Current price lows will turn out to be the beginning of a new growth era for natural gas across North America, TransCanada Corp. President Hal Kvisle predicted Thursday.
“What we see today is a resurgence of demand,” he said in sketching out how the continent’s top gas transporter sees the market evolving at an industry, government and environment event in the central Alberta city of Red Deer.
Kvisle and Canadian Environment Minister Jim Prentice jointly announced about C$11 million (US$9.5 million) in support for wildlife habitat preservation in a region known as the Parkland for its rare Alberta combination of temperate climate and adequate rainfall to support forests, lush natural prairie and agriculture.
In TransCanada’s view, today’s gas price lows are a signal that supplies have regained enough strength for consumption to resume growing — and just at the right time to satisfy environmental requirements for cleaning up the use of fossil fuels.
“We’re going to see a lot of gas demand in the power sector especially,” Kvisle predicted, alluding to growing pressure for the electricity generation network to reduce reliance on coal. “The outlook is actually very good. There’s going to be a very active industry for years to come.”
Total North American demand for gas stopped growing and consumption stayed flat since 1997 because conventional production peaked and rising prices effectively rationed supplies, the TransCanada president said. The arrival of unconventional output on a large scale, thanks to new well technology that taps “tight” rock and shale, makes it possible for the gas market to resume growing, Kvisle said.
Supply-side activity is bound to be on a large scale that will eventually include building both the Alaska and Mackenzie Valley pipeline projects, he suggested.
Just to maintain current total North American gas use of about 75 Bcf/d requires developing about 15 Bcf/d of new supplies to offset the annual average natural decline rate of 20%, Kvisle estimated. The combined capacity of the American and Canadian northern pipeline projects, about 5.5 Bcf/d, compensates for less than one year of erosion in conventional gas fields.
Between 1990 and 2002 rapidly expanding production from western Canada shouldered most of the continent’s supply growth and replacement load, Kvisle recalled.
The region’s output about doubled into the range of 16-17 Bcf/d. Exports to the U.S., delivered by an expanding pipeline network to markets from New England to California, nearly quadrupled to an annual total of about 3.5 Tcf from less than 1 Tcf. But supplies from the Alberta mainstay fields of Canadian conventional production have clearly passed their peak, with the province’s Energy Resources Conservation Board forecasting an average decline of 4% per year in a recent annual state-of-the-industry reserves report.
Kvisle, acknowledging that northern pipelines are exceptionally big and complicated, set no dates for completing the Alaska or Mackenzie projects. But he said current conventional wisdom — that Canada’s arctic gas scheme is headed into the deep freeze, at a cost of nearly C$150 million (US$130 million) in planning stage expenses by TransCanada alone — is wrong. “That project is far from dead. It is plagued by regulatory difficulties, but we’ll get through that,” Kvisle said.
While the northern projects move at a glacial pace through complicated application and approval stages, TransCanada is moving quickly on projects crafted to enable spread of the new unconventional production technology into northern British Columbia (BC). Kvisle said TransCanada expects to spend about C$2 billion (US$1.7 billion) over the next two to three years on extending its NOVA grid in Alberta into shale gas areas of BC and providing improved shipper access to long-distance export routes as well as the growing market of thermal oil sands plants.
While Alberta so far lacks counterparts to BC’s shale discoveries and light provincial royalties tailored to lure producers into tapping them, unconventional development is bound to spread into the traditional Canadian supply mainstay jurisdiction, Kvisle predicted. “Eventually it’ll happen in Alberta, over time.”
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