals with foreign governments. Given Canada's climate and geography, energy security will only be achieved by a significant reduction in national energy intensity. Although considerable reductions have been made in many sectors of the Canadian economy over the past 15 years, they will not be sufficient to address the issue of rising energy costs. For example, in the residential sector, improved building techniques have reduced the demand for space heating in new house construction; however, the majority of these buildings still rely on natural gas.

Reducing the reliance on fossil fuels for space heating (not only from the direct combustion of natural gas, but fuel oil, and electricity generated from fossil fuels) will require updated building codes and planning to require all new construction to take advantage of solar energy -- even a simple east-west orientation can result in significant passive solar gains. In existing neighbourhoods where the housing density is sufficiently high, cogeneration facilities can be installed to produce both electricity and hot water for space heating through district heating systems.

Continued reliance on natural gas is not the way to achieve energy security. With natural gas consumption exceeding production in North America, obtaining supplies from countries such as Russia becomes inevitable. Basing a national energy security policy on foreign sources of energy is no better than paying the Dane geld for protection against the Danes -- you will always be at the mercy of the Danes.

Published, Chronicle-Herald, 28 February 2006