National Post (National Edition)
QATAR'S BET ON NATURAL GAS HAS LESSONS FOR CANADA.
As the world moves towards renewable energy or lower-emissions fuels, natural gas has emerged as a `compromise' energy source.
While most environmental groups are still not convinced that natural gas should be a prominent player in a future low-carbon world, the International Energy Agency expects global natural gas demand to rise 1.5 per cent annually at least over the next five years, with China, India and emerging Asia accounting for more than half of the increase. Over the next 30 years, global gas demand will rise 30 per cent, although it will face intense competition from renewable sources.
Detecting an opportunity to capture more market share, Qatar, the world's biggest liquefied natural gas exporter, unveiled a massive $28.75-billion bet Tuesday to develop 32 million tons per year of production from its lucrative North Field — the world's largest natural gasfield.
It will be the largest single LNG project sanctioned to date, according to research firm Wood Mackenzie. It will also be more than two times the proposed capacity of the under-construction LNG Canada project on the West Coast being developed by Royal Dutch Shell Plc and its Asian partners.
The Qatar bet came with a warning from its key executive.
“If buyers don't secure long-term deals … they will see spikes every winter and they will pay a hefty price,” Saad al-Kaabi, chief executive of state-owned energy company Qatar Petroleum, told the Financial Times. “I might be wrong and everybody does their LNG projects and there's too much supply. But at least for the next two years, you read the plans of the majors and everybody has pulled back from a lot of projects.”
The argument is that buyers have been too complacent about hydrocarbon supplies for too long.
Years of abundant U.S. shale oil and gas growth have turned the fossil fuels trade into a buyers' market, with producers discounting prices to maintain market share. But that has meant many producers — such as those in Canada — have abandoned growth and export projects. But the U.S. shale producers' recent struggles have opened yet another window of opportunity for countries such as Qatar, which boast a longterm breakeven cost price of around US$4 per million British thermal units.
The bullish move from the tiny Middle East player, should also encourage Canadian natural gas producers to think big.
Of course, this should be in parallel with Canada's focus on capturing the global renewable energy market. But we will need all the sources during this multi-decade energy transition.
Unlike the beaten-up oil sector, the Canadian natural gas sector has held up better and is in a position to gear up for growth. The domestic natural gas benchmark AECO has also perked up, nearing $4 per gigajoule for the first time since March 2019, while exports, primarily to the United States, have surged.
To be sure, the short term is driven by frigid winters across parts of North America, but there are structural trends at work, too.
Bank of Nova Scotia notes that the phase-out of coalfired power generation in Alberta, now expected to be completed by 2023, should benefit natural gas producers.
“We expect the bulk of this capacity to be replaced by natural-gas-fired generation from converted facilities and new builds,” Cameron Bean, analyst at Scotiabank, said in a note. “Assuming natural-gas-fired generation replaces 80 per cent of the 2020 coal-fired generation we see potential for 350 mmcf/d (million cubic feet per day) to 450 mmcfd of new natural gas demand in Alberta by year-end 2023.”
In addition, TC Energy's long-delayed Nova Gas Transmission Ltd. expansion network in Alberta and British Columbia is set for completion by 2022, which would add sufficient capacity to the system to handle moderate growth and stabilize the AECO differential with its American benchmark.
Finally, the development of LNG Canada and TC Pipelines LP's GTN XPress Project, delivering natural gas from Western Canada and the Rocky Mountains to local utilities and power generation facilities in the Pacific Northwest and California, should help Canadian producers access new markets.
But is there more to be done? A number of LNG projects in Canada are on the drawing boards with producers hesitant to bring them to execution stage, capturing more market share.
The Qatari project would take years before it sees first gas, while Canadian producers can move quickly to ramp up production. Indeed, should the fragmented Canadian natural gas sector consolidate to leverage scale and depth and embark on a new slew of bold projects?
The window won't remain open for long.