Natural gas prices for consumers are likely to remain stable for the foreseeable future. This is expected to remain true even if a liquefied natural gas (LNG) export terminal is built in British Columbia. These conclusions are contained in two recent and separate reports prepared by the Canadian Energy Research Institute (CERI).
The “shale revolution” in the United States has made natural gas abundant throughout North America resulting in a “competitive, liquid and robust natural gas market”, according to CERI CEO, Mr. Allan Fogwill. He noted that these additional supplies, unlocked by extensive fracking projects in the US, present a significant challenge to western Canada natural gas producers. As the CERI study points out, exports of natural gas into the United States are declining. Indeed, western Canada producers have also lost Canadian market share. Some of their traditional eastern Canada consumers have switched to natural gas imported from American sources.
This supply abundance of natural gas is expected to remain in place in the medium to long term. The downward pressure on prices is expected to also continue during that time frame. For the foreseeable future, prices are likely to remain in the $2 – $3/mcf range. The natural gas price spikes that occurred in the early 2000’s are not expected to return any time soon.
In this context, some have wondered what the impact on natural gas prices will be if significant LNG volumes are diverted to overseas exports. An answer to this question can also be inferred by drawing on research findings in an assessment of Canada’s LNG competitiveness.
Taken together, the two studies suggest, that in the event a British Columbia LNG project proceeds, it will not significantly impact the North American and Canadian prices of natural gas. This remains the case, even if other American LNG projects in the Gulf of Mexico are also built.
The primary beneficiaries of a British Columbia LNG project will be western Canadian natural gas producers. Indeed, they might have to curtail or shut in their natural gas production if there is no LNG outlet for their gas. The cheaper transportation costs and abundant American sources are attracting many traditional customers away from western Canada natural gas. For those western Canada producers, the demand for their product created by an LNG terminal will enable them to continue to produce gas, not to raise prices.
The CERI studies also describe some of the ancillary benefits that will be experienced by Canadian manufacturers if building a LNG terminal and maintaining western Canada gas production is the outcome. The economic knock on effects would be felt throughout Canada.
Further information about these and other energy research projects can be found on the CERI website.
