If Canada is to significantly expand its natural gas exploration and production sector, new domestic and international markets will need to be developed.
Last week, the British Columbia government released its strategy for a significant expansion of that province’s natural gas industry. This new plan has been enabled by the emergence of the shale gas industry in the province. According to the new strategy with shale gas “it is conservatively estimated that B.C. has at least 100 trillion cubic feet of recoverable gas. This compares with total production of 22.5 trillion cubic feet in the province between 1954 and 2010”.
Shale and tight gas already make up 50 per cent of the 1.1 trillion cubic feet (Tcf) of natural gas produced in B.C. each year. Under the new plan, the province is forecasting annual natural gas production will approach three Tcf per year by 2020.
There are abundant reserves of shale gas across Canada and many provinces are eager to exploit them to foster economic opportunity and tax revenue. Exploration is currently underway in New Brunswick to assess the potential of the estimated 80 Tcf of natural gas trapped inside the McCully and Stoney Creek fields.
The Utica Shale formation in Quebec is thought to hold significant shale gas deposits. Nova Scotia and Ontario also have the potential to develop shale gas. Even Manitoba is actively looking to develop its shale gas potential in the southwestern part of the province.
This is in addition to the already substantial natural gas sectors in Alberta and Saskatchewan.
If all of these provinces are able to develop their shale gas industries, it would represent a substantial lift to the Canadian economy generating billions of dollars’ worth of investment each year and thousands of new jobs. Importantly, this sector would be a large contributor to provincial government budgets through increased royalties and taxes.
However, there is little current demand for all this potential new natural gas and that is reflected in the record low commodity price.
The United States is aggressively developing its own shale gas industry. Therefore, it is unlikely much more Canadian gas will find its way into U.S. markets. In fact, the widespread expansion of of the shale gas industry south of the border will continue to keep prices down here in Canada and limit development potential here.
We need to develop new markets for Canadian gas. British Columbia is focusing on export markets. Its strategy is based on developing a liquefied natural gas (LNG) sector and exporting much of its production over the next 30 years to international markets. Saint John, New Brunswick has inward LNG facilities that were developed to bring foreign natural gas into Canada and the United States. These facilities could be retooled for outward bound natural gas.
We should also look at converting coal-fired electricity generation plants to natural gas. Almost 20 per cent of Canada’s electricity is produced using coal or oil. This should be low hanging fruit for conversion to natural gas.
In the medium term, we need to expand the geographic footprint of the natural gas industry. Connecting the gas pipeline infrastructure in Atlantic Canada into central Canada would be a good place to start.
We also need to look at broadening the base of industries that use natural gas. As an example, it is estimated there are 13 million natural gas vehicles in use around the world but so far there has been on only modest efforts to kick start this industry in Canada.
Without new markets, ambitious provincial plans from British Columbia to New Brunswick to benefit from shale gas will be have to be put back on the shelf.
David Campbell is an economic development consultant and columnist based in Moncton, New Brunswick. He also authors a daily blog on economic issues in Atlantic Canada which can be found at www.davidwcampbell.com.