Saturday, January 14, 2017

High natural gas prices in the Maritimes

Twenty years ago, natural gas exploration near Sable Island promised economic development as well as cheap, clean (compared to oil and coal) energy.  For about a decade, those promises came true, but things changed about five years ago.  Sable Island gas production was dropping, and new wells like Deep Panuke were not producing as expected.  So while gas production in the eastern US has boomed, keeping prices below CAD$4/GJ, prices in Nova Scotia have more than doubled.

In addition to the high market prices for natural gas, Heritage Gas charges a delivery fee (BEC) of $8.18/GJ.  That is quadruple the ~2/GJ delivery fee charged by ATCO.  A year ago when the total cost for a residential customer was over $20/GJ, heating with oil was significantly cheaper than gas.  Although prices in January of 2017 are lower than they were a year ago, natural gas is not a cheaper option than oil for home heating.

One liter of heating oil produces about 0.038GJ when burned.  With current prices of around 75c per liter, heating oil costs about $19.74/GJ.  While that is slightly more than the variable cost of natural gas, when the fixed cost of $21.87/mth is factored in, natural gas becomes much more expensive.  For a three-person residence constructed in the last 30 years that uses natural gas for heat and hot water, annual consumption should be around 75GJ.  With 75GJ/yr of consumption, after adding the fixed monthly cost, the total cost for gas comes to $21.50.

Unless Heritage significantly reduces the delivery fee, I think natural gas is likely to remain noncompetitive compared to oil.  LNG deliveries to Canaport will likely keep prices below $15/GJ, but the days of cheap natural gas in the Maritimes are now long gone.