National Post (Latest Edition)

Energy crisis looms in ‘perfect storm’

- JESSE Kline

Winter is coming — and it’s not looking pretty. A confluence of events is threatenin­g to create the perfect storm that could see an unusually cold winter coupled with prohibitiv­ely high home heating costs, in an economy already facing significan­t inflationa­ry challenges.

Europe has been in the grips of an energy crisis for much of the summer, with the loosening of COVID restrictio­ns combined with shortages of supply and low levels of inventory driving natural gas prices six times higher than they were a year ago. The problem has been exacerbate­d by the push to replace fossil-fuel generation with renewable-energy sources.

Wind production has been down throughout Europe this year, and it got worse at the end of August, when the wind stopped blowing in the North Sea, causing wind generation in the United Kingdom, which last year accounted for around 25 per cent of the country’s power, to drop off significan­tly. The resulting increase in the prices of oil, natural gas, coal and carbon credits have caused British electricit­y prices to increase seven fold year over year.

High prices in Europe and Asia are causing manufactur­ers to decrease production and exacerbati­ng global shipping and supply chain problems that are leading to shortages of consumer goods worldwide. Energy shortages in Europe are also beginning to affect the agricultur­e industry, threatenin­g to increase food prices, which are already seeing high inflationa­ry pressures.

North America is in a better position than Europe or Asia, with the benchmark Henry Hub natural gas price trading at around $6 per million British thermal units, compared to over $30 overseas. But rising natural gas prices due to what is expected to be an unusually cold winter, combined with higher demand for oil driven by increased air travel and some power generators switching from gas to oil, risks precipitat­ing an energy crisis here at home.

The problem is expected to be particular­ly acute in jurisdicti­ons — such as California, New England (and Canada) — where stringent environmen­tal regulation­s, the shuttering of coal-fired power plants and carbon pricing schemes have made the once cheap and reliable electricit­y generated from fossil fuels prohibitiv­ely expensive.

New England suffers from a lack of pipeline capacity and usually relies on liquefied natural gas (LNG) imports when the weather gets cold. This year, it will be competing with European and Asian customers, which has driven up natural gas futures in the region.

And California, somewhat ironically, has seen a reduction in its green energy output due to problems ostensibly caused by climate change, as droughts have curtailed hydroelect­ric generation and smoke from wildfires have blocked out the sun, causing it to rely more heavily on gas-fired generators.

Canadians are also feeling the brunt of high gas prices. At the beginning of the month, Fortisbc, the largest natural gas distributo­r in British Columbia, raised its prices by nine per cent, and Manitoba Hydro customers saw rates increase between 8.7 and 19 per cent. Enbridge Gas, which heats three-quarters of Ontario’s homes, also upped its prices.

If there’s one thing most Canadians can count on it’s a cold winter, but the Weather Network is predicting that this year, Ontario and Quebec, the two most populous provinces, will see winter arrive earlier than it has in a generation. And it will be even more brutal if Michigan Gov. Gretchen Whitmer is successful in her bid to shut down Enbridge’s Line 5 pipeline, which transports nearly half of Central Canada’s oil and gas supply.

Despite running through the Straits of Mackinac without incident since 1953, Whitmer revoked the easement allowing the line to traverse the body of water connecting Lake Michigan and Lake Huron and ordered Enbridge to shut it down last spring, citing the potential for an oil spill. The Calgary-based company refused and took it to court, which forced the parties into mediation.

Last month, Michigan said it would no longer continue with the talks, which prompted the federal government to invoke the dispute-resolution mechanism in the 1977 Transit Pipelines Treaty between Canada and the United States. It will at least buy some time, hopefully enough to get Central Canada through the winter without losing a large portion of its energy supplies.

Regardless, if Line 5 is eventually forced to shut down, Canada will need a backup plan, and if there’s one thing we’ve learned over the past decade, it’s that Canadians couldn’t build a new pipeline if our lives depended on it (and given the potential for those “eastern bastards” to freeze in the dark, one could argue that they do). And herein lies the problem.

Ten years ago, Canada looked well positioned to become an energy superpower. But over the preceding decade, numerous private-sector proposals to build LNG terminals off the coast of B.C., as well as pipelines connecting Alberta to the West Coast, United States and Eastern Canada have all been stymied by petty jurisdicti­onal disputes and politician­s who cave to the interests of radical environmen­talists.

Canada has the 17th-largest proven natural gas reserves in the world, but the number of new wells completed annually in Western Canada dropped from over 12,000 in 2008, to 820 in 2016, and Alberta’s natural gas production has decreased by about 25 per cent since 2007.

Part of the decline is due to the fact that the large, easily accessible sources of gas have already been produced (which surely isn’t helped by reduced investment in the industry). But it is also attributab­le to a reduction in Alberta’s natural gas exports, which dropped by over 40 per cent between 2007 and 2014, due to increased shale gas production in the U.S. and a lack of LNG export facilities.

Meanwhile, gas on Alberta’s AECO index is selling for 55 per cent less than at the Henry Hub terminal in Louisiana. The oil industry faces similar issues due to pipeline constraint­s.

Now we have the worst of both worlds: despite the lofty rhetoric espoused by Prime Minister Justin Trudeau and other world leaders about climate change, demand for oil and gas has only increased over time (aside from an expected dip during the pandemic), yet Canada does not have the infrastruc­ture necessary to take full advantage of it.

Had we built the pipelines and LNG terminals necessary to get our energy resources to markets in the U.S., Asia and even Europe, the impact of higher prices for energy and consumer goods would have been offset by a correspond­ing boom in the energy sector. Instead, this winter, we will all be forced to be cold, miserable — and poorer.

NOW WE HAVE THE WORST OF BOTH WORLDS.

 ?? COLE BURSTON / THE CANADIAN PRESS FILES ?? The Weather Network is predicting that this year in Ontario and Quebec — the two most populous Canadian
provinces — we will see winter arrive earlier than it has in a generation, notes columnist Jesse Kline.
COLE BURSTON / THE CANADIAN PRESS FILES The Weather Network is predicting that this year in Ontario and Quebec — the two most populous Canadian provinces — we will see winter arrive earlier than it has in a generation, notes columnist Jesse Kline.
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