The Shale Gas Revolution

Some see that hiatus lasting considerably longer. “We started to see this increase in natural gas supply in North America and the rising demand for LNG in Asia, and we think that those are both long-term trends,” says Rosemary Boulton, president of Calgary-based Kitimat LNG Inc., which until last year was planning to build a $700-million regasification terminal at the northern British Columbia port to import natural gas to North America. Then in September the project abruptly changed course, becoming a much more expensive ($3 billion) liquefaction terminal for the purpose of exporting.

“We felt that the supply-demand balance and the economics supported the reversal of the terminal,” Boulton says. In fact the company sees that situation lasting at least as long as the 20-year contracts it is seeking with Asian buyers (Mitsubishi Corporation signed on as an anchor account and equity partner in January). Canadian producers are expressing interest in exporting across the Pacific, she adds. “We think there’ll be some push-back on the amount of gas being exported to the United States that could create more of a gas bubble up here in Canada.”

Likewise, shale gas at the very least lessens the urgency for producing and shipping natural gas from the Arctic and may doom the long-sought northern pipeline projects. As merchant banker Brett Wilson told the crowd at Alberta Venture’s Business Person of the Year luncheon in his honour on Jan. 29, “We don’t need the Beaufort [Sea]. We don’t need Alaska gas. We don’t need a huge pipeline…. Those [shale] reserves are stunning in size, capacity and longevity. What that really means is North America has a stable, relatively low-cost supply of gas.”

TransCanada Corporation, which is involved in both the US$30-billion Alaska and $16-billion Mackenzie pipeline projects, takes the position that both will ultimately be needed regardless of shale gas. “We see there being continued, long-term growth in the demand for natural gas across North America and frankly we anticipate the growth will be sufficient… to consume both the emergent shale gas supplies as well as require northern gas as well as LNG,” says Stephen Clark, vice-president, commercial pipelines. The Alaska pipeline is still set to be in service by 2017 or 2018. (The Mackenzie, which is beset by disagreements over cost sharing and access to First Nations land, has no firm timetable.)

At the same time, TransCanada is taking advantage of the shale plays in B.C. “We just signed binding shipping contracts with five producers who anticipate bringing up to 1.1 Bcf a day onto our pipeline system from that area,” Clark says. The company will be building a 75-kilometre extension from the Montney play to Alberta and is working on a similar tie to Horn River. Maximizing volumes on any line drops shipping tolls and improves the return for everyone involved, so TransCanada has an interest in seeing these plays take off.

Considering natural gas royalties contributed just under half the Alberta government’s $11 billion in non-renewable resource revenues in 2007-08 – likely more than half if you include bonuses and sales of Crown leases for gas exploration – the provincial government sounds blasé about the emergence of shale gas. Alberta Energy is not forecasting any revenue decline, says ministry spokesman Bob McManus. Noting that Alberta is itself well-endowed with shale, he says, “Long-term, probably there will be very little impact” on the provincial treasury.

“Alberta has a lot of natural gas in shale,” confirms the unconventional gas association’s Dawson. “But it’s held in a different form from the big plays in the United States.” In other words, it will take further technological development to become commercially viable, and the low price environment for the foreseeable future is not helping things. At the same time, Alberta’s existing conventional and other unconventional gas activity will be challenged to match the cost advantages of shale gas just to maintain production.

“It’s like anything,” says Arc’s David Carey. “The low-cost producer always wins.” AV

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