Liquid natural gas (LNG) is coming down the pipe - and in a big way - but Canadian gas producers needn't fret because there will be more than enough end-use demand in North America to go around, industry officials say.
Shell US Gas & Power, LLC president José Alberto Lima says North America's spreading supply-demand gap can be plugged, at least in part, by dramatically increasing the amount of LNG imported to the continent.
Lima says he believes that in the next 10 to 15 years the U.S. could be importing as much as 10 billion cu. ft. (bcf)/day of LNG. Current daily imports to the U.S. are around two bcf.
"So in terms of LNG imports into the U.S., we could be looking at something that, by 2015, could be at least the same amount as current imports from Canada," which now hover around nine bcf/day, Lima told delegates at a Canadian Energy Research Institute (CERI) natural gas conference in Calgary last week.
Lima added that as Canada's economy expands and its thirst for natural gas becomes more acute, LNG will become increasingly important to meet demand, particularly south of the border.
While the prospect of a massive influx of offshore gas into the much-valued U.S. market might seem troublesome to Canada's industry, the Canadian Association of Petroleum Producers (CAPP) said Western Canadian producers shouldn't sweat it.
Greg Stringham, CAPP vice-president of markets and fiscal policy, said there will be enough customers in the North American marketplace to justify not only increased LNG imports, but also Arctic gas from the proposed Mackenzie and Alaska gas projects.
"In the Canadian basin ... we're running at record levels, just drilling as fast as we possibly can, trying to bring all that gas production onstream," Stringham said. "LNG will affect North America as a new source of supply, but will it hold back or constrain Western Canadian production? No, not at all; there's enough demand that's growing out there and it's going to need all the sources of gas it can get."
Nor will either of these options undercut gas prices, he added.
Stringham said that Canada was considered to be a possible LNG exporter 15 to 20 years ago, but all the gas it produces today is consumed domestically or exported to the U.S.
There are eight terminals being planned in Canada to receive imported LNG, which includes facilities in New Brunswick and Nova Scotia, as well as in Kitimat and Prince Rupert on the northern coast of British Columbia. Almost five times that many terminals are in the planning phase in the U.S., although Lima doubts all will be approved.
LNG processing facilities are beginning to crop up worldwide, as many new players try to get a leg up on the growing energy source.
In the Atlantic basin alone, African countries such as Angola, Equatorial Guinea, and Nigeria - all traditional oil producers - are getting into LNG production as they seek to diversify their energy revenue.
Elsewhere, Trinidad and Tobago is growing its LNG capacity, while in the Middle East, Qatar has plans to increase its own capabilities. Lima said other new projects are planned in Indonesia, Australia, Malaysia and Russia.
As a reliable energy source, LNG has been a long time in the making. Issues such as high processing and shipping costs, as well as environmental and safety concerns, have kept it on the backburner for decades.
But recent technological advancements, especially around reducing costs, have made it a viable option.
Lima pointed out that the average cost of liquefying the gas, transporting it by boat - specially designed vessels are now able to move between 200,000 and 250,000 cubic metres, more than triple what was carried a few years ago - and re-gasification has fallen by about 30 per cent in recent years to around $1.90/thousand cu. ft. (mcf).
However, when pressed by delegates, he acknowledged that this figure failed to include either upstream exploration and development expenditures or downstream distribution costs.
Both Lima and fellow speaker Dawn Constantin - manager of the fundamental analysis team with BP North America Gas & Power, the operator of the Alaska gas project - downplayed the competition between LNG imports and gas from frontier regions such as the Mackenzie Delta and in Alaska, saying there's room enough for both sources.
"I think, yes, there's going to be a lot of LNG coming, but you're also going to need Mackenzie and Alaskan gas," to meet demand, Constantin said.
Some in the industry, such as George Eynon, CERI senior director of natural gas, caution that demand may not grow quite as quickly as some forecasts predict.
He noted that many North American analysts have projected that U.S. gas demand - currently around 22 trillion cu. ft. (tcf) each year (or about 60 bcf/day) - could reach as high as 30 tcf in the next 15 years.
While he is sure the gas supplies will remain tight in the years to come, he thinks this anticipated 40-per-cent increase is unattainable based on current annual growth rates.
"Even reaching 25 tcf by 2020 ... can be considered a stretch," Eynon said.
A major factor that could limit demand growth is the so-called "demand destruction," a result of rising gas prices that cause end users - from manufacturers to power generators - to limit gas use or permanently switch to less-costly energy sources.
"We've all seen pieces in the media about plants moving to 85-per-cent capacity, shutting down a shift or something like that, as gas prices have gotten so high they can't afford to run manufacturing plants 24/7."
Lima also cautioned about the effects of volatile gas prices on long-term demand.
"There's a lot of volatility in the industry right now," he said. "It could be a warning message in terms of demand destruction, and we have to be careful about that."
(John Ludwick can be reached at ludwick@businessedge.ca)
