Is LNG Positioned to Save the Canadian Natural Gas Industry?
As we all know, the Canadian oil and natural gas industry is critical to the success of the overall Canadian economy. We have the 3rd highest estimated value of natural resources in the world – valued at US $33.2 trillion in 2019. Interestingly, on the global stage, Canada is considered an “energy superpower” due to our abundance of natural resources relative to our small population size and large land mass.
Canadian oil and natural gas provided $108 billion to our GDP in 2018, we supported almost 530,000 jobs across the country and provided $8 billion in average annual revenue to governments between 2016 to 2018. This much needed revenue helps pay for our universal health care system, schools, universities, roads, bridges, national parks …etc
On the global stage, Canada is the 4 largest producer and 6 largest exporter of natural gas, and it is estimated we can sustain current natural gas production levels up to 300 years. Being the 6 largest exporter of oil and natural gas, it is surprising to many that we only have 1 customer.
– Currently ALL Canadian exports of Natural Gas go to the U.S.
– 99% of All Canadian oil is sold to the U.S. at lower prices due to market saturation
Unfortunately in recent years, our biggest customer has also become our biggest competitor. Advances in horizontal drilling and hydraulic fracturing have enabled the U.S. to increase its own natural gas production by more than 40%. Since 2011 the U.S. has been the world’s top natural gas producer, which is not a great scenario for Canada.
“Canada’s oil and gas producers are struggling to stay competitive with their U.S. counterparts because of the struggle to expand pipeline capacity,” says a report from the C.D. Howe Institute.
Historically Western Canada companies shipped our natural gas to Eastern Canada for their consumption. But volumes collapsed amid competition from low-cost shale gas imported by the US.
“Shale Gate” started in 2008 when the US doubled it’s shale production, which enabled US companies to encroach on the natural gas markets in Eastern Canada. Deliveries of Canadian natural gas to the east have been cut by almost 50% over the past decade.
“Restoring flows to historic levels will hinge on setting shipping fees low enough so that Canadian gas can compete with shale gas in the much bigger U.S. market,” said Jackie Forrest at the ARC Energy Research Institute in Calgary.
But there is a light at the end of the tunnel for Canadian natural gas industry who thus far have been losing market share to the United States – and it comes form of LNG.
Liquid natural gas is natural gas that has been cooled to -161°C creating a clear, colourless and non-toxic liquid, 600 times smaller than natural gas.“
“The window for Canadian LNG is open right now,” said Tim McMillan, CEO of the Canadian Association of Petroleum Producers. “Diversifying markets for Canada’s natural gas production is vital to the longevity of the Canadian energy economy.“
World demand for natural gas is expected to increase 36% by 2040, driven by rapidly expanding demand in India, China and Southeast Asia, who want to replace coal energy with the LNG, a cleaner, lower GHG emitter. Canada’s natural gas industry is positioned to meet that growing energy demand.
“With the total net global GHG reduction from each Canadian LNG plant, we can achieve the equivalent of removing 22 million cars from the roads,” Tim McMillan, CEO of the Canadian Association of Petroleum Producers reports “It means Canada can make a much bigger difference outside of our borders in lowering global GHG emissions than we could ever achieve by focusing only on ourselves.”
However, it is critical we get our LNG moving if we are to stay competitive to the U.S., which is set to become a major exporter. While capital investment in the U.S. has increased, unfortunately it has decreased vastly in Canada since 2014. In the U.S. the Federal Energy Regulatory Commission has approved 9 LNG export plant proposals, most located on the U.S. Gulf Coast. Canada, on the other hand, had 18 LNG export plant projects on the books, of which, only 2 have been approved.
Diversifying markets for Canada’s oil and natural gas production is vital to ensure Canada continues to be the prosperous country we enjoy today. Globally we have the opportunity to become a major contributor to the reduction in GHG emissions while supplying Canadian clean LNG energy to the world.
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