Gas hurting too but no gov’t measures in sight

By Collin Gallant on December 12, 2018.

cgallant@medicinehatnews.com @CollinGallant

The Alberta government is prepared to curtail oil production next month to boost prices that are deeply discounted due to transportation woes and oversupply problems.

However, such extraordinary measures are not yet being discussed for the natural gas sector, which faces similar discounts and rock-bottom prices due to bottlenecks and disconnect from export markets.

Premier Rachel Notley and Energy Minister Margaret McCuaig-Boyd discussed the issue briefly on Tuesday as they announced support for a new oil refinery in the province.

“We’re not quite to that point, but we’re definitely working on the issue,” said Notley, citing a report released this week about potential support for the natural gas sector.

“There are slightly different perspectives about what solutions would be best placed for the sector. The energy minister is working on it and we’ll have more to say in the weeks to come.”

On Monday, Alberta cabinet appointed a Liquid Natural Gas Investment panel to explore the state and opportunities for in the sector. It follows a report commissioned last spring to find ways to aid the beleaguered industry in the short to medium terms.

It states what a lot of producers and people in the industry already know: That conventional gas producers face “an existential crises” caused by large volumes of gas released by new drilling techniques and prices made worse by export bottlenecks and new supplies elsewhere in North America.

Whereas the differential on oil exports has been the subject of headlines across the country, a decade-long decline in natural gas prices also became acute this summer.

The Alberta spot price for natural gas Tuesday was $1.20 per gigajoule — $4.88 lower than the price at major U.S.-based gas hubs.

That frustrates Hatter Murray Trollope, who spent seven years as a senior manager with the City of Medicine Hat’s petroleum production company and now works as a private consultant.

“Big projects are great, but we need action now, just like for the oil-pricing side,” he said. “Waiting five years is going to be trouble for any conventional natural gas producer.”

He says natural gas provided a major portion of the royalty revenue for the province prior to 2010, but more recently it seems concern for the sector is on the back burner.

The report, titled “Roadmap to recovery: Reviving Alberta’s Natural Gas Industry” states new pipeline development is important, but contingent on highly variable approval process.

An approved $40-billion LNG export facility in northern B.C. will take years to build.

In the mid-term, the report suggests, the province should explore how to support LNG export facilities in Eastern Canada and the U.S. West Coast. The reasoning is that gas shipped from those points would be swapped or backfilled by Alberta gas at a relatively higher price.

More immediately, the new panel could report back in January on moves to examine pipeline tolls, in-province regulatory processes, and maintenance schedules of pipeline systems. As well, supporting new underground storage could cut costs to producers. Higher margins would essentially provide revenue in place of higher market prices as more export pipelines are pursued.

“There’s a number of good solutions, and we’ve committed to look at all the recommendations and work with industry moving forward,” said McCuaig-Boyd.

“We have a lot of feed stock and a lot we can do with it.”

The report also points to several provincial initiatives already in progress.

The province’s Petrochemical Diversification Program is meant to spur new production capacity to transform methane, ethane and propane into plastics, either for export of local manufacturing. The current round was recently expanded to award $1.1 billion in royalty credits, and results could be announced in the next few months.

As well, the phaseout of coal-fired electricity has led several major utility companies to begin converting power plants to run on low-cost, lower-emitting natural gas.

23
-22