By Bruce Lantz
As the world wrestles with decisions about the future of gasoline-powered vehicles and oil-based fuels, some companies are taking the bull by the horns and shifting to natural gas development from oil exploration.
While oil company profits registered all-time highs so far this year, per-barrel prices dropped to their lowest since the start of the war in Ukraine, with West Texas Intermediate sitting recently at $87.75 a barrel while Brent crude sat at $93.70 a barrel. And fears of a global recession are looming large across the industry. Couple that with the push by environmentalists and governments toward a carbon-free world, and the stage is set for a shift in production priorities to gas — in particular the development of liquefied natural gas (LNG) ports.
“Canadian LNG can provide our allies with a source of safe, secure and responsibly developed energy for decades to come while helping to lower global emissions by offsetting the dependence on coal around the world,” Jay Averill, spokesperson for the Canadian Association of Petroleum Producers (CAPP), told Resource World Magazine.
It’s all about the potential for growth. World demand for natural gas and LNG is expected to continue rising through 2050 according to the International Energy Agency, and LNG could support 96,550 direct, indirect and induced jobs annually across Canada, says a Conference Board of Canada Report.
“CAPP believes there is vast untapped potential to build and LNG industry on both the west and east coasts of the country,” said Averill. “Canada has the natural resources, expertise and potential markets to mirror the rapid progress seen in the United States, who in just seven years went from virtually zero LNG exports to a global leader.
“Working together towards this goal with industry and government at all levels can create the investment environment needed to build Canada’s burgeoning LNG industry into an international leader.”
It seems the Canadian government is finally sensing the need and is prepared to work with industry to see LNG export facilities on the nation’s East Coast sending product to European markets, to join the ones being developed on the west coast for other markets. Two projects on the East Coast seem to have renewed life. Calgary-based Pieridae Energy Ltd. (TSX:PEA) is conducting a new feasibility study for its proposed Goldboro LNG project in Nova Scotia, mothballed a year ago over the necessity of upgrading pipelines to the plant and concern about potential cost overruns. Now, a scaled-down version of the plant, one requiring fewer pipeline upgrades and costing C$2.5-$3 billion, could be viable, according to Pieridae CEO Alfred Sorensen, and still handle volumes of 300-400 million cubic feet per day.
“The world has changed a lot in the last six months,” he told the Financial Post. “Now that Russia has begun using natural gas and oil as a weapon against Western Europe, that urgency to get off Russian gas continues to grow.”
In a better position is the Repsol SA (MC:REP) plant in Saint John, New Brunswick, which could be just expanded to facilitate exports. The federal government views this as the best bet as it requires “minimal permitting” and a facility already exists there, federal environment minister Steven Guibeault told Reuters news agency recently. Ottawa seems content to move forward with the Repsol facility providing LNG for export as it already has a pipeline in place, albeit one bringing natural gas from the US, even though the vast majority of Canada’s natural gas is produced in Alberta and British Columbia.
“Repsol is continuously exploring options to maximize the value of the terminal, with new lower-carbon opportunities to help meet market demand and to support the energy transition,” spokesman Mike Blackier said in a statement.
Both projects would likely require upgrades to existing pipelines, which have faced stiff opposition, particularly in Quebec. But successful East Coast LNG exports will require a pipeline to get gas from northeast BC or northwest Alberta to the coast — both expensive and controversial.
As it is, Canadian natural gas is finding its way to global markets — but via LNG tankers from the U.S. Virtually every spare cubic foot of Canadian natural gas not being used for domestic consumption is exported to the US which in turn sells it overseas. It’s good business. In the first four months of 2022 LNG exports from the US to the European Union and the United Kingdom more than tripled over 2021, and the U.S. is now the world’s largest LNG exporter, averaging 11.2 billion cubic feet per day (bcfd). American natural gas production is expected to rise to a record high this year, with the EIA projecting that it will rise to 96.59 bcfd in 2022 and 100.02 bcfd in 2023, and LNG exports would reach 11.16 bcfd in 2022 and 12.68 bcfd, well above the previous record of 9.76 bcfd set in 2021.
Understandably, resource companies around the world are either expanding their natural gas efforts or shifting focus to natural gas and LNG.
Chesapeake Energy Corporation (NASDAQ:CHK) is selling its Eagle Ford oil holdings and focusing solely on its natural gas holdings in the Marcellus and Haynesville basins. Senex Energy Ltd. (ASX:SXY) plans to invest more than AUS$1 billion to triple the company’s Queensland gas output by 2025. Enbridge Inc. (NYSE:ENB) is taking a 30% stake in Woodfibre LNG on Canada’s westcoast, and ConocoPhillips (NYSE:COP) has an agreement to acquire 30% of the Port Arthur, Texas, Liquefaction Holdings LLC which could see production of up to 13.5 million tonnes per year of LNG. Also, ExxonMobil (NYSE:XOM) affiliate Esso Exploration and Production Guyana Ltd. are moving ahead with a gas-to-energy project offshore Guyana in a contract valued at up to $250 million. The list goes on.
That’s not to say oil companies haven’t been making money. Chevron Corp. (NYSE:CVX) saw its second quarter profits triple to nearly $12 billion, while ExxonMobil’s Q2 profits jumped to $17.9 billion, up from $5.5 billion in Q1. Likewise, Valero Energy Corp. (NYSE: VLO) tripled its Q2 profits to $8 billion, Continental Resources Inc. (NYSE:CLR) nearly tripled its profits to $1.31 billion in Q2 while Suncor Energy (TSX:SU; NYSE:SU) snared $5.3 billion.
But a shift seems reasonable and inevitable, and Canadian industries are poised to capitalize on it.
“Canada and the upstream industry are on a path towards being a global leader in lower-emission natural gas and oil production,” said Averill. Canadian LNG can be produced with the lowest-emission profile in the world and Canadian oil producers are among global leaders in research and investment in carbon capture and other emissions-reducing technologies.
“We believe a responsible energy producer of both oil and natural gas such as Canada should be playing a larger role in meeting the growing global demand.”