It’s not just America that could face massive over-supply of natural gas due to new shale-gas extraction technology.
Companies are investigating the potential for shale gas in Canada as well, and it’s already drastically changing the supply/demand dynamic industry expects.
In Canada, EnCana Corp. (ECA), Nexen Inc. (NXY) and Talisman Energy Inc. (TLM) are among several companies gaining traction in the Horn River and Montney shale formations, both in British Columbia. “Shale gas has a fairly short history of production,” Dawson said. “[Companies] are projecting stable production for 20 to 30 years, but we don’t have a history of that kind of long-term production to say that with any certainty.”
In just six months Canada went from an expected under-supply situation to vast over-supply expectations:
Over the course of six months last year, Canada’s National Energy Board shifted from a prediction that the decline in conventional gas output would far outstrip new shale supplies, to saying that shale gas could satisfy domestic demand “far into the 21st century” and spur exports of liquefied natural gas.
The shifting landscape is forcing investors to rethink projects. A gas shipping terminal in the city of Kitimat on Canada’s West Coast was originally planned to import gas, but in 2008 the terminal owners, Kitimat LNG Inc., realised that shale gas could boost Canada’s output and redesigned it to export LNG. The C$4.1 billion project is scheduled to begin construction this year, and to begin operation in 2014.
Yet the potential shale gas revolution in the U.S. means that Canada will have to find global buyers for any natural gas exports, via Liquefied Natural Gas (LNG):
“Our view is that you need all the shale gas, you need all the frontier gas and you probably need LNG [imports] on top of that,” TransCanada Chief Operating Officer Russell Girling said at a recent conference in British Columbia. Girling said any excess supplies will be eaten away by the decline in conventional gas, the growing demand from Canada’s oil sands industry–which uses natural gas to create steam for bitumen extraction, and new demand from utilities and the transportation sector.
Too much gas or not, Canada will likely have to find more customers for its gas, since its traditional buyer, the U.S., is oversupplied. Recent NEB data show that Canadian gas exports to the U.S. declined 11% in the first 11 months of 2009 compared with the same period a year earlier.
Thus there’s risk of a future seaborne LNG glut should shale gas really take off in North America.