The terms “game changer” and “revolution” are typically used to describe the shale gas phenomenon in North America, and rightfully so. The combination of horizontal drilling and hydraulic fracturing (or ‘fracking’) has made the recovery of natural gas from shale economically viable, leading to increased natural gas production, record high storage levels, and overall low prices.
One of the more significant implications of cheap and abundant gas has been the effect on liquefied natural gas (LNG) markets. LNG is created when natural gas is cooled to -160 degrees Celsius where it takes a liquid form (which takes up 600 times less space than the gas) that can be transported by ship and used for purposes like heating and power generation.
Whereas the early to mid 2000s saw an investment boom in LNG import facilities, driven by concerns over dwindling domestic natural gas supply, by 2008 the market had shifted dramatically and most of the proposed projects were wiped off the table, only to be replaced with proposals for LNG export facilities.
BC is front and centre of the LNG export story in Canada, and the province has recently produced an LNG strategy to guide the development of this new industry. There are now five proposed export facilities along the B.C. coast that would facilitate the export of LNG to markets in Asia. Global LNG demand is expected to double by 2020, about the time when some of the proposed projects could come online.
Beyond the export of LNG, there is a strong commercial interest in increasing the use of natural gas in the transportation sector. Shell, which is at the forefront of promoting alternative uses for LNG, recently opened its first LNG refuelling station in Canada in Calgary. Around the same time, the company also announced a final investment decision in a small LNG liquefaction plant in Sarnia, Ontario that would provide LNG as a fuel for ships plying the waters of the Great Lakes. Rail applications are in the mix too. For example, BNSF Railway in the United States recently announced plans to test a small number of locomotives using LNG.
Coming full circle in an ironic twist on the “what else can we do with all this cheap abundant gas?” story, natural gas producers operating rigs in the Marcellus basin are starting to switch from diesel to LNG to power their rigs. As long as supply remains high and prices remain depressed, efforts to increase alternative uses of natural gas will likely intensify.
Jeffrey Phillips is Principal, JPT Energy Consulting and can be reached at email@example.com