Dealing with the natural gas outlook, this is the fourth and last in an economic lookahead series prepared by Saskatchewan businessman Herb Pinder. Read the third part, which contains links to the first and second, here..PINDER: Oil... the demand just keeps growing.Currently, there are several global liquefied natural gas (LNG) markets, including North America. Given oversupply in the US, the largest gas producer in the world, gas trades at lower prices than other hubs in Europe and Japan.But, as the US is also becoming the largest LNG provider, eventually like oil, a single global natural gas market will likely evolve. This will narrow or eliminate the discount, improving returns in the US and Canada. US gas production now exceeds 100 billion cubic feet a day (bcf/d), at times reaching 103 bcf/d.Anticipating the first LNG from Kitimat on the West Coast in 2025, Canadian production is also increasing, now exceeding 19 bcf/d. Paused by the anti-fossil fuel Biden administration, the impressive development of LNG facilities on the American coast of the Gulf of Mexico will quickly be reinstated by Trump. Plans at various stagescall for LNG to surpass 20 bcf/d. There are also expansion plans in Australia and Qatar, the other leading LNG players.Canada, the 5th-largest natural gas producer in the world, has an incredible opportunity to exploit its vast natural gas resources. Shorter distances from the West Coast to the gas-hungry economies of China, India, Japan, Malaysia, and other growing Asian countries with regasification facilities give it a competitive advantage.A fact that the ideologues in Ottawa refuse to acknowledge, Canada could become a significant contributor to lower global carbon dioxide emissions. Supplying LNG to replace coal in Asia and providing the necessary backup to intermittent renewables, are a win for everyone. There is also a smaller but still significant opportunity in Atlantic Canada. European countries, especially Germany, have defaulted to coal after cutting off Russian pipeline gas supply. Prime Minister Trudeau refused the desperate Chancellor of Germany’s request to provide future gas supplies, disingenuously declaring 'there was no business case.' A Warren Buffett company, prepared to fund billions of dollars, subsequently withdrew from the project.Current North American prices are slowly recovering from successive warm winters that sharply reduced heating day-demand (HDD.)Gas in storage in both countries is testing limits awaiting additional LNG export capacity in the US, the startup of the LNG Canada project, and more HDDs. There is increasing awareness that the digital world’s need for data centers will rely on the dependability of natural gas fired electricity. A major gas-powered project is planned in Alberta.The second LNG Canada train and other smaller projects will eventually ramp up demand for Canadian gas by at least 5 bcf/d, a significant increase over the recent static levels between 16 and 18 bcf/d. Part 2 of this series acknowledged the unprecedented fiscal mess and on the flip side the opportunity, soon to be handed to a new government. Additional pipelines to the Pacific Ocean to satisfy the growing Asian demand for natural gas is a no-brainer. Ramping up construction of materials, and the activity of drilling, producing, transporting, building complex liquefaction facilities on the coast, and more, will attract requisite capital.This is just a policy decision. Complexity — yes, but it’s that easy — industry will respond to regulatory certainty, capital will return to our country, and our respected global energy sector will turn a resource into revenues to the benefit of all Canadians. The market continues to consolidate, in part to buttress balance sheets adequate for global opportunities, and to provide liquidity to shareholders in an undervalued sector. Tourmaline/Topaz and Canadian Natural Resources are persistent acquirers. With exquisite timing ARC Resources combined with Seven Generations benefitting shareholders with a revenue stream from condensate to fund the development of Attachie, a huge liquids rich area that will take many years and much capital to develop.Formerly Encana, Ovintiv, now based in Denver, recently enhanced its long-term opportunity set in the Montney, a vast and multi-layered series of deposits that competes with gas basins in the US. Further consolidation should not be surprising as those with strong balance sheets lock in inexpensive molecules.The future of natural gas is exciting. Weak pricing, which discourages drilling in the US for the time being, is not so in Canada where additional capacity is required to meet LNG export contracts. It will be interesting whether anticipated LNG demand in the US over time can be satisfied. More likely that the Gulf Coast exports will eventually pressure North American prices upwards, perhaps also increasing the current 6 bcf/d of Canadian gas exports to the US. There are many moving parts, and nothing is certain or without risk, but the prospects for natural gas are increasingly compelling. As the series concludes, it appears that in part thanks to political support from the Alberta and Saskatchewan governments, the evolving energy sector in Western Canada is not only surviving the onslaught from the Feds, but is well positioned to thrive in an energy hungry world.In a country also hungry for economic activity, isn’t it time to taste the delicious low-hanging fruit of the energy sector?
Dealing with the natural gas outlook, this is the fourth and last in an economic lookahead series prepared by Saskatchewan businessman Herb Pinder. Read the third part, which contains links to the first and second, here..PINDER: Oil... the demand just keeps growing.Currently, there are several global liquefied natural gas (LNG) markets, including North America. Given oversupply in the US, the largest gas producer in the world, gas trades at lower prices than other hubs in Europe and Japan.But, as the US is also becoming the largest LNG provider, eventually like oil, a single global natural gas market will likely evolve. This will narrow or eliminate the discount, improving returns in the US and Canada. US gas production now exceeds 100 billion cubic feet a day (bcf/d), at times reaching 103 bcf/d.Anticipating the first LNG from Kitimat on the West Coast in 2025, Canadian production is also increasing, now exceeding 19 bcf/d. Paused by the anti-fossil fuel Biden administration, the impressive development of LNG facilities on the American coast of the Gulf of Mexico will quickly be reinstated by Trump. Plans at various stagescall for LNG to surpass 20 bcf/d. There are also expansion plans in Australia and Qatar, the other leading LNG players.Canada, the 5th-largest natural gas producer in the world, has an incredible opportunity to exploit its vast natural gas resources. Shorter distances from the West Coast to the gas-hungry economies of China, India, Japan, Malaysia, and other growing Asian countries with regasification facilities give it a competitive advantage.A fact that the ideologues in Ottawa refuse to acknowledge, Canada could become a significant contributor to lower global carbon dioxide emissions. Supplying LNG to replace coal in Asia and providing the necessary backup to intermittent renewables, are a win for everyone. There is also a smaller but still significant opportunity in Atlantic Canada. European countries, especially Germany, have defaulted to coal after cutting off Russian pipeline gas supply. Prime Minister Trudeau refused the desperate Chancellor of Germany’s request to provide future gas supplies, disingenuously declaring 'there was no business case.' A Warren Buffett company, prepared to fund billions of dollars, subsequently withdrew from the project.Current North American prices are slowly recovering from successive warm winters that sharply reduced heating day-demand (HDD.)Gas in storage in both countries is testing limits awaiting additional LNG export capacity in the US, the startup of the LNG Canada project, and more HDDs. There is increasing awareness that the digital world’s need for data centers will rely on the dependability of natural gas fired electricity. A major gas-powered project is planned in Alberta.The second LNG Canada train and other smaller projects will eventually ramp up demand for Canadian gas by at least 5 bcf/d, a significant increase over the recent static levels between 16 and 18 bcf/d. Part 2 of this series acknowledged the unprecedented fiscal mess and on the flip side the opportunity, soon to be handed to a new government. Additional pipelines to the Pacific Ocean to satisfy the growing Asian demand for natural gas is a no-brainer. Ramping up construction of materials, and the activity of drilling, producing, transporting, building complex liquefaction facilities on the coast, and more, will attract requisite capital.This is just a policy decision. Complexity — yes, but it’s that easy — industry will respond to regulatory certainty, capital will return to our country, and our respected global energy sector will turn a resource into revenues to the benefit of all Canadians. The market continues to consolidate, in part to buttress balance sheets adequate for global opportunities, and to provide liquidity to shareholders in an undervalued sector. Tourmaline/Topaz and Canadian Natural Resources are persistent acquirers. With exquisite timing ARC Resources combined with Seven Generations benefitting shareholders with a revenue stream from condensate to fund the development of Attachie, a huge liquids rich area that will take many years and much capital to develop.Formerly Encana, Ovintiv, now based in Denver, recently enhanced its long-term opportunity set in the Montney, a vast and multi-layered series of deposits that competes with gas basins in the US. Further consolidation should not be surprising as those with strong balance sheets lock in inexpensive molecules.The future of natural gas is exciting. Weak pricing, which discourages drilling in the US for the time being, is not so in Canada where additional capacity is required to meet LNG export contracts. It will be interesting whether anticipated LNG demand in the US over time can be satisfied. More likely that the Gulf Coast exports will eventually pressure North American prices upwards, perhaps also increasing the current 6 bcf/d of Canadian gas exports to the US. There are many moving parts, and nothing is certain or without risk, but the prospects for natural gas are increasingly compelling. As the series concludes, it appears that in part thanks to political support from the Alberta and Saskatchewan governments, the evolving energy sector in Western Canada is not only surviving the onslaught from the Feds, but is well positioned to thrive in an energy hungry world.In a country also hungry for economic activity, isn’t it time to taste the delicious low-hanging fruit of the energy sector?
