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Canada faces hurdles in joining shale gas revolution

Canada is facing increased competition from the U.S. in shale gas. Pictured is a Devon drilling operation in British Columbia.

Devon handout

Shale gas has been hailed as the next big thing for Canada's energy markets, but producers face imminent challenges in the race to meet Asian demand.

The kickstart for shale gas came a decade ago when explorers combined traditional horizontal drilling with modern hydraulic technology. The result – in-depth fracturing, or fracking, as its commonly called – unlocked huge supplies of gas from sedimentary rock formations more than 2,000 metres below the Earth's surface.

As the third-largest supplier of natural gas in the world, Canada wants its piece of the pie, and we have an abundant supply, says Geoff Morrison, manager of B.C. operations for the Canadian Association of Petroleum Producers.

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Canada has about 98 trillion cubic feet of marketable shale gas, with British Columbia holding more than 90 per cent of that, the National Energy Board estimates.

Abundance is only part of the equation, explains Mr. Morrison. "Diversification of markets is critical for Canada and British Columbia in particular," he said.

Demand from Asia is high and rapidly growing, particularly in Japan. Thanks to the shutdown of so many nuclear power plant facilities after the 2011 earthquake and tsunami, this resource-scarce country is anxiously awaiting shale imports.

But Canada must deal with a host of logistical issues, and several competing countries appear further along in this process. Consequently, Canada is feeling pressure – even from its former natural gas customer right next door.

Traditionally an importer of Canadian gas, the United States has been working at converting its import facilities to be export-capable as it taps into its own large shale gas supply. These facilities are expected to be ready by 2015.

As a result U.S. imports of Canadian liquid natural gas (LNG) have fallen by 10 per cent to 15 per cent over the past five years, Mr. Morrison said.

"Our largest customer is now our largest competitor," he said.

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The sheer cost of building gas infrastructure from the ground up may also give the United States a leg up, says Toronto-Dominion Bank economist Leslie Preston. Because the United States built its LNG import terminals before the shale gas revolution, it's much easier to convert them to export facilities than it is to start from scratch, Ms. Preston said.

Kitimat, B.C., is the hub of building activity for Canada's LNG processors with more than five proposed plants. But petro companies such as Apache Corp. and Chevron Canada Ltd. still have a long way to go.

"There is still much work to be done," Apache spokesman Paul Wyke said. "Infrastructure such as wells, facilities and construction of the Pacific Trail Pipeline will need to be developed."

But Canada's long history in energy exports might be our biggest advantage in this race, Ms. Preston added.

She explained that while in some ways the Americans are farther along, there is also the potential for natural gas exports to be restricted by U.S. politicians and regulatory groups down the road.

"Because Canada, by tradition, has always been an energy exporter, we don't necessarily see the same 'oh we should keep our natural gas for our own consumption' attitude. There's much more of that sentiment in the U.S.," Ms. Preston said.

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And while the United States might be the closest competitor, other countries with abundant shale supplies also possess a geographic advantage over Canada.

"You also have significant LNG development in Australia, and other countries in Asia are major LNG players," Ms. Preston said. China also has huge estimated reserves of its own but isn't producing at a commercial level yet.

It's still anybody's game, Ms. Preston said. "It really it is a race to see who can sign contracts and get the infrastructure in place first."

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