Ontario gas-plant cancellations will look like a great idea when gas prices skyrocket

A Forbes contributor has written an article predicting that the North American price of natural gas will hit US$8 per million Btu this winter. The same writer claims to have been predicting this since July of 2012. He bases this prediction on analysis of gas storage data, which, he claims, tell him that the “glut” of gas which has kept the continental price in the $2 to $3 range since 2008 is disappearing. (You can read the Forbes article here; I apologize for the ad-wall.)

This particular Forbes writer is not the only one who has been predicting an imminent rise in the North American price of natural gas. Rod Adams, who publishes Atomic Insights, one of the finest blogs on the internet, has been following gas prices and inventories since beginning the blog. He similarly predicts a rise in the continental price of gas.

If the $8 prediction proves right, then the cancellation of the two Ontario gas plants that have led to the resignation of premier Dalton McGuinty on Monday will look to have been admirably far-sighted and prudent. On paper, gas-fired plants look to be an easy alternative to nuclear: they (seem to be) less capital intensive and therefore cheaper to get up and running.  This relates to the fact that they do not have to go through the same stringent regulatory process as nuclear plants. They should: gas usually kills and maims more people in a single year than nuclear plants have done in five decades of continuous operation. Click here to see the results of a simple Google search of the phrase “natural gas explosion.”

Across the OECD, there have been, in the entire history of civilian nuclear power, about two deaths related to nuclear processes. Though “Three Mile Island” and “Fukushima” are household words, neither of these events resulted in even a single nuclear-related hospitalization, let alone fatality.

That’s right—in the 3485 days since the three reactors melted down at Fukushima, there have been zero radiation-related hospitalizations or deaths.

Nevertheless, due to brilliant, fabulously well-funded, and relentless advocacy campaigns by both the gas industry and its most important supporter, the mainstream environmental movement, gas has a benign image that results in the industry getting a free pass on safety regulations which, if they were as stringent as they are in the nuclear sector, would make gas-fired power prohibitively expensive. Gas is lightly regulated compared with nuclear. Hence gas’s popularity among politicians.

This is why the two now-cancelled Ontario gas plants were conceived in the first place. The current provincial government’s long term energy plan may have emphasized “renewable” sources like wind and solar, but the real money went to gas-fired generators. This was a concession to the mainstream environmentalists, who demanded a cap on nuclear.

The only reason the LTEP included such a big gas component is because at the time the plan was drafted (November 2010), the continental price of gas had declined to around $3, making it competitive on a per-kilowatt-hour basis, with coal. Gas plants’ biggest cost is fuel, so the cost of gas-fired power depends on the cost of gas.

Well, that cost had been all over the place, but mainly high, in the years preceding the Great Recession which began in 2008. And why did the price drop coincide with the Great Recession? Because the recession killed demand.

But that recession has been steadily going away. No surprise then that gas prices have inched up.

If gas prices go back up, and they certainly will, the gas component of the LTEP should be reduced and replaced with nuclear. As I have pointed out, nuclear-generated power is Ontario’s second-cheapest source. It has stayed that way through thick and thin, and will stay that way in the future.

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