Traditional markets for western Canadian natural gas are changing.
Canada's natural gas supply and export
With strong production and an abundant resource, Canada’s natural gas industry delivers affordable and reliable natural gas to Canadians across the country. Canada currently only exports natural gas to the United States. Although 2016 and 2017 saw an increase in natural gas exports to the U.S., there has been an overall steady decline in natural gas exports since 2007 as the U.S. has developed its domestic supply of natural gas. In fact, the United States is now a net exporter of natural gas for the first time in 59 years.
How much natural gas does Canada have?
Canada’s natural gas resource base is very large. Canada is currently the world’s 5th largest producer of natural gas. We have about 1,230 trillion cubic feet of natural gas resources, a 300-year supply based on current technology and consumption levels. This is more natural gas than Canadians need, and presents a great export opportunity, creating jobs and economic benefits for all of Canada.
Canada’s natural gas market has changed. Over the last decade, there has been a significant market shift for Canadian natural gas. While Canada is already a net exporter of natural gas, we export to only one customer: the United States. This lack of market diversity presents a significant challenge for Canadian natural gas producers, as our best customer has now become our biggest competitor.
So how did this happen? Over the past 10 years, advances in horizontal drilling and multi-stage hydraulic fracturing have enabled the United States to increase its own natural gas production by more than 40 per cent (Source: EIA). In fact, the United States has been the world’s top natural gas producer since 2011 according to the U.S. Energy Information Administration. The result has been low prices in North America due to regional oversupply, and declining exports of Canadian natural gas, particularly into the eastern regions of the United States. In these areas, shorter transportation distances give American producers a significant cost advantage. And, the United States is increasing its own exports— including into Ontario and Quebec, displacing natural gas from Western Canada.
Market diversity through LNG
World demand for natural gas is expected to increase 45 per cent by 2040, driven primarily by the rapidly expanding Asian economies (IEA World Energy Outlook, 2017). Canada’s natural gas is uniquely positioned to meet growing energy demand. We can contribute to meeting their demand by developing a West Coast LNG industry.
A West Coast LNG industry would be backed by Canada’s robust upstream natural gas industry. This industry has the technical know-how and a proven track record for producing large volumes of natural gas using hydraulic fracturing in a manner that is safe, cost-effective and environmentally responsible. Combined with our reputation as a reliable trading partner that observes rule of law, and that possesses world-leading environmental regulations, we are well positioned to become a trusted and preferred supplier of LNG to customers in Asia.
However, when it comes to LNG exports, Canada has fallen behind the United States. The U.S. Federal Energy Regulatory Commission has approved nine LNG export plant proposals, with the first cargoes already being shipped from the Sabine Pass LNG project located on the U.S. Gulf Coast. With more than ten additional projects at various stages of review, the U.S. is set to become a major exporter of natural gas (Source: Energy Information Agency – EIA). While it is certainly positive to see LNG export capacity developed in the U.S., as any natural gas leaving the continent helps Canadian producers move their own resources, the world market has become more competitive.
Canadian energy for Canadians
While shipments of western Canadian natural gas have been declining to eastern Canadian markets, the trend does not need to continue. Responsibly developed Canadian natural gas can continue to serve markets in eastern Canada using existing infrastructure. That’s why natural gas producers are exploring market opportunities with transmission pipelines to make western Canadian natural gas more competitive in those markets.
Experience shows that having multiple supply sources is a key component of a sound energy strategy. In fact, this will provide a reliable natural gas supply alternative, lower the risks associated with depending on a single source of supply and enhance energy security with pan-Canadian benefits.