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Execs: More North American Collaboration Possible, But There Are Hurdles

Executives active in the North American oil and gas industry said greater collaboration between Canada, Mexico and the U.S. was possible and could be a model on the global scale, but short-term challenges abound as commodity prices remain low, supply and demand continue to shift and regulatory uncertainty persists in the U.S. and Mexico.

Jan Rune Lochner Schopp, president of North American Natural Gas for Statoil ASA, said the Norwegian company was concerned with the language contained in the Obama administration's Clean Power Plan (see Daily GPIAug. 14).

"Recent signs suggest that the support for natural gas may be weaker," Schopp told attendees at Energy Dialogues' North American Gas Forum in Washington, D.C., on Monday. "The final version of the rule looks to de-emphasize the role of natural gas, relative to an earlier version, giving preference to renewables and efficiency.

"We think there is a false choice between renewables and natural gas, and we hope that the states will realize the potential for natural gas when putting together their implementation plans for the Clean Power Plan. The federal government has given the states a lot of flexibility in how to comply with their standards. My message is that they should look at natural gas as a base load compliment to renewables. Gas-fired generators are more flexible and able to accommodate the intermittency of renewables."

Canadian Gas Association (CGA) CEO Timothy Egan said that with the decline of natural gas exports to the U.S., Canada is looking to export to other markets. He said that although several liquefied natural gas (LNG) export facilities have been proposed, the CGA knows not all of them will be built. But they are hoping at least one will be built someday, and have been touting three advantages -- namely, a low Canadian dollar, a cooler climate for LNG and shippers' proximity to Asia -- that Canada has for such facilities.

"What's really interesting is that while there has been a domestic debate [in the U.S.] about what exports will do to domestic gas prices, there is none of that conversation in Canada," Egan said. "We've been an exporter for a very long time and there's a culture of exporting energy that is understood across the country. These are [also] all legitimate business plays."

According to Egan, LNG export capacity for all of the proposed facilities along the west coast of Canada would total 56.7 Bcf/d, while projects on the east coast would total 10.9 Bcf/d.

An increased supply of natural gas in North America has been primarily responsible for driving down natural gas prices, and also for increased competition, Egan said. He added that data from Statistics Canada, a Canadian government agency, shows that total household spending on natural gas declined from more than C$8.1 billion in 2008 to less than C$7.3 billion in 2014. But household spending for electricity increased from C$15.5 billion to C$20.6 billion during the same time frame.

Egan said a recent agreement between Canada and the U.S. to cooperate on energy matters was done, "in part, to show that there was more of an energy dialogue between the two countries" than the controversial Keystone XL oil pipeline (see Daily GPIJuly 20).

"That conversation has actually prompted a number of bilateral opportunities for engagement," Egan said, including energy reliability, security, efficiency and the use of natural gas as a transportation fuel, among other things. He added that there was also interest in broadening the agreement to become a continental one that would include Mexico.

"There used to be regular meetings between the ministers of the three countries," Egan said. "That tailed off for awhile but it's picking up again. We're very interested in that. Several Canadian companies are very active in the Mexican market right now -- TransCanada Corp. and the Atco Ltd. group of companies in particular."

Egan added that with the U.S. currently holding the presidency of the International Gas Union (IGU), there was an opportunity to engage world markets with a North American model for energy collaboration (see Daily GPIJune 5).

But Greg Guidry, executive vice president for unconventional business at Shell Upstream Americas, said Mexico has a long way to go. He said that so far, two rounds of auctions for shallow-water oil and gas lease blocks in the Gulf of Mexico (GOM) "have generally been disappointing.

"The more recent one that was opened last week was a little more encouraging because the Mexican government flexed some of the provisions to make it a bit more attractive," Guidry said (see Daily GPIOct. 2). "But it's a very tough time to be opening up a country, given the macro conditions but also the framework [for investment]. At this point, they're just not generating the kind of attractiveness that you need to enter into a country that has inherent risk, security risk and a lack of infrastructure."

Guidry said he believed an auction of Mexico's deepwater GOM leases is "on the horizon," but an auction for the country's unconventional plays would probably be delayed into 2017.

"Infrastructure into Mexico is certainly needed," Guidry said. "They need more pipeline infrastructure so they can take advantage of the U.S. supply. I think that's where more processing opportunities, petrochemical and otherwise, are an opportunity for Mexico."

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