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

Alberta and Ontario have a long history of squabbling over natural gas. Now Ontario wants to turn away from using natural gas to heat homes and businesses. What will that mean for Alberta's already beleaguered producers?

10% of Alberta's natural gas production flows to Ontario

Ontario Minister of Environment and Climate Change Glen Murray released a climate change discussion paper in Toronto on February 2015. Ontario's plans to reduce its reliance on fossil fuels, including natural gas, would be a blow to natural gas producers in Alberta. (Chris Young/Canadian Press)

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 to phase out 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 of homes use gas for heat, and producers in Western Canada are 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. 

Blake Shaffer, an energy researcher at 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 roughly what's still flowing on the TransCanada mainline 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 as inexpensive 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's threatening what remains of the great national unifier of west to east gas flow."
Ontario sources more than half of its natural gas from Alberta, although that amount is declining. (Ontario Energy Board/Navigant)

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 the province for home and commercial heating, as well as industrial use in the oilsands and elsewhere, and to generate power.

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. But it 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 gas isn't opened up," said Judith Dwarkin, an energy economist with RS Energy Group.

The easiest 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 of coal with gas and leave all the growth to be met by renewables, 6,000 megawatts of gas 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

Ontario Environment Minister Glen Murray said the province is not banning natural gas, which would 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."