Canadian Natural Gas

The Affordability of Natural Gas

Executive Summary
The Affordability of Natural Gas
Executive Summary
n Canadian natural gas is an abundant and versatile fuel that provides affordable energy to meet a
wide range of needs.
n Many factors contribute to the affordability of energy. Four key factors for comparing the value of
energy sources are fuel price, the efficiency of fuel-using equipment, the capital cost of fuel-using
equipment, and potential carbon cost.
n There are many uses for natural gas. In three leading energy use sectors – residential, commercial
and institutional ; electricity generation; and heavy-duty vehicle transportation – analysis shows
that natural gas is consistently the most affordable fuel choice.

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 “ Natural gas will gain market share based
on its fundamental affordability advantage.

”
Assessing the Value
Natural gas is the most economical energy choice in many markets and many applications. In fact,
natural gas directly supplies 25% of Canada’s annual secondary energy use with additional and
growing quantities used as a fuel for electricity generation.

Looking to the future, the market shares of all energy forms, or Canada’s future energy mix, will shift.
Natural gas will gain market share – to the economic and environmental benefit of Canadians – based
on its fundamental affordability advantage.

The basic value proposition for any given fuel choice can be based on four assessment factors. These
four factors are:

n The price per unit of energy available. This is usually expressed as an inherent heat unit such as
BTUs per dollar.
n The efficiency of the use technology to convert the given fuel into usable energy or work.
n The capital cost of the energy using equipment.
n The air emissions costs (set through government policy) of carbon dioxide and air contaminants
such as SO2 or NOx. This is usually expressed as a dollar per tonne of the release of a
particular air emission.

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The Value of Natural Gas for the Residential/Commercial/
Institutional Sector:
Natural gas accounts for 42%
of the total energy use in this
sector, and is mainly used for
space and water heating.
Natural gas has inherent
advantages over fuel oil, but
the largest competitor for
natural gas is electricity. This
is especially the case where
hydroelectric power is abundant
(and typically electricity is sold
at lower rates).
KEY CONCLUSIONS:
Natural gas is the most
affordable energy choice for
space heating in all cities
compared to home heating oil
and is more affordable than
electricity in all cities.
n Compared to heating
oil, the cost savings per
annum is in the range of
$1,837 in Toronto to $3,082
in Calgary.
n Compared to electricity the
savings range from $189
in Montreal to $3,822 in
Alberta.
Looking specifically at
electricity, if a carbon cost
equivalent to BC’s carbon tax
is added into the calculations,
natural gas heating at 95%
efficiency still beats electricity
in all cases. With close to 60
percent of the heating stock
in Canada still low- to mid-
efficiency, natural gas can be
a cost effective way to reduce
carbon emissions.
When considering capital costs,
the least expensive heating
option is baseboard electric
heat, followed by natural gas
and oil. However, operating
with electricity is typically less
affordable than heating with
natural gas or oil.
For the customer in hydro
dominated provinces, choosing
high efficiency natural gas over
electric still provides fuel cost
savings. In addition, using high-
efficiency natural gas for space
heating allows for more exports
of clean hydro electricity to
displace high emitting coal-fired
power generation in nearby
regions, creating opportunities
for both economic and
environmental advantages.
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 The Value of Natural Gas for Power Generation
Natural gas will play several
important roles in the future
power system alongside other
options that have low fuel cost
or zero GHG emissions.
KEY CONCLUSIONS:
For base load power, at the
expected prices for natural gas
and for its principal thermal
generation competitor, coal,
natural gas is the more
economic choice. The build
times for natural gas power
plants are also faster, the
capital costs are lower and
the efficiency advantages of
natural gas-using equipment
are accompanied by distinct
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environmental advantages.
The efficiency story is driven
by the fact that natural gas
can be used in a very high-
efficiency combustion turbine
where other thermal generation
fuels require steam boilers to
generate power. Since natural
gas generation delivers similar
efficiency whether it is used in
a small or large facility, it can be
sited in many locations, such as
beside an industrial plant or as
part of a hospital or a shopping
center, allowing combined heat
and power or co-generation
applications which give another
big efficiency boost.
As well, natural gas-fired
generation has quick on-off
capability so that it is quickly
dispatchable as needed. This
makes natural gas power
generation an excellent partner
for baseload generation that
cannot increase its output as
quickly (e.g. nuclear, coal-fired),
and for intermittent renewable
generation.
If the environmental advantages
of natural gas – lower criteria
air contaminants, lower GHG
emissions - are expressed
in economic terms the gas
value proposition for power
generation grows even more.
The Value of Natural Gas for Vehicles
Natural gas is not a widely
used transportation fuel today
in North America. However,
studies have shown tht it
compares favourably as an
option for heavy duty vehicles
and the costs of installing
About Price Volatility
Natural gas prices experienced
a very volatile decade from
2000 to 2009. But so did most
other energy choices. In fact the
volatility of gas as measured
by standard deviation was
approximately in the mid range
of all fuels sold in competitive
markets. Price volatility is a
fact of life in energy where the
forces of supply and demand
fuelling stations are optimized
when natural gas is used for
return-to-base fleet vehicles
such as garbage trucks or
urban delivery fleets. Without
considering capital cost, natural
gas offers a 20 to 30 per cent
can bring price fluctuations as
the market moves in and out of
balance.
Natural gas purchasers have
several means at their disposal
to reduce volatility. Gas storage
allows gas to be purchased
when prices are low (often in
summer when demand is low).
Gas buyers can use financial
fuel savings. However, there is
a higher capital cost for natural
gas . Analysis shows a simple
payback, after factoring in
carbon costs, of 5 to 7 years for
a natural gas vehicle.
hedging strategies. For smaller
consumers gas prices are most
often adjusted every three
months and most utilities have
equal annual billing programs;
in consequence, since price
spikes have most often been
for a very short duration (a few
weeks typically) the price seen
by the consumer is relatively
stable.
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 Conclusion
Natural gas is an affordable
energy option in many market
segments of the Canadian
economy. As new natural gas
supplies are brought to market
consumers can expect to
continue to benefit from this
versatile, safe, reliable, clean
and affordable energy choice.

For more information:

Paula Dunlop,
Director, Communications,
Canadian Gas Association
613-748-0057, ext 341
pdunlop@cga.ca

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Canadian Natural Gas is a made-in-Canada advocacy project sponsored by the following associations:

Canadian Energy Pipeline Association

Association canadienne de pipelines d’énergie

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© 2010 Canadian Natural Gas.