Commentary: Will New Brunswick run out of gas?11/2/2012
Just three years ago, it looked like New Brunswick was entering a golden age of natural gas.
Sable Island was churning out natural gas from offshore Nova Scotia and its pipeline ran through the province. The only liquefied natural gas (LNG) terminal in Canada was about to open in Saint John, and exploration was underway seeking to assess the commercial potential of the trillions of cubic feet of natural gas locked in New Brunswick’s shale beds more than a kilometre below the surface.
In short, New Brunswick was awash in a diverse supply of natural gas and it was shaping up to be a strategic competitive advantage for decades.
Because of these facts, the main conclusion of a new paper published by the Atlantica Centre for Energy may come as somewhat of a surprise. New Brunswick is in danger of running out of gas – specifically running out of competitively priced natural gas. I was retained by the Centre to help craft this timely paper.
Natural gas from offshore Nova Scotia is drying up. Within a few years, there will be very little gas from the offshore, and there is no current exploration to find more.
The Canaport LNG terminal in Saint John can supply more gas than we would ever need, but suppliers of LNG can charge three times as much in Europe and four to five times as much for their product in South America and Asia as they can in North America.
There is really no demand in North America at all for LNG.
And exploration to determine the potential of local natural gas has been hobbled by low-cost shale gas development elsewhere across North America and the ongoing lack of public support for the industry here. Understandably, companies are reluctant to make long-term investment decisions in such an environment.
New Brunswick industries from electric power generation to oil refining and manufacturing rely on competitively priced natural gas. In the early to mid-2000s, approximately 80 per cent of all Sable Island gas was exported to the United States.
This year, less than 20 per cent has been sent south of the border because the rest is in use here in the Maritimes.
Because of shale gas, the product is cheap and will remain a low-cost fuel for many years to come. The shale gas revolution means the wholesale price for natural gas will remain low, but New Brunswick could face significant new toll charges on the gas to get it here.
The most likely natural gas supply scenario within the next decade will involve reversing the flow of gas bringing supply in from shale gas developments or other sources in the United States and even western Canada.
Natural gas is shipped across North America by pipeline. The further you are from the source of the gas, the more tolls you have to pay. Therefore, even with low wholesale prices, New Brunswick industries could end up paying far more for gas than their competitors in other markets.
In short, what is a competitive advantage today could become a competitive disadvantage tomorrow.
The Atlantica Centre for Energy report covers a broad range of issues from the potential for conversion of the Canaport LNG to an export facility to the opportunity for onshore natural gas development.
After providing a good overview of the challenges and opportunities, the Centre’s paper concludes that the time for planning is now. It urges the key players “to develop a comprehensive natural gas strategy to address our domestic natural gas needs ensures responsible development and maximizes the economic opportunity of both our resources and infrastructure”.
David Campbell is an economic development consultant based in Moncton. He writes a daily blog, It’s the Economy Stupid, at www.davidwcampbell.com. His column appears every Wednesday and Saturday.