How the coming home heating crisis could threaten the grid

Canadians think about heat a lot more than most people do for obvious reasons. And, since so many Canadians rely on natural gas to heat their homes, assuring adequate supplies of the stuff is understandably critical to them. This fact was highlighted on a recent trip to Canada where I met with members of Post Carbon Toronto who detailed their concerns about natural gas supplies in North America, concerns which the Canadian government, their fellow Canadians and the largest importer of Canadian natural gas, the United States, seem only too happy to ignore.

The crux of the matter is that North American natural gas production has been stuck on a plateau fluctuating between 26 and 27 trillion cubic feet of production annually since 1998. But, it's not for lack of trying. From a low in early 1999 of 397 active gas drilling rigs in Canada and the United States combined, the count has vaulted to 1,753 active gas rigs for the week just ended. And, the high rig count is not just a recent phenomenon. Combined gas rig counts first reached 1,000 in the year 2000 and fluctuated between about 700 and 1,300 from then until mid-2005. At that point they broke through the 1,300 level and never looked back. The simple fact is that natural gas in North America is getting harder to find; and when we do find it, it is coming in smaller quantities that flow at slower rates than in the past. That's why we are having to drill so many wells just to run in place.

All of this might not seem so desperate were it not all but certain that at some point natural gas production will start to fall, perhaps precipitously so. Oil fields over their lifetime generally exhibit gradually rising and falling production which looks like a bell curve on a graph. However, gas fields quickly reach a plateau in production (usually determined by what a pipeline can carry), remain on the plateau for a time, and then fall off very quickly once the decline starts. The plateau pattern is followed by what can only be described as a cliff.

(Even before gas production begins to fall, North America's limited natural gas storage capacity could result in a winter heating crisis. Natural gas is now extensively used to generate electricity for which demand peaks during the air conditioning season. Therefore, it is conceivable that a hot summer followed by an unusually cold winter could bring storage down to dangerously low levels. Another peril is a strong hurricane in the Gulf of Mexico that does extensive damage to the natural gas infrastructure there.)

Resource economist Douglas Reynolds, a specialist on North American natural gas, has told me that once the natural gas decline begins, he expects a 5 percent per year drop-off in total production. Reynolds believes such a drop could begin as soon as this year. While imports of liquid natural gas (LNG) could ease the situation, the U. S. currently has only five such ports, and Canada does not anticipate opening any until 2011.

The members of Post Carbon Toronto have little faith that LNG will come fast enough and in quantities large enough to make much of a difference. (For why, see my piece entitled "If we build it, will they come?") And, planned pipelines from Alaska and northern Canada will not arrive anytime soon. So, the question, of course, is this: What will people who rely on natural gas for home heating--and that includes a huge number of people in the United States--do when the crisis hits?

One Post Carbon Toronto member feels certain that they will turn to electricity in a big way to heat their homes. The main problem will not be that natural gas is unavailable since home heating will get first priority (even if it means businesses and public buildings must be shut down). The main problem will be the skyrocketing price of natural gas. In a scramble to find affordable heat, people will turn to the grid via electric space heaters. Those who can will turn to wood. But in large cities such as Toronto (and Chicago and Detroit and Cleveland, for that matter) it will not be practical to do this because most homes do not have wood stoves and because supplies of firewood will be limited. And, although kerosene heaters will certainly be available, kerosene is a petroleum derivative and therefore may not ultimately be any cheaper to heat with than natural gas. Beyond this many apartment and high-rise dwellers will find that building rules or local ordinances prohibit the use of kerosene heaters in their units. All of this points to electricity as a backstop for cash-strapped Canadians and Americans faced with a natural gas shortage in winter.

So, this raises a second question: Will there be enough electricity for all those who want it? The short answer from Toronto is "no." Based on my admittedly rough calculations for the United States, the answer may be "no" here as well. If Americans who heat with natural gas substituted electricity for a mere quarter of their home heating, they would add about 6 percent to total electrical demand. Doesn't sound like much, does it? However, that 6 percent would not be added continuously throughout the year, but concentrated in the coldest months. That could cause a pronounced spike in demand, especially during deep freezes. Add to this the fact that about 20 percent of U. S. electricity is generated from natural gas-fired power plants that will be competing with homeowners for the same dwindling supplies of natural gas.

Right now the American electrical grid has about a 16 percent excess capacity margin. With all the additional demand coming during the winter and with supplies for natural-gas power plants in jeopardy as well, it seems plausible that my rather modest scenario could result in problems for the electrical grid. Keep in mind that this example involves replacing only a modest portion of home heating for homes warmed by natural gas. It takes into account neither the actions of those who own businesses or commercial buildings, nor the actions of homeowners who have gas appliances other than furnaces such as stoves and clothes dryers.

The likely response of the electric utilities, according to my informed Torontonian, will be to raise rates drastically to curtail electric use. Unless they can get some people to turn off their electric heaters, the utilities will risk major power outages and possibly damage to the grid. While rate rises in the middle of winter levied on a desperately cold population will probably not go down well with the public or their elected officials, it may be the only way in the short run to curtail demand and protect the grid.

Given that neither the U. S. nor the Canadian government seems to understand the seriousness of the natural gas predicament in North America, it is no surprise that they haven't thought through the implications for electrical demand once a crisis hits. While the probability of running low on natural gas by itself ought to scare the two governments into instituting emergency conservation programs, the possibility that the electricity might go out in mid-winter at the same time ought to positively terrify them.

Unfortunately, given the current inaction on both sides of the border, this horror movie may soon be coming to a town near you--or possibly even to your own town.