Alberta’s power industry is of course well aware of the looming demand-supply gap, and has a solution in mind: natural gas. As outlined in Scenario 1 on page 11, the industry expects to ramp up gas generation in the coming years. However, though it may be economic today, gas is far from the panacea that the power industry is holding it up to be.
History shows that natural gas prices are notoriously volatile. The fuel is currently cheap, but with increased demand in the United States and a move to export natural gas through liquefied natural gas terminals, it is very plausible that its price will rise and fall unpredictably.
It’s happened before. North American natural gas prices rode a roller coaster between 2001 and 2008 when a lack of spare productive capacity led to tight market conditions (National Energy Board, 2013). More recently, things have settled down—the result of rapidly growing shale and other unconventional gas production. Add in depressed demand in the wake of the 2008 recession, and you end up with the low and relatively stable price that we hear so much about these days.
But as Calgary-based energy economist Peter Tertzakian has noted, potential supply-side constraints could easily kick in—for example, challenges in gaining and retaining social licence for drilling and fracking, and the growing awareness of the impacts of all fossil fuels (Tertzakian, 2014). Similarly, unexpected shifts on the demand side, such as a cold winter followed by a hot summer, could easily drive up consumption. A Citi Group analysis noted that natural gas prices have recently risen, as has price volatility (Citi Research, 2014).
Other industry watchers have expressed concern about production decline rates from shale gas and the impact that liquefied natural gas exports could have on natural gas prices and associated volatility, both of which would be likely to increase (Roche, 2014).
Renewable energy sources present an opportunity to mitigate these price risks by diversifying supply and addressing the supply-demand gap with secure fixed-cost generation.
