Canadian Natural GasThe Affordability of Natural Gas

Executive Summary

The Affordability of Natural Gas

Executive SummaryCanadian natural gas is an abundant and versatile fuel that provides affordable energy to meet a n

wide range of needs.Many factors contribute to the affordability of energy. Four key factors for comparing the value of n

energy sources are fuel price, the effi ciency of fuel-using equipment, the capital cost of fuel-using equipment, and potential carbon cost. There are many uses for natural gas. In three leading energy use sectors – residential, commercial n

and institutional ; electricity generation; and heavy-duty vehicle transportation – analysis shows that natural gas is consistently the most affordable fuel choice.

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Natural gas will gain market share based on its fundamental affordability advantage.“ ”Natural gas is the most economical energy choice in many markets and many applications. In fact, natural gas directly supplies 25% of Canada’s annual secondary energy use with additional and growing quantities used as a fuel for electricity generation.

Looking to the future, the market shares of all energy forms, or Canada’s future energy mix, will shift. Natural gas will gain market share – to the economic and environmental benefi t of Canadians – based on its fundamental affordability advantage.

The basic value proposition for any given fuel choice can be based on four assessment factors. These four factors are:

The price per unit of energy available. This is usually expressed as an inherent heat unit such as n

BTUs per dollar.

The effi ciency of the use technology to convert the given fuel into usable energy or work. n

The capital cost of the energy using equipment. n

The air emissions costs (set through government policy) of carbon dioxide and air contaminants n

such as SO2 or NOx. This is usually expressed as a dollar per tonne of the release of a particular air emission.

Assessing the Value

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The Value of Natural Gas for the Residential/Commercial/Institutional Sector:Natural gas accounts for 42% of the total energy use in this sector, and is mainly used for space and water heating.

Natural gas has inherent advantages over fuel oil, but the largest competitor for natural gas is electricity. This is especially the case where hydroelectric power is abundant (and typically electricity is sold at lower rates).

KEY CONCLUSIONS:Natural gas is the most affordable energy choice for space heating in all cities compared to home heating oil and is more affordable than electricity in all cities.

Compared to heating n

oil, the cost savings per annum is in the range of $1,837 in Toronto to $3,082 in Calgary. Compared to electricity the n

savings range from $189 in Montreal to $3,822 in Alberta.

Looking specifi cally at electricity, if a carbon cost equivalent to BC’s carbon tax is added into the calculations, natural gas heating at 95% effi ciency still beats electricity in all cases. With close to 60 percent of the heating stock in Canada still low- to mid-effi ciency, natural gas can be a cost effective way to reduce carbon emissions.

When considering capital costs, the least expensive heating option is baseboard electric heat, followed by natural gas and oil. However, operating with electricity is typically less affordable than heating with natural gas or oil.

For the customer in hydro dominated provinces, choosing high effi ciency natural gas over electric still provides fuel cost savings. In addition, using high-effi ciency natural gas for space heating allows for more exports of clean hydro electricity to displace high emitting coal-fi red power generation in nearby regions, creating opportunities for both economic and environmental advantages.

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Natural gas will play several important roles in the future power system alongside other options that have low fuel cost or zero GHG emissions.

KEY CONCLUSIONS:For base load power, at the expected prices for natural gas and for its principal thermal generation competitor, coal, natural gas is the more economic choice. The build times for natural gas power plants are also faster, the capital costs are lower and the effi ciency advantages of natural gas-using equipment are accompanied by distinct

environmental advantages.

The effi ciency story is driven by the fact that natural gas can be used in a very high-effi ciency combustion turbine where other thermal generation fuels require steam boilers to generate power. Since natural gas generation delivers similar effi ciency whether it is used in a small or large facility, it can be sited in many locations, such as beside an industrial plant or as part of a hospital or a shopping center, allowing combined heat and power or co-generation applications which give another big effi ciency boost.

As well, natural gas-fi red generation has quick on-off capability so that it is quickly dispatchable as needed. This makes natural gas power generation an excellent partner for baseload generation that cannot increase its output as quickly (e.g. nuclear, coal-fi red), and for intermittent renewable generation.

If the environmental advantages of natural gas – lower criteria air contaminants, lower GHG emissions - are expressed in economic terms the gas value proposition for power generation grows even more.

The Value of Natural Gas for Power Generation

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Natural gas is not a widely used transportation fuel today in North America. However, studies have shown tht it compares favourably as an option for heavy duty vehicles and the costs of installing

fuelling stations are optimized when natural gas is used for return-to-base fl eet vehicles such as garbage trucks or urban delivery fl eets. Without considering capital cost, natural gas offers a 20 to 30 per cent

fuel savings. However, there is a higher capital cost for natural gas . Analysis shows a simple payback, after factoring in carbon costs, of 5 to 7 years for a natural gas vehicle.

The Value of Natural Gas for Vehicles

About Price VolatilityNatural gas prices experienced a very volatile decade from 2000 to 2009. But so did most other energy choices. In fact the volatility of gas as measured by standard deviation was approximately in the mid range of all fuels sold in competitive markets. Price volatility is a fact of life in energy where the forces of supply and demand

can bring price fl uctuations as the market moves in and out of balance.

Natural gas purchasers have several means at their disposal to reduce volatility. Gas storage allows gas to be purchased when prices are low (often in summer when demand is low). Gas buyers can use fi nancial

hedging strategies. For smaller consumers gas prices are most often adjusted every three months and most utilities have equal annual billing programs; in consequence, since price spikes have most often been for a very short duration (a few weeks typically) the price seen by the consumer is relatively stable.

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ConclusionNatural gas is an affordable energy option in many market segments of the Canadian economy. As new natural gas supplies are brought to market consumers can expect to continue to benefi t from this versatile, safe, reliable, clean and affordable energy choice.

For more information:info@canadiannaturalgas.cawww.canadiannaturalgas.ca

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© 2011 Canadian Natural Gas.

Canadian Natural Gas is a made-in-Canada advocacy project sponsored by the following associations:

Canadian Energy Pipeline AssociationAssociation canadienne de pipelines d’énergie