This is a bit surprising since\u00a0Canada enjoys\u00a0many of the same advantages that\u00a0the U.S. shale revolution does (U.S. gas output has risen\u00a055% since 2008).\u00a0Among other benefits,\u00a0Canada has: 1) a huge shale gas resource, 2) leading oil\/gas companies and experts, and 3) free market competition that helps ensure that \u201cthe best teams win.\u201d<\/p>\n
Up 25% over the past decade,\u00a0Canada\u2019s proven gas reserve base now stands at a very solid\u00a070 trillion cubic feet (Tcf).\u00a0And the\u00a0Montney shale play in the west could hold a staggering\u00a0450 Tcf\u00a0of recoverable gas.\u00a0Today, although yielding\u00a0less than 20% of what the U.S. does,\u00a0Canada is still the world\u2019s 5th largest gas producer, offering 4-5% of global supply. Some\u00a097% of all natural gas\u00a0produced in Canada occurs in\u00a0the western-most provinces, with Alberta alone constituting\u00a075% of the country\u2019s output.<\/p>\n
With such a western-based supply system,\u00a0the obvious problem is that over\u00a070% of the population lives in the far off eastern half of the country (Calgary to Toronto is a 33 hour drive!).<\/strong><\/p>\n Canada\u2019s natural gas industry has quickly devolved into crisis mode.\u00a0For example, soaring\u00a0shale production in the U.S. has lowered the need for Canadian gas to be imported. Canada\u2019s gas exports to the U.S., long its only customer, have steadily\u00a0declined 25% since 2007 to 7.8 Bcf\/d.\u00a0Although this is still a pretty solid export level, expected non-stop growth in U.S. shale will continue to erode the need for Canadian gas, especially as more and more interstate\u00a0pipelines are built in the U.S. to share domestic supply.<\/p>\n In fact, some companies such as TransCanada have been cutting pipeline tolls to try and get\u00a0western Canadian\u00a0gas to\u00a0central and eastern provinces and\u00a0better compete with imports of cheap shale flowing into the country from the U.S. While not growing, U.S. gas exports to Canada still hit a healthy\u00a02.3 Bcf\/d in 2018\u00a0– almost a quarter of Canada\u2019s total demand.<\/p>\n Worse, pipelines to move gas out of distant Alberta have been extremely slow to get built, facing pushback from environmental groups and\/or Indigenous peoples, regulatory burdens, costs overruns, and a number of other problems. For western Canada, too much supply, not enough demand, and worsening pipeline constraints have saddled the gas industry with \u201cthe lowest prices in the world,\u201d even in negative territory.<\/p>\n As is true for oil,\u00a0Canada\u2019s gas future thus depends on reaching foreign markets\u00a0by exporting off its western coast of British Columbia<\/span><\/p>\n If production can grow as hoped, the capacity to export will be strong. Blessed with an incredible water resource, hydro accounts for over 60% of Canada\u2019s electricity, with gas only at 10% (gas holds a rising 35% share in the U.S.).<\/p>\n Democratic with a stable political system, the appetite for Canada\u2019s gas will surely be there. The world is turning to cleaner, reliable, and more flexible natural gas to grow economies and reduce greenhouse gas emissions. Canada\u2019s goal of course is to splash into the rapidly growing\u00a0LNG pool. Although now just 12-14% of the global gas market, LNG is the fastest growing way to trade gas, rising\u00a04-7% per year for as far out as is currently being modeled.<\/p>\n Two key advantages for potential Canadian LNG are low-cost domestic supply and short shipping distance to gas-hungry Asia.\u00a0For example, drastically cutting transport costs,\u00a0it takes just 10 days for an LNG cargo to get from British Columbia to Asia, versus as many as\u00a030 days for projects along the U.S. Gulf Coast.<\/p>\n Last fall, Shell and partners green-lighted the\u00a0$31 billion LNG Canada\u00a0export project, the first of its kind in the country. Interestingly enough,\u00a0LNG Canada made a final investment decision without first securing the\u00a0usual long-term off-take contracts that have typically been used to underpin projects, instead being a joint venture with five participants and an equity financing structure. With\u00a0PetroChina a partner, the\u00a0U.S.-China trade row has also been bolstering\u00a0hopes in Canada. And the government of British Columbia has offered a variety of incentives, such as exempting\u00a0LNG Canada\u00a0from carbon tax hikes if it can maintain the cleanest possible standards.<\/p>\n There are a variety of issues, however, that will be challenging\u00a0for Canada\u2019s LNG exports.<\/p>\n Let me just mention a few. As greenfield (i.e., developed from scratch), LNG export projects will be more expensive in Canada than in the U.S., where many are simply retrofitted to export.\u00a0Pipeline bottlenecks and pushback will make supplying west coast terminals even more challenging. In addition, the potential\u00a0Jordan Cove LNG\u00a0export project in Oregon will be strong competition for Canada.<\/p>\n Canada\u2019s other key natural gas problem has also been that\u00a0gas is mostly a forgotten commodity as compared to oil, a higher revenue generator.\u00a0Canada\u2019s oil producers have also faced such destructive price discounts for their product that Alberta\u2019s Premier Rachel Notley had to step in and demand nearly a 10% reduction in output to lift unsustainable prices.<\/p>\n We do know that Canada\u2019s LNG projects must move more quickly to be primed to ship when a global\u00a0supply deficit materializes in less than five years.<\/p>\n Looking forward, Canada\u2019s\u00a0National Energy Board (NEB)\u00a0forecasts\u00a0around a 30%\u00a0increase in output to 21\u00a0Bcf\/d by 2040, or what the Permian and Eagle Ford plays in Texas produce today combined. The NEB projects a\u00a0130% boom in the\u00a0Montney to 12.1 Bcf\/d by 2040.<\/p>\n I would argue that a strong LNG buildout would prove these as very conservative estimates. And an expected boom in Canada\u2019s tar oil sands development \u2013 which uses natural gas as a key input for operations \u2013 would also help encourage more gas production in the western region.<\/p>\n https:\/\/www.forbes.com\/sites\/judeclemente\/2019\/04\/05\/canadas-natural-gas-industry-really-needs-lng\/amp\/?__twitter_impression=true<\/p>\n","protected":false},"excerpt":{"rendered":" This is a bit surprising since\u00a0Canada enjoys\u00a0many of the same advantages that\u00a0the U.S. shale revolution does (U.S. gas output has risen\u00a055% since 2008).\u00a0Among other benefits,\u00a0Canada has: 1) a huge shale gas resource,…<\/p>\n","protected":false},"author":1,"featured_media":3072,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[46,48,57,90,96,107,113,137,139,160,174,183,184,201,202,209,230,232,233,244,246,249,256,267,277,279,288],"class_list":["post-3057","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-aramco","tag-athens","tag-baroudi","tag-democracy","tag-doha","tag-embargo","tag-energy-peace","tag-gas","tag-gazprom","tag-international-maritime-disputes","tag-lebanon","tag-maritime-boundaries-east-mediterranean","tag-maritime-disputes","tag-offshore","tag-oil","tag-opec","tag-poverty-alleviation","tag-putin","tag-qatar","tag-rosneft","tag-roudi","tag-russia","tag-saudi","tag-straddling-hydrocarbons-reserves","tag-total","tag-trump","tag-usa"],"_links":{"self":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/3057","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3057"}],"version-history":[{"count":0,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/posts\/3057\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=\/wp\/v2\/media\/3072"}],"wp:attachment":[{"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3057"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3057"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/emimer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3057"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}