Rescue stranded gas assets with new markets, urges expert

B.C. has world-class natural gas reserves, but so does the U.S., which has gone from customer to competitor

Economist Michael Porter spoke at Globe 2016 about the shale gas revolution earlier this month. | Nelson Bennett

Unconventional oil and gas has given Canada and the U.S. a unique energy advantage that should be the envy of the world.

It gives both countries an economic edge (tens of thousands of jobs and low-cost energy), as well as an environmental edge: abundant natural gas and liquefied natural gas (LNG) that could help in the transition to a lower-carbon world.

“We’re going to blow it.”

That was the warning given by Harvard Business School professor Michael Porter, head of the school’s Institute for Strategy and Competitiveness, at the Globe 2016 conference in Vancouver earlier this month.

He fears the U.S. and Canadian publics don’t fully understand the opportunity that natural gas exports present for both the economy and the environment.

“We’re going to blow it not only for the economy, we’re going to blow it for our society, we’re going to blow it for the environment,” Porter said.

While Canada may view the U.S. as an increasingly aggressive competitor – killing Canadian pipeline projects while ramping up exports of American natural gas into Canada – Porter sees Canada as a potential benefactor in the U.S.-led unconventional energy revolution. But both will need to become energy exporters.

“The only other country that has this resource and the capacity to develop this resource is you [Canada],” Porter said. “Nobody else in the world is even at Square 1.”

Just a decade ago, the U.S. was a net importer of oil and gas, with Canada one of its biggest suppliers of both.

Hydraulic fracturing and horizontal drilling resulted in the shale oil and gas revolution, which has flipped that relationship on its head. In a single decade, the U.S. went from Canada’s biggest customer to its biggest competitor, and it is even beating Canada to the LNG punch.

Cheap gas from the Marcellus shale formation in New York state has been flooding into Eastern Canada, which was once supplied largely by the western provinces.

“That used to be almost all Canadian gas,” said Dan Allan, executive vice-president of the Canadian Society for Unconventional Resources . “It’s now being displaced by cheaper [U.S.] gas.”

From 2007 to 2014, exports of Canadian natural gas to the U.S. declined 29%, according to Geoff Morrison, B.C. manager of operations for the Canadian Association of Petroleum Producers.

The Canadian Energy Research Institute estimates the flow of gas from the U.S. into Canada will double by 2027.

Thanks to the shale gas revolution, the Marcellus shale formation alone now produces more natural gas than all of Canada, Morrison said.

“We’ve been observing the U.S. [supplying gas to] markets that we traditionally serve, both in the States but also places like southern Ontario and Quebec,” Morrison said. “Our biggest customer is now our biggest competitor, both in terms of North America [and] in terms of LNG.”

But the U.S. isn’t the only country with rich unconventional gas assets. The Montney Formation in northeastern B.C. is considered one of the richest in North America, due to its liquids.

And earlier this month, the National Energy Board updated estimates for the Liard Basin, which straddles B.C., the Yukon and the Northwest Territories. According to that estimate, B.C.’s share of the Liard has four times as much gas as previously estimated.

But without an export market in the form of an LNG industry, it’s unlikely to see much development.

“We’ve got a big tank of gas up here and we’ve got limited customers,” said Greg Bury, president of the Gas Processing Association Canada. “If we don’t get to the coast, ultimately we are going to have stranded gas and we are going to stop building projects.

“It’s happening every day as we speak. I have been intimately involved with so many project cancellations that it’s ridiculous.”

Porter suggested the North American public doesn’t realize just how important the shale gas boom has been for the American economy.

“We estimate that more than half of all the jobs that have been created since the Great Recession ended were in energy, or related to energy in one way or another,” he said.

Since energy is a huge part of any economy, cheap oil and gas – for both power and transportation – are a huge competitive advantage.

“This has allowed us in the U.S. to have a substantial energy cost advantage over pretty much every other country, except Canada,” Porter said.

But both Canada and the U.S. are at a crossroads.

Because of the local environmental concerns that fracking poses, and concerns about the effect on climate change of burning natural gas, shale gas and LNG are getting a rough ride in the department of social licence and the office of public opinion.

But just as North American innovation led to the shale energy revolution, Porter said, it can also address the attendant environmental concerns.

“This opportunity is truly a game-changer,” Porter said. “Right now it doesn’t feel so good, because oil prices are down and gas prices are linked to oil. But over the long run, this downturn is stimulating another wave of innovation and efficiency and competitive advantage.”

Far from thwarting renewable energy investments, natural gas could be a buttress, he said.

“We’re going to need a lot of natural gas if we’re going to make the transition to clean energy. Natural gas is a powerful tool we have to make this transition, because it’s going to take decades to do it. In the process of using natural gas as a transitional fuel, it’s going to also hold down the cost of the transition.” 

See also:

Investors betting big on B.C. natural gas liquids

Chance to supply LNG to Japan fading fast: ambassador

nbennett@biv.com