PINDER: The future is natural gas

One approach to understanding natural gas is to consider it a modern and cleaner version of coal. Both are fossil fuels, but the differences are important and timely. This is the fourth and final commentary from Saskatchewan businessman and writer Herb Pinder, looking ahead to current economic issues. The earlier commentaries can be found here, here and here.How we got hereCoal is a pollutant with a long history of negative environmental consequences. It is also a relatively high emitter of carbon dioxide. However, it played a critical role in advancing the prosperity we enjoy today and is even now providing the same possibilities in much of the developing world.For most of humanity, life was short, characterized by poverty, filth, hunger, and misery. But, in the 18th century, the Industrial Revolution launched today's world of comfort, health, and wealth — at least for those countries which embrace what follows. Centred in London, there was a unique combination of free market principles emanating from Scotland, the slow entrenchment of democratic institutions in England dating back to the Magna Carta in 1215 and, in addition to wood, the beginning of the era of coal.Chopping down trees surrounding London for fuel and heat resulted in the disappearance of forests close enough to access in a day. The alternate solution, coal, was abundant, proximate, and easy to transport; it became the fuel of choice for the Industrial Revolution.This continued until the harnessing of petroleum. During WWII, Allied ships, fueled by oil, outperformed their Axis enemies, a significant advantage. Oil, the densest fossil fuel, surpassed coal in the 1960s and the world now consumes more than 100 million barrels every day. The next evolution could be to natural gas.What natural gas will do for youWith oil often comes natural gas. Indeed, about 40% of Permian production is gas. In earlier days gas was flared; today it is replacing coal to heat and air condition homes, cook meals, support intermittent solar and wind power, and provide important feedstock for the large and critical industry of petrochemicals.Natural gas provides many natural advantages over coal. It does not pollute the atmosphere with contaminants, is available in large quantities, and in today's world obsessed with carbon dioxide, is the lowest emitting fossil fuel. Most homes, schools, hospitals, and businesses utilize gas, first pipelined, then distributed to individual users. In addition to abundance, its advantages include cost efficiency, portability, reliability, and low emissions. It is an obvious and convenient replacement for coal.Current circumstancesThe prolonged El Nino winter was very warm, reducing normal heating consumption patterns, leaving higher than normal inventories, and collapsing prices.S&P Global compiled a chart on June 10 comparing inventories this summer to last year. Year-over-year production is down by 2.1 Bcf/d and demand is increasing from more cooling days this warm summer. Together, with other lesser dynamics, inventories are shrinking towards the five-year average.Bearish dynamics include less coal-to-gas switching, LNG maintenance downtime, anticipation of an active hurricane season, and production cuts that are not deep enough. On the bullish side, the weather is hotter than normal, electricity demand is robust, and renewable electricity generation is underperforming.Spot pricing is subject to current weather, but the expectation is for more normalized North American pricing by next year, and markets are already responding. CanadaProduction is ramping up to supply the Coastal GasLink pipeline, which provides feedstock to liquefaction and loading facilities at Kitimat on the Pacific coast. Two other smaller projects and a second “train” at Kitimat mean more than 5 Bcf/d of Canadian natural gas will be delivered to Asian destinations, ramping up over the next few years. Languishing for decades at roughly 16 Bcf/d of production, the LNG opportunity is a boost for Canadian producers. Important as this is to Canada, the US is on its way to becoming the largest exporter of LNG in the world. Current projects not subject to the Biden “pause” (discussed at length in a previous commentary), will reach at least 27 Bcf/d before the end of the decade, and much larger quantities in due course. North America could be exporting more than 40 Bcf/d by 2030, and more depending upon future US projects now subject to politics. Canadian gas prices are still subject to US pricing less the theoretical cost of transportation and other dynamics. Higher export levels improve prices in both the US and Canada.Canada is already the 5th largest producer in the world. The IEA forecasts that by 2030 LNG will grow by half providing a huge opportunity for Canada to participate with the US, Qatar, and Australia in replacing coal and other uses around the world. The dinosaurs existed in North America for 200 million years. As the climate cooled and warmed, its normal cycles left deep layers of plant and animal deposits that, millions of years later, are now prolific natural gas sources. Some have been “proved” but the deep, wide and layered “resource” is estimated to provide at least a hundred years of production at today’s rate.ConclusionThe case for natural gas is overwhelming — leadership in a global industry, much-needed foreign exchange, supporting allies in need, partnering with aboriginal bands, reconciliation with Western Canada, and lowering emissions by replacing coal.For clarity the word replace can be misleading as demand for all fossil fuels continues to grow after evolutions from wood to coal, to oil, and now maybe to natural gas. The large populations of the undeveloped world are energy hungry, with demand up another 2% last year according to Energy Data.The overall theme of this four-part series is the importance of sensible economic policies that capture the financial, human, and environmental benefits of Canada’s energy sector and the economy.We ask those who supposedly represent our interests — the United Nations, governments in the US and Canada, and regulators and commentators — for more humility. This means less intervention in the personal and business activities of citizens. Again, it all starts with values and beliefs. Directing and limiting others comes from an assumption of superiority and their need to impose personal values on others. We have drifted away from the twin principles of individual freedom and the fact that humans, acting in their self-interest, are the foundation of prosperity.A sensible regulatory structure that continues to protect property rights and the environment will attract capital and make Canada a significant contributor to the reduction of global emissions while supporting global prosperity.Legislate, regulate, and get out of the way - it is that easy. But it requires honouring those values that, for almost three centuries, have provided democratic and market-oriented countries with unimagined prosperity. As much government as necessary, as little as possible.

PINDER: The future is natural gas

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