Ontario's move away from natural gas would hit Alberta producers

At first, it feels like another nail in the coffin for Alberta natural gas producers. Ontario, with its pending climate change plan, looks set to turn away from natural gas for home heating.

Alberta is already under siege from anatural disaster, and this is threatening an unnatural disaster to an already struggling natural gas sector.- Judith Dwarkin, RS Energy Group

Ontario is still working on the plan, but in a leak of the draft version obtained by the Globe and Mail, the province wants tophaseout natural gas for residential heating in favour of electric and geothermal sources.

Aside from what this could mean for heating bills in Ontario, it would be a blow to natural gas producers in Alberta.

In Ontario, 76 per cent ofhomes use gas for heat, and producers in Western Canadaare suffering from persistently low prices and more competition from U.S. shale gas producers.

How much natural gas does Ontario use?

According to Statistics Canada, in 2013, the average Ontario household used 91 gigajoules of natural gas in a year.

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Blake Shaffer, an energy researcherat the University of Calgary, did the rough math, assuming most of that natural gas use was for heating,and figured that Ontario uses roughly one billion cubic feet of natural gas a day to heat residences.

"Coincidentally," said Shaffer,"that's roughlywhat's still flowing on the TransCanadamainline from Alberta to Ontario."

Alberta has lost market share in Ontario to U.S. producers in the northern states, who have increased production of shale gas. While the gas is asinexpensive in Alberta as it is in Pennsylvania, the shipping costs are higher from the west.

"They've basically pushed out our gas," said Shaffer. "And if this one billion drop in demand was there, we're the marginal supplier, so you can imagine it'sthreatening what remains of the great national unifier of west to east gas flow."

10% of Alberta's production shipped to Ontario

Alberta produces approximately 10 billion cubic feet of natural gas a day, half of which it uses in theprovince for home and commercial heating, as well as industrial use in the oilsands and elsewhere, and to generate power.

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If Ontario is receiving a billion cubic feet a day from Alberta on TransCanada's main pipeline,that's a tenth of the province's production. Not all of that is at risk, of course, since Ontario's industries use more gas than homeowners do. Butit does mean Alberta needs to find new markets.

"Losing more of Eastern Canada as a market would be very problematic, if another outlet for selling natural gasisn't opened up,"said Judith Dwarkin, an energy economist with RS Energy Group.

Theeasiest market for Alberta would be itself, as the province shifts from coal-fired power plants to natural gas and renewable energy.

"If we were to replace all 6,000 megawatts ofcoal with gas and leave all the growth to be met by renewables, 6,000 megawatts ofgas plants is just under a billion cubic feet a day," said Shaffer.

Oilpatch historian David Finch thinks there will be a future for natural gas, even if Ontario phases out its use in homes.

"The history of fuels is that they get repurposed and used in a different way."

An 'unnatural disaster' for Alberta

OntarioEnvironment Minister Glen Murray said the province is not banning natural gas, whichwould continue to play a critical role in the province's energy mix.

Dwarkin hopes that is the case.

"Alberta is already under siege from a natural disaster and this is threatening an unnatural disaster to an already struggling natural gas sector."