By: Union Gas

Fifth Bold Play: Fueling the Ring of Fire Using Natural Gas

THE OPPORTUNITY

The Ring of Fire is one of the most significant mineral regions in the province, and includes the largest deposit of chromite ever discovered in North America. Five hundred and forty kilometres north east of ThunderBay, the region is estimated to contain between $30B and $50B worth of minerals, providing jobs for decades to come.

Unfortunately, declines in commodity prices and the high costs of extracting the resources from the region are challenging the economics of developing the finds. Processing chromite and other minerals is extremely energy intensive. Rising fuel costs and difficulties in securing reliable and affordable electricity in an extremely remote region of the province are contributing to these high production costs.

Affordable, flexible and efficient energy can be part of the solution, helping to unlock the Ring of Fire by making production and processing affordable. The delivery of reliable, affordable natural gas in large volumes to this previously inaccessible region could act as a major catalyst for the large-scale transformation of a region with great economic potential for Ontario. It would also be more sustainable than the currently contemplated alternative – subsidized electricity.

WHY IT MATTERS TO ONTARIO

The Ring of Fire represents the greatest economic development opportunity for northern Ontario in several generations.

Currently, approximately 27,000 Ontarians are directly employed in metal mining, and 50,000 Ontarians are employed in jobs associated with mining processing. The mining sector is also the largest private sector employer of Aboriginals in Canada. Tapping into this opportunity would create jobs and economic prosperity in Ontario for decades.

Furthermore, the Ring of Fire is a tremendous investment that will bring tangible benefits for Thunder Bay and other communities in the Northwest, including First Nations communities in the Ring of Fire itself.

Electricity needs will grow as mining within the Ring of Fire develops, and natural gas can meet these demands as an affordable and abundant fuel. Natural gas electricity generation or co-generation can be built quickly, at the scale required and where needed, avoiding the need for new electricity transmission capacity. Ontario’s advantage not only lies in having access to plentiful and affordable natural gas throughout the province, but also in having a modern and robust storage and transportation network, which creates a unique regional competitive advantage in the north.

THE RING OF FIRE CANNOT BE AN OPPORTUNITY LOST

Slumping commodity prices, environmental questions and delays threaten the Ring of Fire. A primary reason for the delays surrounding the Ring of Fire and other northern development projects is the unpredictability of future electricity costs, as well as a lack of infrastructure.

New energy infrastructure for the Ring of Fire is desperately needed to help ensure predictable future energy costs. Mining extraction energy use has grown 149% since 1990, making this sub-sector the largest industrial user of energy in Canada. The mining sector is extremely energy intensive, and faces major energy obstacles prompted by rising fuel costs, challenges in securing reliable and affordable electricity, and carbon policy developments. These challenges have already taken their toll on the Ontario economy: in 2010, Ontario’s high electricity rates caused mining giant Xstrata to move processing operations from Timmins to Quebec, taking 670 jobs along with it. Without an established, effective energy infrastructure in northern Ontario, the Ring of Fire will be nothing more than a desirable, but unattainable investment.

The recent Cliffs proposal to develop the Ring of Fire relied heavily on subsidized Ontario electricity rates to offset the cost of energy-intensive chromite refining. Although this may be a short-term solution, subsidization is unsustainable for long-term northern investment, and creates a significant burden on Ontario ratepayers and taxpayers. Furthermore subsidizing electricity adds to the unpredictability of energy in the province, and leads to uncompetitive electricity rates. Using natural gas as an affordable means of reducing fuel costs and increasing energy sustain ability in the north will help to ensure that the Ring of Fire is a successful part of the Ontario economy.

A number of other jurisdictions have recognized the value that affordable natural gas brings to the development of mining sectors. In 2010, a report published by the Yukon Government’s Department of Energy, Mines and Resources identified that the Yukon’s energy requirements might soon surpass its existing renewable energy, particularly if new mines become operational. Citing the unpredictability of future diesel fuel prices, the report concluded that natural gas could meet the Yukon’s projected energy requirements for decades, and would be a low-capital, environmentally responsible alternative to other fuel sources. Since the publication of this report, the Yukon government has made changes to the Yukon Oil and Gas Act to allow for the handling,storage and vaporization of natural gas, and is planning to replace a number of diesel power generators with LNG.

In addition to being used as an alternative to diesel for Yukon’s energy grid, this natural gas resource will be used off-grid by mining companies that are too big or too far away to access Yukon’s energy power.

After almost a decade of paying the highest energy costs in South America, copper miners in Chile are analysing the use and consumption of shale gas in their processes. Chile is particularly short of power in its northern regions, where much of the mining sector is located. The International Energy Agency(IEA) recently published a report stating that Chile has the third largest reserves of the unconventional fuel in South America. Chile has recognized the value of securing domestic sources of natural gas, and the Ministry of Energy is currently in discussions with a number of companies regarding the establishment of special petroleum operation contracts. Chile has also requested to purchase Canadian LNG to help grow its mining industry through affordable natural gas.

ONTARIO CAN SHIFT THE ENERGY PARADIGM TO UNLOCK THE RING OF FIRE

In order to unlock the opportunities in the Ring of Fire, the provincial government must forge partnerships with industry. Securing the natural gas energy infrastructure necessary to fuel new economic activity is a more sustainable solution than building electricity transmission capacity and subsidizing electricity prices. It will, however, require actionfrom the government on two key opportunities:

Establish policy promoting the use of natural gas

Provincial policy should favour natural gas as anenergy source for the mining sector’s high demands in the Ring of Fire. Ontario should undertake abroader view and policy discussion surrounding LNG and CNG applications for mining development, expansion and operation in northern Ontario. Newpipelines or LNG/CNG hubs (as LNG can be trucked to the mine sites) could provide flexibility and prosperity to the region without the need for added and expensive electricity generation or transmission lines, and could offer widespread access and opportunity to a whole variety of northern communities and economic players.

Study the use of CNG/LNG fuelled cogenerationas an alternative to subsidized electricity tomeet the energy needs of the Ring of Fire

Subsidizing electricity prices may help attract one company to Ontario, but it is not a sustainable solution, particularly if we want to exploit the vast potential of the Ring of Fire. CNG/LNG could offer an alternatives olution to meet the significant energy demands of processing chromite and other minerals. This solution would avoid the need for large investments intransmission infrastructure.

It would also allow for greater flexibility, as cogenerationcapacity can be developed quickly, as and where needed. Before making decisions that will subject Ontario ratepayers (including other industries struggling to compete with rivals in jurisdictions with low energyprices) to years subsidizing electricity, the governmentshould consider the compelling natural gas alternative.