Concept art of Cedar LNG. Cedar LNG

 

What would it cost Western Canada’s natural gas producers if the federal government does to them what it did to tidewater export opportunities for petroleum? This question became topical last week when the Biden Democrats announced they would block construction of new LNG export facilities in the US. It makes sense to get a handle on the size of revenues at stake if future development of LNG export capacity in Canada is similarly at risk. Indeed, it seems quite reasonable to worry Stephen Guilbeault will take inspiration from the Biden decision and try to do something similarly silly in Canada.

Getting pipelines to tidewater is something Canada’s petroleum industry has been counting on to improve export revenues. This was a particularly urgent hope during the eight-year oil price depression that lasted from the fall of 2014 until early winter of 2022. It was, and still is, assumed exporting Canadian diluted bitumen (dilbit) into new non-US markets will allow producers to avoid the costly differential charges assessed by American buyers and refiners. What if scenarios floated during the eight-year price slump showed that had the Northern Gateway and Trans Mountain pipelines been completed, Canadian producers could have earned billions in additional revenues. Estimates of lost revenues ranged from a Fraser Institute estimate of $15.8 billion for 2018 alone to my own low-ball estimate for losses of $7 billion to $9 billion for that same year. Numerous back of the napkin “what if” calculations for lost revenues produced in coffee shops across the prairies helped fuel frustration and anger at federal government environmental policies intended to limit global warming by cancelling pipelines.

 

Hypothetical question: What if the exports to the US had been exported to Europe?

Year Column 2

Total EU sales revenue in

$billions

Column 3

Total US sales

revenue in

$billions

Col 2 minus

Col 3 in $billions

% that EU revenue

is >

US revenue

2014 27.69 12.04 15.65 130%
2015 20.03 7.14 12.89 181%
2016 13.99 7.60 6.39 84%
2017 17.52 9.22 8.3 90%
2018 22.16 8.92 13.24 148%
2019 13.28 7.19 6.09 85%
2020 8.10 5.06 3.04 60%
2021 46.28 11.21 35.07 313%
Totals 169.05 68.38b 100.67.b  

Source: derived by the author from the sources and data provided below

Fast forward to 2024 and we can see that similar conditions apply to Western Canada’s natural gas sector. The US is virtually the sole export market for Canadian natural gas. Looking back at the period from 2010-2019 we find that the prices paid by US importers for Canadian natural gas were less than half what Europeans were paying. The price spread became exponentially wider beginning in 2016. It peaked in 2022 when the European price was six times higher than the US price. The European gas price will be five times higher than US prices for 2024.

Canadian natural gas exports in billion cubic metres (all to US)

Year Volume
2010 91.9
2011 90.4
2012 86.8
2013 80.9
2014 76.3
2015 76.0
2016 84.2
2017 85.1
2018 79.7
2019 76.6
2020 70.1
2021 79.6

Source: Statista. Natural gas exports by pipeline from Canada from 2010 to 2021 (in billion cubic metres).

https://www-statista-com.libproxy.uregina.ca/statistics/567703/natural-gas-exports-from-canada/

All else being equal, if all of the gas exported by Canada to the US from 2014 to 2021, the years encompassing the price depression, had instead been exported to Europe at average European prices, Canadian natural gas revenues would have been US$100.7 billion higher than what they actually were. Of course “all else” is far from being equal. The US$100.7 billion figure does not account for the cost of converting natural gas to LNG or the added costs of ocean transportation. In addition, the estimate assumes enough Canadian pipelines and tidewater terminals could be built to accommodate all of the gas currently flowing to the US.

  • 0076 Latus only
    0076 Latus only
  • 0073 SaskWorks-Pipeline Online
    0073 SaskWorks-Pipeline Online
  • 0067 PFM SaskWorks Payroll Investment Plan
    0067 PFM SaskWorks Payroll Investment Plan
  • 0066 WBPC Promo video 30 seconds
    0066 WBPC Promo video 30 seconds
  • 0064 Estevan OTS
    0064 Estevan OTS
  • 0063 Turnbull Excavating hiring crusher
    0063 Turnbull Excavating hiring crusher
  • 0062 TED_EPAC_Technology_30
    0062 TED_EPAC_Technology_30
  • 0061 SIMSA 2024 For Sask Buy Sask
    0061 SIMSA 2024 For Sask Buy Sask
  • 0058 Royal Helium Steveville opens anonymous rocket
    0058 Royal Helium Steveville opens anonymous rocket
  • 0055 Smart Power Be Smart with your Power office
    0055 Smart Power Be Smart with your Power office
  • 0052 Predator Inspections
    0052 Predator Inspections
  • 0051 JML Hiring Pumpjack assembly
    0051 JML Hiring Pumpjack assembly
  • 0049 Scotsburn Dental soft guitar
    0049 Scotsburn Dental soft guitar
  • 0046 City of Estevan This is Estevan
    0046 City of Estevan This is Estevan
  • 0041 DEEP Since 2018 now we are going to build
    0041 DEEP Since 2018 now we are going to build
  • 0032 IWS Summer hiring rock trailer music
  • 0022 Grimes winter hiring
  • 0021 OSY Rentals S8 Promo
  • 0018 IWS Hiring Royal Summer
  • 0013 Panther Drilling PO ad 03 top drive rigs
  • 0011
  • 0006 JK Junior
  • 0002 gilliss casing services
    0002 gilliss casing services
  • 9002 Pipeline Online 30 sec EBEX
    9002 Pipeline Online 30 sec EBEX
  • 9001

 

The yawning chasm between US and EU prices today is of course largely the result of Russia’s invasion of Ukraine in late February 2022. EU sanctions aimed at Russian energy exports and the destruction of the Nord Stream pipelines has put Europe firmly on track for developing new sources of natural gas. The difference in prices has averaged 25 per cent over the three years from 2021 until 2024.

Natural gas prices for the US and Europe 2022 to 2024 in US$ per million British thermal units (BTUs) 2023 and 2024 figures are forecasts.*

Year US price European price
2010 3.9 7.3
2011 3.3 8.6
2012 2.3 9.6
2013 3.5 11.1
2014 4.37 10.05
2015 2.6 7.3
2016 2.5 4.6
2017 3.0 5.7
2018 3.1 7.7
2019 2.6 4.8
2020 2.0 3.2
2021 3.9 16.1
2022 6.4 40.3
2023* 2.7 19.0
2024* 3.7 17.0

Source: derived from Statist: Natual gas commodity prices in Europe and the United States from 1980 to 2022 with forecasts for 2023 and 2024.

https://www-statista-com.libproxy.uregina.ca/statistics/252791/natural-gas-prices/

Notwithstanding the bland platitudes and unreachable targets emanating from the most recent COP conference in the UAE, there are policy makers in many countries who recognize the important role natural gas can play in reducing global GHG emissions. For example, in December 2021 the European Commission made changes to its GHG emissions law. It now allows both nuclear energy and natural gas to be considered suitable transition fuels during the period while renewable options become more viable. Lately, there has been a popular backlash in Europe and the UK over excessively zealous green transition initiatives. It turns out a lot of people are unwilling to accept additional increases to their cost of living even when told it is necessary to “save the planet.” People won’t stand for a prohibitively expensive green transition. And they never will be willing to freeze in the dark; especially when an acceptable option like natural gas is available.

Biden’s bizarre decision to block the expansion of US LNG export facilities was probably not motivated by a desperate desire or useful effort to curb GHG emissions. It is more likely a ham-handed attempt to staunch the Democrats’ loss of support among the young and the woke. Regardless of Biden’s motivation, we might reasonably worry that Canada’s environment minister will want to copy him. You might think the collapse in support for Canada’s Liberals and common sense would militate against the imposition of any additional half-baked environmental policy. But when has common sense ever intervened in the creation of environmentally virtuous policy on the part of the Liberals in Ottawa?

 

  • 0076 Latus only
    0076 Latus only
  • 0073 SaskWorks-Pipeline Online
    0073 SaskWorks-Pipeline Online
  • 0067 PFM SaskWorks Payroll Investment Plan
    0067 PFM SaskWorks Payroll Investment Plan
  • 0066 WBPC Promo video 30 seconds
    0066 WBPC Promo video 30 seconds
  • 0064 Estevan OTS
    0064 Estevan OTS
  • 0063 Turnbull Excavating hiring crusher
    0063 Turnbull Excavating hiring crusher
  • 0062 TED_EPAC_Technology_30
    0062 TED_EPAC_Technology_30
  • 0061 SIMSA 2024 For Sask Buy Sask
    0061 SIMSA 2024 For Sask Buy Sask
  • 0058 Royal Helium Steveville opens anonymous rocket
    0058 Royal Helium Steveville opens anonymous rocket
  • 0055 Smart Power Be Smart with your Power office
    0055 Smart Power Be Smart with your Power office
  • 0052 Predator Inspections
    0052 Predator Inspections
  • 0051 JML Hiring Pumpjack assembly
    0051 JML Hiring Pumpjack assembly
  • 0049 Scotsburn Dental soft guitar
    0049 Scotsburn Dental soft guitar
  • 0046 City of Estevan This is Estevan
    0046 City of Estevan This is Estevan
  • 0041 DEEP Since 2018 now we are going to build
    0041 DEEP Since 2018 now we are going to build
  • 0032 IWS Summer hiring rock trailer music
  • 0022 Grimes winter hiring
  • 0021 OSY Rentals S8 Promo
  • 0018 IWS Hiring Royal Summer
  • 0013 Panther Drilling PO ad 03 top drive rigs
  • 0011
  • 0006 JK Junior
  • 0002 gilliss casing services
    0002 gilliss casing services
  • 9002 Pipeline Online 30 sec EBEX
    9002 Pipeline Online 30 sec EBEX
  • 9001