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Winter
Natural gas prices are rising. It may be nothing. Or it could become a very big problem indeed. Not just in your home, but around the world with the potential of pitting nation against nation to secure the lifeblood of their economies. Short-sighted energy planning has made industrialized nations more vulnerable to the price of this commodity in recent decades. If current price trends persist, the resulting devastation and upheaval may soon come into sharp focus.
The Dawn Hub distribution centre is located on flat farmland about a half-hour south of Sarnia. It is here that the pipes, conveying mostly Alberta natural gas, rise through the soil and then submerge again to be redirected on. To Ontario and Quebec. Exported to the U.S. and beyond.
The spot price for natural gas closed at $5.54 per million British thermal units at the Dawn Hub on Friday. It has mostly traded at about $3 MMBtu for much of the past decade. That’s an 84 per cent jump in a matter of weeks.
To be clear, commodity prices—and natural gas prices—are prone to spikes buffeted demand fluctuations and may be slammed by geopolitical events and weather. Hurricane Ida may be driving the recent outburst. If that is the case, prices may drift back to a traditional trading range in a few weeks.
It isn’t just North America seeing soaring gas prices, however. Europe, the U.K. and Japan are all watching closely as natural gas prices soar to new levels. These trends demand a bit of our attention.
Natural gas prices have been low for a long, long time. Since the shale gas boom of the mid-2000s the price of this commodity has remained in the low single digits. Many energy policy planners today have never known a time when gas prices regularly hovered between $8 and $10.
What are some of the risks posed by soaring gas prices?
Electricity generation globally has become more dependent on natural gas in the last two decades. From 2,031 billion cubic metres consumed in 1990, the world burned through nearly twice that amount— 3,829 bcm in 2019. Some of this increase is due to rising global economic output. Much of it, however, has been driven by the advent of intermittent electricity generation in the form of wind and solar. When these sources aren’t producing electricity—due to lack of wind or sun—residents and industry still need energy.
Jurisdictions, including Ontario, have managed this by greatly expanding gas generation capacity—like the new gas plant in Napanee. Indeed, the notion that elimination of coal-powered generation was achieved by replacing it with intermittent sources of wind and solar was always a myth. The truth is that Ontario replaced coal with gas. So did most other places.
Germans, in particular, have put themselves in a terrible spot. They remain skittish on nuclear power and have therefore made their economy massively dependent upon Russian gas. And brown coal. Perhaps the dirtiest, most pollutantiest substance humans have ever burned to produce electricity. They have chosen to allow their economy to be beholden to the vagaries of Moscow. Perhaps they can live with rising prices, but what happens when Putin opts to squeeze the gas supply in exchange for, let’s say, a chunk of Ukraine east of the Dnipro River?
Rising global tension could be just one of the potentially cascading waves of damage resulting from rising and sustained natural gas prices. Those old enough to remember the oil embargo of 1973 will remember the panic that ensued as oil prices quadrupled. The fear that we would not have enough to fill our cars, heat our homes and run our factories was all-encompassing—and shaped the rest of the decade.
For some, this may seem tolerable—perhaps the catalyst our society needs to speed along the weaning of our economies from this fossil fuel. This is a foolish idea. Sustained high gas prices, coupled with rising inflation, already evident in many commodities, could be ruinous for economies laden with debt. It would undoubtedly be painful. For a long time. In a way, some have never seen or understood. Furthermore, it will be the folks on the margins who will be hurt most.
Perversely, the recent run-up in gas prices has been happening alongside strong gas production volumes. This indicates demand is rising faster than supply increases—a phenomenon driven by the transition from coal to gas to power economies around the globe.
It may be a blip. But with a cold, dark winter coming— it is a trend worth keeping an eye on. Perhaps something to talk about during an election.
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