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America’s LNG export hopes are running out of gas: analyst

Bill Powers believes Canada's natural gas future is in LNG. And that's one of the reasons why the U.S.'s natural gas future is not.

Mr. Powers, a Chicago-based energy analyst, was in Toronto this week to talk about his passion: Convincing the world that the U.S. shale natural gas boom is more myth than miracle. His 2013 book Cold, Hungry and in the Dark argues that U.S. shale natural gas plays are so costly to exploit and their wells run dry so quickly that their production potential has been massively overstated, by the industry, by Wall Street and by the U.S. government.

How overstated? President Barack Obama has quoted estimates that the United States has "nearly 100 years" of natural gas supplies. Mr. Powers figures shale gas plays contain only six or seven years of economically recoverable reserves. Most U.S. shale plays (Marcellus being the notable exception) are already on the downside of their productive lives, he says.

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If he (and other prominent shale-gas debunkers such as Arthur Berman and Henry Groppe) are right, it means the U.S. isn't headed for a glut of gas that it could export overseas using liquefied natural gas (LNG) facilities, as envisioned by some. Rather, it is destined for shortages within the next few years.

And Canada – a traditional source of supplies to the U.S. market, whose natural gas outlook is considerably healthier, in Mr. Powers' view, than its southern neighbour – may not be part of the U.S. supply solution when this hits. It's more likely to be part of the problem.

"As Canada moves to higher-value export markets in Asia, and has increasing internal demand … it will put significant upward pressure on U.S. prices, and make the possibility of [U.S.] exports politically impossible, in my opinion," Mr. Powers said in an interview Thursday.

British Columbia has a couple of its own high-potential shale plays – Horn River and Montney – that are only in their early stages of development, and so far look like they might have longer lifespans than many of the big U.S. shale deposits. Horn River, in particular, could be huge – on the same scale as the Barnett Shale in Texas, Mr. Powers said.

These two plays make LNG particularly attractive – and LNG, in turn, makes Horn River and Montney more attractive. The fields are relatively close to West Coast ports, and the prospect of converting the gas to liquid and shipping it to, say, Japan – where natural gas prices are running near $20 (U.S.) per million British thermal units, roughly quadruple the U.S. price – makes the economics of large-scale shale gas development much more attractive.

This is what will drive development of multiple LNG facilities on the B.C. coast. (Indeed, just this week Malaysia's Petronas lined up two new partners for its proposed LNG facility near Prince Rupert.) While no one believes that all of the multitude of LNG projects that have been proposed for the West Coast will actually be built, Mr. Powers figures "two to three projects" will go ahead – giving Horn River and Montney, as well as Canadian natural gas in general, access to some highly profitable new markets.

And this, ironically, will contribute to the demise of the LNG export dreams of U.S. producers, in Mr. Powers' view. As LNG steers growing volumes of Canada's natural gas to Asia, not to mention the expected rise in Canada's own domestic demand in the coming years, Canadian producers will be neither inclined nor able to ramp up U.S. shipments – at a time when Mr. Powers believes the U.S. will be struggling with its own falling production. This will leave the United States (a net importer of gas for decades) in no position to become a significant LNG exporter. And as tight supplies push up prices, public and political support for LNG exports will evaporate.

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"[U.S. LNG plants] are well on their way to becoming white elephants," he said.

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About the Author
Economics Reporter

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000. A Calgary native, he received a Southam Fellowship from the University of Toronto in 1999-2000, studying international political economics. More

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