No Joke: 100 Years of Natural Gas
In a session dedicated to the outlook for natural gas and reserves in North America at the North American Gas Forum, Greg Vesey, VP of Gas Supply and Trading, Chevron, termed the shale resource in North America “tremendous.”
He recalled that a few years prior, Chevron had had to tell its customers that prices were high because there wasn't much gas around. “We're down to less than 10 years of gas'; and then I showed up the next year and said, 'We got it a little wrong – now there's 100 years. And we had to go through many discussions convincing customers that this resource is real, and it is.”
From a supply standpoint, Mr. Vesey pointed to Asia: tremendous LNG projects in Australia, Indonesia; shale gas in China, which would likely be consumed internally. He said the big users of LNG would be China, Korea and Japan.
The Middle East, he noted, had a lot of supply in areas like Qatar, but other countries in the region needed natural gas and were buying LNG from all over the world. Africa had some nice projects on the East Coast of Africa as well as some on the West Coast.
“Russia has a lot of neat projects, but all appear very expensive so it depends on how many of those come forward and obviously China and Europe would be the two premier markets for that gas.”
Europe looking to have its own shale gas resources, he said, was a longer term project. Meanwhile, the old continent was only a second market for LNG.
Meanwhile, there was a growing market for LNG in South America.
Mr. Vesey noted the disconnect between rig count, which had gone down dramatically in recent years, yet production remained strong and continued to grow. “A lot of infrastructure hook-up has happened and kept that production strong,” he said.
Chasing liquids also added to the phenomenon.
He stated: “US dry gas production is 64-65 BCF/day and that's about 14 BCF/day over where we were in 2005, so that's huge growth. In 2005, we were talking about LNG imports, so we truly have done a 180 in the industry.”
On the demand side, according to him, it was a very good environment for customers. “It's a very stable pricing environment, which is what a customer likes,” he commented, adding that a lot of brownfield and greenfield activity could be seen in the US. “It is revitalizing the industrial sector. I think in the next 2-3 years we'll see a lot of demand increase as these plants start to come online.”
There was also the movement from coal- and oil-fired power generation to those fueled by natural gas, which was increasing demand.
“If you think of the three real areas of demand growth: power generation, industrial and a little bit of exports, this means huge investment in the US. If you think of all the programs we might try to put in place to get investment to come to the US – it's coming. Lots of jobs. People need work and it gives economic growth and activity. On the demand side, that's a very good story,” said Mr. Vesey.
Of LNG export, he opined, “You've seen the list of projects that are out there – almost none of those have been through a final investment decision, which is a huge step.
“If you go back to the LNG import phase, you probably heard 40 or 50 projects talked about; probably seven or eight actually to through FID,” he recalled. “So there's a lot of noise out there, but a lot yet to be done in terms of FID.”
He added that LNG export sites were extremely expensive. Converting import terminals only allowed the re use of certain components. “LNG projects themselves are long term,” he explained, saying the average time to get LNG to market was 18 years. “So it doesn't happen over night.”
Timothy Egan, President and CEO, Canadian Gas Association, commenting on one of his slides depicting “exports today, exports tomorrow,” said for Canada the future was all about the LNG exporting opportunity the country now faced. He reported that LNG projects were being announced at a fairly regular pace.
“Right now, if everything that is being proposed both West Coast, where most of the projects are, and East Coast, where we've had some smaller projects proposed, we'd be looking at as much 5.6 TCF/year of exported gas, which is almost the equivalent of total Canadian production today, so a pretty dramatic change.”
His organization, the Canadian Gas Association, he explained, represented downstream gas companies in Canada, i.e. the distribution companies across Canada. “Roughly six and a half million customers,” he said, which was about one-tenth of those in the US. CGA also represented manufacturers and suppliers, he added.
Mr. Egan noted that the gas network was dense across the US border, reflecting where most of the Canadian population lived.
“We work closely with the rest of the industry across the country. Sometimes the upstream and downstream don't always get along on particular issues,” he explained. “Right now there's some unhappiness on the upstream about price: on the downstream it tends not to be unhappiness when prices are as low as they are, although we recognize industry has to be competitive, so we often talk about an ideal bandwidth, which it is well below, even from a distributor's perspective in terms of where the price is in North America.
“The opportunity that exists is apparent to all of you for greater use of natural gas,” he said to delegates, “and that's where we are working across the value chain to try to expand the use opportunity and indeed around the world.”
How to get consumers to think about the expanding reach of natural gas was a question he grappled with. Most energy discussions in Canada, he said, invariably revolved around electricity.
“But we're trying to get natural gas into those electricity conversations and also into the transportation marketplace, where we think there are significant opportunities for greater use that will deliver economic and environmental benefits.”
Canada, he stated, had over 100 years of natural supply at current production levels: 664 TCF in Canadian reserves and resources.
Efficiency and other supply options, he explained, like renewable natural gas were important, while the Canadian potential for hydrates was also huge.
He showed the very healthy spread between oil and gas prices, commenting, “And that's a good news story for anybody talking about greater use of gas anywhere.”
The movement of natural gas supply, he said, was changing in response to the economics of shale recovery, which was having a profound effect on the domestic Canadian market. Gas from the US Northeast was creating discussion as to what the most commercial route was to move gas across the continent. “It's what allows us to talk about moving gas from the West to Asian markets and moving US gas into Canada – it's an incredibly integrated marketplace right now and the opportunity is there to make it even more so and to build more opportunity,” said Mr. Egan.
Traditionally, half of Canada's 6 TCF production went to the US, but that was changing, he said, explaining that export numbers were declining while import of US gas was increasing. By 2018, some believed that Canada would not be exporting gas to the US: “A pretty significant change.”
He offered the audience a current list of Canadian LNG export facilities, noting that projects were being announced at a regular pace. “If everything that has been proposed, both West Coast where most of the projects are, and East Coast, where we've had some smaller project proposed, we'd be looking at as much as 5.6 TCF/year exported gas, which is almost the equivalent of total Canadian production today.”
Would the US export of natural gas drive prices up? Mr. Egan said this was not really an issue in Canada for a couple of reasons: the country was used to being a resource exporter and most people recognized the sheer volumes of natural gas that were available there.
Of all that opportunity, Mr. Egan concluded both the resource continental trading relationship between Canada and the US, which he said facilitated an opportunity to develop greater use of gas, with hopes that both governments work together to do this in things like integrated transportation, e.g. rail, heavy trucking and marine.
Badar Khan, President & CEO, Direct Energy, brought the perspective of a “downstream retail energy company” to the morning's first session, explaining that his company (whose parent company is Centrica, which had 30 million customers) operated across the entire gas value chain.
Of Direct Energy, he said, “Today, we're the largest residential competitive supplier in North America. Our success lies in our ability to win and retain customers. If they're dissatisfied with our products, service they vote with their feet and switch to another supplier.
“This is one of the core principles of a competitive market: putting customers in the driver's seat and allowing companies to seek out better and newer ways of doing business that normally serves their interests, but in doing so provides something of value to customers in the society at large.”
The gas revolution, he said, was an example of the competitive market at work.
“Gas production is just one element of the overall chain, and for the end customers to realize the full value of this revolution, I believe we need a fully competitive energy market across the whole value chain,” he opined, explaining that Direct believed it needed to be deeply involved in the chain's elements, operating in upstream, midstream and downstream.
He reported that in March, Centrica Energy had announced a long-term export contract with Cheniere starting in 2018. “Centrica supplies natural gas to nearly half the homes and businesses in the United Kingdom, so this agreement is a key element in diversifying the UK's energy mix with a long-term, affordable source of energy.”
He noted that the gas revolution had brought an age of lower gas prices for Direct Energy's customers.
“We don't believe that natural gas export will result in higher prices for our customers,” stated Mr. Khan. “We believe we should let the markets work: exports of gas results in increase demand, higher demand encourages more supply, more supply brings pressure back down on prices.”
Direct, he reported, had increased its oil and gas assets in 2013 and had increased its downstream activities through an acquisition from Hess.
He posed the question whether consumers were fully benefitting from the increased supplies brought about by the gas revolution. “I would say not, or at least not yet,” he commented, explaining that it depended on the industry's ability to engage consumers, which involved opening up the market to competition.
“Ohio and Pennsylvania have seen an enormous increase in gas production in recent years due to the Marcellus and Utica, so it's no wonder that some in those states are starting to ask how they can encourage more homes and businesses to take advantage of this lower cost energy,” he offered.
Gas-fired generation, he said, accounted for around one quarter of gas demand today and could be up to as much as half in the next 20 years.
“Of course if wholesale energy markets are not functioning properly, the benefits of this low cost and cleaner gas-fired generation may not come to fruition.”He said he believed it was a very exciting point in the industry. “We're poised to enter a new era of abundant supply to spur our economy to new places. But to fully realize the potential of this low cost gas, we need to let the markets work, whether that's about how much gas we allow for export or developing markets with true competition at the wholesale and retail level, resulting in more engaged end customers driving stockholder innovation and efficiency.”