Opinion: Solution on natural gas is needed soon
By Medicine Hat News Opinion on January 9, 2020.
cgallant@medicinehatnews.com@collingallant The Alberta government appears to be making the best of a bad situation when it comes the natural gas sector. But make no mistake, it’s a bad situation and one which will require a delicate dance and perhaps more than a few painful steps on the way. Troubles for Alberta oil are well documented, and have consumed the news cycles and political manouvering for several years. Lesser known until recently has been the turmoil for natural gas, which has unique challenges and potential solutions, which are often in opposition to efforts to stabilize crude sector. After 10 years of lowered outlooks and depressed pricing for gas, residents of southeast Alberta are no strangers to it. In fact an argument can be made that we weathered the worst of the job losses several years ago. However, the remaining vestiges of the benefit are now threatened. Surface agreements have padded farm and ranch incomes in the region. Tax revenue from wells that fund major portions of county budgets are now threatened. The long march of bad news and bad pricing led to the City of Medicine Hat announcing a major abandonment program last fall. Rural counties, reliant on tax income from conventional wells, are facing down a looming tax revenue crisis. Agricultural producers who start the year with surface and access agreements in their bottom line are as well. With this backdrop, the United Conservatives dedicated a junior cabinet position specifically for natural gas, and the task of associate minister Dale Nally is obviously to improve the outlook for the industry. It is outlandish to predict a full recovery or return of the booming natural gas outlook that beat all expectations 15 years ago. But the situation may be less dire than thought at this time last year. This summer the government helped broker a new transportation protocol that prevented gas prices from dipping to near negative values. (Yes, huge gluts of gas and nowhere to store it lead to companies actually paying buyers to take it away.) The government is also continuing to implement, or at least not oppose, transitioning away from coal-fired power generation. Instead those plants are now well en route to burning cleaner, cheaper natural gas while supporting gas prices – just as the previous government predicted before it was thoroughly drubbed at the polls. Some forecasts expect in-province gas demand in Alberta to increase by up to 50% in several years time, mostly due to utility use, and partly due to increased petrochemical production. Gas in the $2.50 range for even the medium term likely wouldn’t save the City of Medicine Hat’s portfolio from closing it’s wells. That price is near the division’s overall break even price, though many wells are more costly to operate. That is a structural problem throughout the sector in the southeast region – selling more doesn’t make sense if you’re selling at a loss. The government and private sector supports liquefied natural gas export initiatives off the west coast, but those mega-projects, when complete, would send gas abroad, only preventing new gas supplies from further lowering domestic prices. Also in the supply-demand conversation, new unconventional oil drilling methods release huge volumes of gas as well, meaning that high oil price now drive down gas prices. It’s a square to circle for the government that so badly needs crude oil prices to soar. But a solution is needed and soon to avoid the worst. (Collin Gallant is a News reporter. You can contact him by email at cgallant@medicinehatnews.com) 24-23
