By Lisa Hrabluk, Special to CBC News Posted: Mar 30, 2011 8:29 PM ET Last Updated: Mar 31, 2011 8:03 AM ET Read 10 comments10 Back to accessibility links
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End of Supporting Story ContentBack to accessibility links Beginning of Story ContentLow natural gas prices could ultimately have a bigger effect than the reactor crisis in Japan in terms of putting a damper on investments in new nuclear power plants, experts say.

Unlike past nuclear disasters at Three Mile Island in 1979 and Chernobyl in 1986, market-watchers don't expect Fukushima to freeze support for nuclear power. But the industry could feel a chill nonetheless, they say, because economics guide development decisions and the price of gas is just too good to ignore.

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"It is certainly hard to see in this post-Japanese tragedy how natural gas doesn't have a more positive view," said Carl Kirst, senior research analyst with BMO Capital Markets.

Kirst follows TransCanada, which has extensive gas holdings. It also owns a 40 per cent net stake in Bruce Power, Canada's only private nuclear generating company, which is completing work on repowering the Bruce A reactor.

Natural gas is the only fuel source that did not increase in price over the past year, partly due to the fact that new extraction methods have caused estimates of natural gas reserves to skyrocket.

That will have a significant impact on plans for the construction of new nuclear reactors. Energy analysts predict demand for natural gas will increase in the wake of the Fukushima nuclear accident as countries, including Japan, seek to expand their energy mix and reduce risk.

Carbon question
The case for natural gas isn't clear-cut, though. Nuclear supporters point out that another factor in the debate over the future of Canada's energy mix is the issue of carbon costs: add it to the bill for oil, gas and coal-fueled electricity generation and nuclear power becomes a more affordable option.

Shale Gas
The big driver of government interest in natural gas is shale gas exploration, which is greatly expanding the world's reserves of exploitable natural gas. It has also sparked a growing public outcry over the environmental impact of new extraction methods that use water and chemicals to create cracks in shale rock formations, freeing gas that would otherwise go untapped.

Shale gas production in the United States has boosted natural gas production levels to a 30-year high, and companies such as Encana and Talisman Energy want to ramp up production in Canada.

Governments in B.C, Alberta, Saskatchewan, Ontario, Quebec, New Brunswick and Nova Scotia each have proposals before them from companies wanting to extract natural gas from shale.
The reason can be found in the decommissioning and disposal costs associated with nuclear power, which unlike other energy sources, is included in the base energy costs. Carbon costs, however, aren't factored in.

A 2007 MIT study concluded the cost of nuclear power was about 2 cents per kilowatt hour higher than natural gas and coal. However, add carbon charges to the equation and nuclear becomes a more cost-effective option.

"Without a carbon cost, nuclear cannot compete with gas and coal for a new build," Duane Bratt, an energy policy expert at Calgary's Mount Royal University, says.

Until that happens, the nuclear industry will face challenges pushing new projects forward if gas prices and interest rates maintain their current trajectory, says Bratt, who expects loan guarantees to increase.

The outlook is a bit better for nuclear restarts, because it's a different calculation. Sunk costs - the billions already spent building the plant - combined with replacement costs to build new electricity generation, make retrofitting existing plants more palatable to investors and policy makers.

Uranium demand
This isn't to say that the nuclear industry will be untouched by the Japanese disaster itself.

Stock analysts for Saskatchewan-based Cameco, the world's largest uranium producer, have already downgraded forecasts in the wake of the Fukushima accident.

'We do not believe the nuclear renaissance will come to a complete halt following the events in Japan, but there is certainly potential that some reactor construction gets delayed, particularly in earthquake prone areas.'
—Greg Barnes, TD Securities"We do not believe the nuclear renaissance will come to a complete halt following the events in Japan, but there is certainly potential that some reactor construction gets delayed, particularly in earthquake prone areas," wrote Greg Barnes, base metals analyst for TD Securities.

Japan accounts for approximately 12 per cent of global uranium demand, and a drop in sales will not be easily replaced by other customers.

Other countries are also scaling back demand for uranium. Following the Fukushima disaster the German government announced a three-month closure of seven reactors constructed before 1980, and China halted its nuclear expansion program. Both decisions were made in the interest of reviewing safety standards, according to officials


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