Denver — With a wave of coal-fired power plant closures coming to Alberta over the next several years, natural gas demand in the province is projected to surge.
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But it might not arrive soon enough for some producers, as multiple Alberta-based companies have recently declared bankruptcy or shut down altogether because of cash-flow problems, while others teeter close to the edge.
Alberta has mandated power companies to shut all coal-fired facilities by 2030. The switch will likely occur much sooner, as most of the companies plan to transition their energy fleets to gas from coal well before the 2030 deadline, with the bulk entering service over the next few years.
Alberta currently has 16 coal-fired units. When these switch to gas, it has the potential to add about 700 MMcf/d of power burn demand, according to S&P Global Platts Analytics. The new demand sources are expected to start coming online incrementally as early as the beginning of next year.
Nearly all of Alberta's 16 currently operating coal units at six different power plants are set to undergo a conversion to gas, albeit with varying and undecided time lines. The only exception is Battle River Generating Station unit 3, and even it could be converted to gas, as owner ATCO Power said it is still weighing options for the facility.
Alberta's 5.7 GW active coal fleet collectively produced 3.7 average GWh over the past 12 months at a 60% utilization rate, according to Platts Analytics. After switching to gas, it could generate the 700 MMcf/d of total gas-burn demand by 2023. The extra demand would be helpful in absorbing strong production and length on the NOVA Gas Transmission Ltd. pipeline system, especially in the early 2020s, when growth projects slow in the oil sands. The oil sands have served as the primary driver of gas demand growth in Alberta over the past several years.
Added demand also could be good news for Canada's oil and gas producers, as several are struggling to stay solvent. Last Tuesday, Calgary-based gas producer Trident Exploration shut down, leaving thousands of wells in the care of the Alberta Energy Regulator.
"The combination of extremely low natural gas prices and high surface lease and property tax payments (totaling 72 cents Canadian/Gj) has exhausted the liquidity of the company," the company reported in a statement. "These challenges reached a tipping point with persistent, unaddressed capacity constraints on TransCanada's NGTL system leading to April AECO prices averaging [81 cents Canadian/Gj] and summer prices currently averaging C$1/Gj. Further, and despite our extensive efforts, Alberta has no mechanism to allow a struggling energy company, such as Trident, to address its inflated surface lease and property tax obligations."
"Trident does not have the funds to operate its infrastructure or enter into creditor protection," the AER said in a statement. "As a result, they have decided to walk away, leaving more than 4,400 licensed sites, many of them active, without an operator."
The Action Surface Rights Association and Alberta Surface Rights Association estimate there are about 30 private oil and gas companies facing similar issues with insolvency.
Several oil and gas companies based in Alberta have already declared bankruptcy this year, including Horseshoe Bay Resources, Elcano Group, Strategic Oil and Gas and Patrio Equipment. In their filings, they listed reasons, such as weak Canadian prices and pipeline constraints, similar to Trident.
Also, the Petroleum Services Association of Canada expects much less drilling activity this year than previously thought. Last week, it revised to 5,300 the estimate of oil and gas wells that would be drilled in the country throughout 2019, down from 6,600 estimated back in November.
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