Natural gas is going through a paradigm shift that will forever change the industry in North America.
In a recent article in the Calgary Herald, Peter Tertzakian, the Chief Energy Economist of ARC Financial Corporation, reminds us of some of the factors that are changing the natural gas market in North America. He touches on a number of key points that have been discussed here on HRN. Some key points are:
- There is an abundance of natural gas in North America
- North American natural gas will have to compete against international suppliers
- The cost of pipeline transport to distant markets may be disadvantage for western suppliers.
Perhaps the last paragraph of the article sums it up best…
A shockingly efficient free market is rapidly reshaping the way natural gas is being produced and delivered across North America. Threats and opportunities abound. The new competitive topography that’s emerging points to a classic case of “lead, follow or get out of the way,” with the latter two choices not being an option. The changes are disturbing only to those corporate and political leaders that think North American natural gas markets are as rigid as the Continental Divide.
The opportunity is one that has been written about here many times and is the basis of the Natural Gas Act which is being tabled in the United States. With an abundance of natural gas available domestically, and internationally, North America should take key steps to increase the use of natural gas in transportation, electric power generation and back-up power for renewable energy sources like solar and wind.
By increasing the use of natural gas in these areas we will reduce the consumption of carbon heavy coal and oil and reduce carbon emissions by a significant amount. Again, it is important to remember that natural gas has its own carbon footprint but it is 50% less then coal and ~30% less then oil and is a proven reliable resource. When it comes to the carbon debate for energy, there is no resource more practical then natural gas to make immediate reductions of carbon emissions and serve as a bridge to a future of renewable, zero carbon energy.
Both Canada and the United States need to maximize domestic resources – including renewable energy sources and natural gas. A significant increase in natural gas from domestic sources that displaces coal and oil consumption will benefit the environment, provide economic benefit to North America and increase energy security. For the United States, this last point – energy security – is a priority. And the best source for energy outside their own borders is Canada.
Currently the LNG terminals that import natural gas in North America represent a very small percentage of natural gas in the United States. Whether this number actually increases as a significant competitive supply source over the long term is yet to be determined. While U.S. natural gas imports from Canada have been increasing month over month since May 2009, LNG imports over the same time have been in decline according to the Energy Information Administration.
The plan for Kitimat LNG was originally as a west coast LNG import terminal. However, the discovery of massive amounts of shale gas in the Horn River and Montney basin had them change course and become a export terminal and they have already wrapped up supply and purchasing commitments in Asia and internationally with Korean Gas and Gas Natural. The point here is that the global demand for natural gas is expected to significantly increase year over year to 2030 with the most rapid growth coming from Non-OECD Asia, which accounted for 9 percent of the world’s total consumption of natural gas in 2006, and is forecast to account for 31% of the total increase in world natural gas consumption from 2006 to 2030.
So while North America does have a renewed abundance of natural gas, it is more likely that international demand for natural gas will pick up the international supply of natural gas and LNG imports to North America will not increase significantly to compete against domestic suppliers. With that said, the natural gas industry is going through massive changes that will address the increased competition amoung North American suppliers. The advantage may ultimately go to those natural gas resources that are closest to the consumer – both domestically, and internationally.
One key point that Mr. Tertzakian does not mention, but is worth consideration, is the possible effect of “cap and trade” whereby the U.S. agrees to a price on carbon, and places an effective carbon tax on imported products that would effectively increase the cost of LNG that is being shipped to the U.S. by tanker. A cost that may offset the pipeline tolls. Again, it is yet to be determined.
Both Canada, and the United States need to focus more on the opportunities that natural gas present.
Calgary Herald: The changing natural gas geography by Peter Tertzakian.
