How the Death of B.C.’s LNG Dream Could Stoke a B.C. Natural Gas Boom
A race to expand B.C. natural gas pipelines and infrastructure is on, signalling two possible outcomes: the death of our homegrown liquefied natural gas (LNG) export dream, and the dawn of the most ironic resource boom in provincial history.
Consider that B.C. natural gas is finally going to be exported overseas by LNG tanker — not from Pacific tidewater, but through Cheniere's new Sabine River LNG export terminal on the Gulf coast near Louisiana. In February 2017, Bloomberg reported Cheniere had entered into a supply deal that would see gas from the Montney shale formation [which straddles B.C. and Alberta] shipped from the facility.
“This is a great potential outlet [for Canada],” Madeline Jowdy, Pira Energy Group’s Senior Director of Global Gas and LNG, told Bloomberg of the Cheniere LNG deal. She added that B.C. LNG projects “look like they are going to be a long time coming, if ever, in my opinion.”
Just a few years ago, B.C. was banking its future on the fate of about 20 proposed LNG facilities — based on the idea that our natural gas would be super-cooled into liquid and exported by ship to lucrative Asian markets. It’s widely acknowledged that B.C. came too late to the party, but this has not been the experience of the U.S.: their LNG export capacity is expected to rise from 2 to nearly 10 billion cubic feet/day between now and the end of 2019 as five LNG plants commence operations. (To put that in perspective, B.C.’s total production is around 4.6 billion cubic feet/day.)
With this will come a voracious appetite for gas that the bountiful U.S. shale gas fields alone cannot hope to satiate in the decades to come.
Producers Focus on North America
The death of B.C.’s mass LNG export industry was formalized by an announcement by TransCanada on June 14. The company, whose 90,000 km of natural gas pipeline supplies about a quarter of North American consumption, announced it would spend $2 billion to expand its NOVA Gas (NGTL) system to connect northern B.C. and Alberta natural gas producers to “premium intra-basin and export markets.”
This is just part of a wider $5.1 billion program designed to ramp up pipeline capacity in the B.C. and Alberta’s Montney and Deep Basin exploration areas, which have been hurt in recent history in part by a lack of shipping capacity.
During the same week, Enbridge announced that its own T-south line expansion in B.C. could not meet producer demand, while both Veresen and Pembina Pipeline Corp plan to expand their B.C. and Alberta natural gas infrastructure.
“Our gas in the medium-term is going to go east, not west,” said David Maddison, CEO of Black Swan Energy, one of about a dozen producers that will be using new TransCanada infrastructure, to the Globe and Mail on June 14. He conceded that both uncertainty and the long construction window of proposed B.C. LNG plants make them “something you’re not going to be able to depend on in the short term.”
Changing Price and Supply Scenario
The shale gas boom in the U.S., centred around vast deposits like the Marcellus shale, has meant that the volume of B.C. and Alberta gas being exported to the U.S. declined for years. But this could soon be changing: Canadian Centre for Policy Alternatives energy analyst David Hughes, who has spent decades studying all the major U.S. shale plays, says a number of factors bode well for the future of B.C. natural gas exports south of the border.
“Not only are they building a lot of LNG export facilities, but U.S. gas production has peaked within the last 12 months and is now declining. If you look down the road, a huge amount of future production is going to have to come from the Montney, because that is where a major proportion of remaining recoverable gas lies.”
Up to now, the Americans have been prioritizing all the “sweet spots” — the easiest and cheapest locations to extract gas. Hughes says they are now being forced to work the less-than-ideal locations, which is going to mean lower productivity wells and higher priced gas.
“Prices are nearly double what they were two years ago, and I think prices are going to go up.”
A Better Use for Our Gas?
Is selling our natural gas in North America better for the planet and British Columbians than sending it on LNG ships to Asia?
In a report for the Canadian Centre for Policy Alternatives published in May 2015, David Hughes found that burning liquefied, fracked gas exported from B.C. to Asia would ultimately generate emissions similar to coal. He concluded that “exporting B.C. LNG to China would increase greenhouse gas emissions over at least the next 50 years, compared to building state-of-the-art coal plants.” That's in large part due to the enormously energy intensive process of cooling the gas to the point it turns into a liquid (-162 degrees Celsius) for export.
While B.C. gas will be shipped through U.S. LNG facilities in the future, keeping more of it in North America may have its benefits. Low shale gas prices in recent history — from a glut of cheap U.S. shale gas — has incentivized the construction of new gas-fuelled power generation facilities to displace dirtier coal — with expected capacity additions of roughly 10 GW in 2017 and more than 25 GW in 2018. To keep these plants up and running into the future, it’s going to take a lot of natural gas, which in this domestic use is definitely cleaner than coal.
Hughes says keeping more of our gas at home will mean better energy security for British Columbians too. Close to 50 per cent of space heating and 65 per cent of water heating in Canadian homes is currently fuelled by natural gas, according to Natural Resources Canada.
“The concept that we’re going to heat our homes and run everything with windmills and solar, it would be great if it could be done, but I’m skeptical we can scale it up that much. I thought LNG was a bad idea in the long term, because we’re going to need that gas here.”