Natural Gas in Canada – what are the options going forward?

With US shale gas dominating the headlines of the energy media for the past several years, Canadian gas has been somewhat overshadowed. While gas industry followers outside North America may have been aware of the reduction in Canadian gas exports to the US, they will likely have missed the complex interaction of lower cost US shale invading regional Canadian markets formerly domestically supplied. This situation has been further exacerbated as Canadian transportation tariffs have been raised to compensate for lower throughput. Ieda Gomes provides a comprehensive analysis of the dynamics of these and other key elements of Canada’s gas fundamentals and how they have, and will continue, to evolve.

The loss of Provincial and Federal tax and royalty take due to lowered exports, production growth and prices is also important and leads to an assessment of potential new market segments such as natural gas and LNG vehicles and Tar Sands sectors (currently impacted by low oil prices). This inevitably leads to the exploration of the obvious replacement for the lost pipeline export volumes, namely LNG exports.

Readers will already be aware of the numerous proposed LNG export projects on Canada’s West and East Coasts. The paper provides a succinct description of each of these and details at the individual project level, and in overview, the significant challenges to be overcome; both physical, in terms of transportation distances and greenfield construction (in a region of insufficient skilled resources), and political, in terms of the myriad overlapping approval and consent processes that have to be satisfied prior to construction starting. A lack of clarity on the LNG-specific fiscal framework adds yet another layer of uncertainty.

The final hurdle is of course the relative competitiveness of Canadian LNG projects to US Gulf Coast brownfield projects and Australian expansion projects at a time when; global demand for LNG over the next decade appears to have declined, the window for new supply requirement appears to have moved back to the early 2020s, and Asian buyers appear set on moving away from oil-indexed long term contract prices.

Executive Summary

By: Ieda Gomes

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