Canadian Gas Supply-Demand Allocations

This chart illustrates the allocation of Canadian gas supplies and Central Canadian imports to their traditional gas markets through 2025 at Canadian border points. Continued growth of demand in Western Canada, combined with competition from low-cost US Lower 48 gas, leads to limited growth options for Canadian supply. As TransCanada Long-Term Fixed Price (LTFP) comes into service and Marcellus/Utica plays continue to develop and push into the Chicago-Dawn markets, Solomon believes that the Ontario-Quebec market will provide transition opportunities to export into the upstate New York and New England markets on existing facilities. Western Canada gas supply will benefit from pipeline expansions utilizing reasonable cost compression options on Alliance and GTN allowing low-cost production to be moved into the North American pipeline grid.

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North American Power Generation Outlook

This chart shows North American power generation by fuel type. Key observations include the following:

  • Solomon expects a balanced market for natural gas pricing, which will allow both gas-fired and coal-fired power generation to stabilize until 2020, after which continuing declines in aging coal capacity will allow gas-fired generation to gain market share in a growing overall market.
  • Solomon forecasts that gas-fired generation will continue to surpass coal to become the largest source of North American power on a sustained basis.
  • New gas-fired power capacity will continue to be built at the expense of other generation capacity due to:
    • Lower capital, operating, and maintenance costs.
    • Faster planning/construction time.
  • Coal-fired power will face continued “emission risk,” delaying new development and limiting refurbishment investment in existing facilities. Solomon is forecasting that North American power generation from coal will decline during the forecast period.
  • Nuclear output is expected to be essentially flat as announced projects are completed, offsetting recent capacity closures.
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North American Gas Demand per Sector

This chart illustrates North American natural gas demand.

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North American Industrial Demand by Sector

This chart shows Solomon’s forecast for industrial natural gas consumption by sector and region. Key observations include:

  • Overall industrial gas demand benefits mostly from increased gas use for LNG exports, which began in early 2016 from Cheniere’s Sabine Pass facility in Louisiana.
  • The US Southwest region shows the strongest growth from the traditional chemical subsector and LNG exports.
  • Canadian industrial gas demand will continue to grow, a reflection of still-strong oil sands growth.
  • The traditional industrial demand subsectors are expected to grow modestly between 2017 and 2025. Traditional industrial demand includes Pulp & Paper, Petroleum Refining, Chemicals, Metals & Minerals, and Other Manufacturing.
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Cost of New Demand

This chart provides the cost of new demand for gas-fired power, methanol, oil sands, ammonia, gas-to-liquids (GTL), and ethylene/polyethylene.

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North American Residential Outlook

This figure provides Solomon Strategic Energy Advisory's outlook for the residential sector.

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North American Commercial Outlook

This chart shows North American Commercial Outlook. While commercial consumers are making efficiency gains, there is negligible difference in the average consumption per commercial user. Commercial units (blue line) cover a wide spectrum such as hospitals, restaurants, warehouses, public service establishments, and office buildings. Although the commercial customer count has stagnated since the 2008–2009 recession, Solomon believes that as economic growth recovers, so will commercial count (growing at 0.5% per year). Consumption (thousands of cubic feet per customer per heating degree day (Mcf/customer/HDD)) (red line) has lagged behind improvements seen in the Residential sector, and Solomon believes this trend will continue during the forecast period. As commercial consumption comes from more heterogeneous consumers, aligning economic incentives to increase building energy efficiency is difficult. For example, a landlord may not be incented to spend capital to decrease energy costs if the tenant is responsible for utility costs.

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New Generation Assumptions

This chart shows the capital cost requirements and lead time for various types of generic utility-scale generation facilities. On a combined basis, natural-gas-fired generation has a clear capital cost and lead time advantage over all other forms of generation. Solomon also expects lower variable costs when compared to the past decade.

  • Decreasing costs for wind and solar photovoltaic (PV) generation now have these technologies competing favorably with new coal-fired generation and other forms of renewable generation. This has led to rapid growth in both wind and solar PV capacity additions.
  • Increasing costs for capital-intensive projects and concerns over CO2, NOX, SOX, and other environmental restrictions have discouraged construction of new coal plants, a trend that is expected to continue.
  • Nuclear generation has both high capital costs and long lead times of 6 years or more. Due to strong public sector involvement and extensive regulatory oversight, there is a high risk of project cost overruns and delayed commissioning.
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Coal-to-Gas Switching Curve

There are two main drivers behind coal-to-gas switching: (1) longer-term displacement due to environmental regulation and (2) shorter-term switching due to the relative costs of each of the competing fuels. To illustrate the second point, cost-driven short-term switching from coal to gas, this chart compares natural gas prices against the incremental year-over-year change in power burn. Lower natural gas prices in 2013 resulted in higher power burn relative to 2014 to 2017 as natural gas prices increased. Observations:

  • The delivered cost of coal has been steadily increasing over the past decade while the natural gas price has decreased over the same period due to increased supply of shale gas and a significant expansion of natural gas pipeline capacity to move gas from these new supply regions to market. Natural gas prices were again on the downswing exiting 2014, and Solomon anticipates increased demand for natural gas in the power sector as further price-induced coal-to-gas switching occurs.
  • Coal produces twice the carbon and NOX emissions per kWh of electricity as natural gas, which does not emit SOX. Therefore, cost of compliance with current environmental regulations increases the price of coal by NOX and SOX price allowances.
  • Potential carbon costs resulting from a carbon tax or cap-and-trade program would impact coal-fired plants twice as much as gas-fired plants; such costs would also shift the switching curve to the right, making gas-fired generation more economic at relatively higher gas prices.
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Canadian Regional Power Generation

  • Canada has an abundance of power generated from hydroelectric when compared to the US and Mexico.
  • Canada has a 13% market share of the North American power generation market.
  • Provinces generally rely on their local resource capabilities:
    • Hydroelectric in BC, Manitoba, Quebec, Newfoundland, and Ontario (to some degree).
    • Coal in Alberta/Saskatchewan.
    • Nuclear in Ontario.
  • Hydro Quebec is focused on renewable and hydro sources.
  • Ontario is the first jurisdiction in North America to eliminate coal-fired generation—the Thunder Bay Generating Station has been converted to biomass and burned its last supply of coal in April 2014.
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Canadian Power Generation Outlook

  • Canada represents a 13% market share of the US and Canada combined power generation market.
  • Power is a growth market for natural gas, in Canada and the US.
  • Ontario became the first jurisdiction in North America to eliminate coal-fired generation from its mix (April 2014).
  • Alberta NDP Coal Policy—phase out coal-fired generation by 2030—350 MMcf/d more power demand.
  • Current estimates for developing new coal-fired plants (>5 years) and nuclear power plants (>10 years) preclude these alternatives from displacing gas-fired power generation in Canada and US during the outlook period.
  • Renewables (orange) are a growing option in Canada.
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North American Regional Power Generation

The charts show North American Regional Power Generation.

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