​Alberta’s opportunity in the new natural gas economy

Image: Seven Generations Energy

This article was originally published in the Spring 2019 Alberta Oil & Gas Quarterly. Download your copy here.

With its vast resources and skilled developers, Alberta has tremendous opportunity to benefit as global natural gas demand is expected to surge in the coming decades and domestic markets diversify.

Often praised as the clean energy source of the future, natural gas or super-cooled LNG could be the answer to significantly reducing global emissions while displacing high-carbon energy sources, in addition to its critical position in increasing petrochemical processing.

The International Energy Agency (IEA) forecasts that global natural gas demand will increase by 46 percent by 2040, primarily as

Asian markets switch off coal.

The Chinese government has said that “natural gas is not the bridge fuel - it is the fuel.”

The robust global outlook is welcome news for Alberta and British Columbia, where the industry is facing “a daunting crisis.” That’s the language used by the Alberta government’s Natural Gas Advisory Panel in late 2018.

Right now Alberta and B.C. serve only domestic and U.S. markets, which are oversupplied as a result of huge increases in U.S. production. A lack of spare capacity to supply these markets and “enormous regulatory uncertainty and delay” for new pipeline projects has contributed to “crushingly low” revenues for producers and government, the panel said.

But the market is changing, and the natural gas industry in Alberta and B.C. is getting closer to realizing its potential on the global


CIBC analyst Jon Morrison said that despite the lingering low price environment, there are positive developments in Canada’s natural gas market that have “potential to return material capital flows” to the sector.

“Specifically, the LNG Canada project reached a positive final investment decision, and we expect the Pieridae-led Goldboro LNG project [in Nova Scotia] to likely follow suit in the coming months,” he said in November 2018.

He also cited petrochemical project development, which is encouraging in Western Canada “given the ample natural gas liquids

supply and low natural gas prices.”

As such, Morrison believes there are “reasons for optimism in the Canadian natural gas markets” in the longer term and that these

developments will generate multiple market opportunities across the construction, pipeline and upstream areas in the oilfield services industry.

“However, we also believe we need to be pragmatic in that most of the oilfield services opportunities are longer duration in nature and weighted more towards 2020-plus,” he said.

Shell and its partners Petronas, PetroChina, Mitsubishi and KOGAS announced they would proceed with the Kitimat, B.C. project in October 2018, and construction is underway.

The $40-billion first phase will include two processing trains that consume approximately 2 bcf/d for tidewater export. The project also has approval to expand with two additional trains to consume a total of approximately 4 bcf/d.

Analysts are optimistic that the expansion will also get the green light in the relatively near term.

“Our view is that all four trains will be [underway or sanctioned] before the end of 2020,” said Dulles Wang, director of North American gas with energy consultancy Wood Mackenzie.

Some of that will come well before the first phase of LNG Canada comes online in 2025.

AltaGas has commenced shipments from the Ridley Island Export Terminal, the first propane export facility on Canada’s West Coast. The $450 million to $500 million project at Prince Rupert, B.C. is anticipated to benefit the Alberta and B.C. natural gas markets, reducing reliance on the U.S. for exports.

Also at Prince Rupert, Pembina Pipeline is building a propane/butane export terminal. The $250-million project is in the early

stages of construction and is expected to be in service mid-2020.

In Alberta, two new major petrochemical facilities are also under construction. Both are propane dehydrogenation and polypropylene projects that will process Alberta propane into polypropylene pellets, which are used to manufacture a wide range of goods including currency, medical products, automotive parts, food storage containers, and apparel.

Inter Pipeline’s $3.5-billion Heartland Petrochemical Complex, which has been awarded up to $200 million in committed royalty credits from the Government of Alberta, is expected to be operational in late 2021.

The $4.5-billion PDH/PP facility joint venture of Pembina Pipeline and Petrochemical Industries Co. of Kuwait, has been awarded up to $300 million in royalty credits, is expected to be operational mid-2023.

This article was originally published in the Spring 2019 Alberta Oil & Gas Quarterly. Download your copy here.

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