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January 2006

Vol. 11, No. 5 Week of January 29, 2006

Gas industry bets on diverse supply mix

Canadian Gas Association report sees growing demand, calls for more diverse supply mix, policy action by Canadian government

Gary Park

For Petroleum News

You might expect a gas industry association to see natural gas as a key component of a sustainable energy world over the next 30 to 50 years.

But the vested interests of the Canadian Gas Association do not prevent it from calling for a deeper debate on what constitutes a “sustainable energy future” and what role gas can play in that future.

Wrestling with many long-held assumptions takes on added significance as Alaska and Canada sit on the doorstep of opening up trillions of cubic feet of Arctic resources.

In a recent report entitled “A Sustainable Energy Future: The Role of Natural Gas”, the association attempts to get the ball rolling on a debate in an environment of “increasingly tight supply/demand balances, high prices and environmental challenges” and the desire to ensure continued economic and social benefits from the gas delivery system.

The association’s bottom line conclusion is that growing demand will require a supply mix that is more diverse, with gas sharing the stage with traditional and alternative energy sources.

Evolution expected

The study believes the next several decades will see the evolution of an energy system that embraces current or emerging fuel and technology options, but will see traditional and alternative sources working together.

However, for natural gas to play a key role in residential, commercial, industrial, power generation and motor vehicle uses needs the participation of policy makers at a time when Canada’s growing economy requires incremental energy supplies, notwithstanding dramatically stepped up conservation and efficiency measures, the association suggests.

The report said its most basic proposition is to determine the meaning of “sustainability,” while rejecting simplistic notions of “energy policy and/or sustainability” that “in the past have led us down blind alleys and there is a risk that they will do so again today.”

“In our view, sustainability in a meaningful and operational sense needs to consider multiple characteristics.

“A sustainable energy future is one that meets the diverse energy service needs of society in a reliable, secure, efficient, affordable and environmentally acceptable way.”

Consumers need maximum choice

Moving towards a sustainable future will “rest largely on well functioning energy markets where consumers have maximum choice, good information and are able to respond to a market price when they make their choices.”

In examining the special attributes of gas, the association notes that gas accounts for 46 percent of Canada’s primary energy production, exceeding domestic requirements and allowing for about half of the production to be exported to the United States.

On the issue of reliability, the association said that close to 300,000 miles of underground transmission and delivery systems can hold 14-16 percent of North America’s total consumption and achieve 99.999 percent reliability, which is measured as the number of service days lost as a proportion of the total number of gas service days in a year.





The recipe for an energy future

The Canadian Gas Association calls for policy action in Canada to:

• Recognize the connectivity of the energy system, not just individual elements.

To that end government and regulatory policy must recognize that significant investment in existing and new gas transmission and distribution systems will be needed over the next decade to ensure the continued reliability of Canada’s gas system. Policy must establish the necessary conditions for long-term contracts to allow investment in infrastructure projects.

• Allow consumers to see the price signals for their energy options.

Consumers must see the costs for their energy supply choices, with those vulnerable to higher energy prices gaining protection through income-based measures.

• Approval processes to co-ordinate and run in parallel to improve efficiency and timeliness.

A streamlined regulatory, environmental and commercial framework to promote innovative energy sources such as liquefied natural gas, coalbed methane and methane hydrates.

• Achieve desired near- and long-term environmental outcomes rather than specifying particular fuels or technologies.

Policies need to encourage environmental improvement across the spectrum of fuel sources and technologies.

• Develop appropriate government codes and standards for all energy activities.

Recognition and support of the benefits of combined heat and power and distributed generation systems.

• A proactive government role in supporting technology development.

A joint effort by educational institutions and government to promote research and technology development aimed at new uses of natural gas.

• Emissions management through a variety of mechanisms such as emissions trading and carbon sequestration.

• Change tax treatment.

A capital cost allowance should be structured to at least be consistent with the useful economic lives of assets, while avoiding internationally uncompetitive tax treatment which inhibits Canadian industry’s ability to compete for capital. Tax incentives are also urged to promote innovation and technology development.

—Gary Park


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