British Columbia is on the brink of realizing tremendous economic gains from its natural gas industry, but that is largely tied to the continuing development of the Alberta oil sands and the success of the burgeoning liquefied natural gas business in the province, according to a Conference Board of Canada report.
The Conference Board report released on Dec. 17 examines the role of natural gas in the Canadian economy, predicting that B.C. should experience greater investment in natural gas exploration and production than any other province in Canada. B.C. should see almost $6 billion per year in natural gas investments over the next 24 years, amounting to $181 billion of the $386 billion to be invested across Canada overall.
"British Columbia faces the challenge of developing on two fronts: unconventional shale gas production and infrastructure to support liquefied natural gas exports," said Len Coad, director of environment, energy and technology policy with the Conference Board, explaining the level of investment in natural gas in B.C.
That infrastructure includes pipelines to connect natural gas plays in northeast B.C. – and potentially Alberta and Saskatchewan – to the west coast, where liquefaction plants and export terminals will also need to be built.
The report assumes that four LNG export projects will proceed at a total capacity of 20 million tonnes of natural gas per year.
"Which would be about half the capacity that's actually been proposed," said Coad.
That would transform Canada from a nation that doesn't export any LNG to the second largest supplier of LNG in the world.
However, there is still a degree of uncertainty around the LNG business.
"If that LNG production doesn't occur, then the related investments would obviously not occur," said Coad.
"I would suggest some caution … in terms of interpreting the upstream results in British Columbia if LNG doesn't go," he continued. "And the reason for that is it's a very complex and challenging issue to determine how much of that production that would have gone to LNG would still be developed for markets in California and British Columbia."
Coad indicated that although there is currently a surplus of natural gas in North America that makes exporting LNG possible, the domestic supply and demand situation could change in the future.
"Once you get about ten years into the forecast, ensuring that there's enough gas supply to meet all markets is more of an issue than it is today," said Coad.
"Some of the LNG production might occur anyway and be diverted to other markets."
The demand for natural gas for in situ mining operations in the Alberta oil sands – where natural gas is burned to generate steam for the steam assisted gravity drainage (SAGD) technique of oil extraction – is also uncertain because the pace of production in the future is tied to heavy oil pipeline projects such as TransCanada's Keystone XL and Enbridge's Northern Gateway that face stiff competition and so may never be built.
Coad suggests that natural gas consumption in the oil sands will decrease regardless as operators improve their efficiency.
"And the bitumen production forecast that we used is relatively close to the producers own view … over the next 10 to 15 years," said Coad. "And then our outlook beyond that flattens out."
The forecast issued by the Canadian Association of Petroleum Producers (CAPP) shows that bitumen production will continue to increase beyond that date.
"And the infrastructure required to get all that bitumen to market is a good question," he added, indicating that production could decrease without new infrastructure to export the resource.
"I think the report did a really good job at really laying out the obstacles and the opportunities for the industry," said Aaron Miller, manager of natural gas with CAPP.
"As the report stated," he continued, "despite the doubling of demand [for natural gas], our production in Canada is going to remain relatively flat. And that is primarily due to the large indigenous shale supply in the United States.
"They don't need as much Canadian gas as they used to. And, to boot, they are going to start penetrating and taking some of our own central and eastern Canadian markets."
That underscores the important role of exporting LNG to Asia in terms of Canada realizing the full economic benefits of its natural gas industry, as suggested by the Conference Board in their report.
Miller noted that oil sands development and power generation in Canada will also drive natural gas demand, but LNG is the prize.
"Getting the LNG offshore into those Asian markets is very competitive," he said.
Miller explained that it takes about ten days to transport LNG from Kitimat, B.C. to Asian markets, but it takes only seven days from Australia, one of Canada's biggest competitors in the LNG game.
"Literally, it's going to be a race to those markets," said Miller.
"So, although we have the federal government's approval for the LNG facilities, it's still not a given. There's still risk there. But we're confident that industry and the provincial government will create the environment for it to happen."
"LNG is a unique, historical opportunity for British Columbia and for Canada," said a ministry of energy, mines and natural gas spokesperson. "It's a new industry for the country that will create jobs, revenues and prosperity for British Columbians and Canadians.
"We are not the only jurisdiction looking to increase LNG capacity. So, maintaining our competitiveness in a timely fashion is essential."
If the Canadian LNG business is successful, the Conference Board predicts it will create 1.2 million person-years of employment and over $46 billion in tax revenue in B.C. over the next 24 years.
B.C.'s gross domestic product (GDP) is expected to increase by over $116 billion between 2012 and 2035 due to investments in natural gas, but Alberta's GDP is expected to rise by about $153 billion due to natural gas investments, despite trailing behind B.C. in that regard.
The economic impacts – direct and indirect – will extend across Canada.
For example, Ontario will see just 7 per cent of direct investments, yet see 18 per cent of the associated employment and 16 per cent of total labour income.
Quebec, Manitoba and Saskatchewan also stand to benefit.
"Most of the impacts that you see [in Ontario and Quebec] result from relatively modest direct investments in power generation in Ontario and natural gas distribution in Ontario and Quebec both," said Coad. "And then the rest of those jobs in those provinces are essentially manufacturing sector jobs to create some of the inputs required to make the investments in British Columbia and Alberta."
"The large industrial base in Ontario and Quebec – they're feeder industries right into the extraction process," said Miller.
Overall, the natural gas industry could mean an additional $1 trillion to the Canadian economy, as well as an average of 260,000 jobs per year, between 2012 and 2035.
Dawson Creek Mayor Mike Bernier knows well the impact a prosperous natural gas industry can have on an economy.
"As we've seen even this year, with the downturn a little bit in the oil and gas exploration, the impact it's had to programs and to the provincial budget, you start to realize how important this industry can be to [our] livelihood," said Bernier.
"Not only locally, but the impact it has provincially."
Indeed, Finance Minister Mike de Jong has blamed declining natural gas revenues for the $1.14 billion provincial deficit.
"When you look at the possible expansion of LNG to hit some of the world markets, now that takes it out of just British Columbia," Bernier continued. "This is more of a national situation now because you're going to have Saskatchewan, Alberta, those areas, that now can consider bringing their products right across to the Pacific Coast."
Bernier indicated that the LNG export business is crucial to realizing the potential of a "landlocked" natural gas resource in northeast B.C.
"Our shales are domestic, basically, just with the Americans and the Canadians," he said. "Because of that supply and demand issue, it's really hindered the growth of the industry."
LNG would be a game-changer in that respect.
Bernier noted that the Peace Region is currently seeing the benefits of natural gas exploration and production in northeast B.C., but he has concerns about how that could change with LNG.
"If LNG goes through, the anticipation is that the Peace Region will continue to grow that much faster," said Bernier. "And so we want to make sure that, at the end of the day, people have jobs and that we have that investment taking place locally.
"We want to make sure that we're always showcasing the fact that we want the jobs here, we want the businesses set up here, so that, from a community standpoint and a regional standpoint, we can be sustainable by keeping that money as local as possible."
Bernier hopes that the economic benefits felt in the Peace Region are proportionate to the social and environmental issues that can accompany the industrial growth associated with LNG.
As far as environmental impacts, Matt Horne, director of climate change initiatives with the Pembina Institute, said that the natural gas industry could be second to the oil sands in terms of Canadian greenhouse gas emissions growth if B.C. succeeds with its LNG strategy, but he also considers the local impacts.
"Concerns around hydraulic fracturing and water contamination and depletion," said Horne.
"I don't have a problem with Canada taking advantage of those economic opportunities. I think we just have to do so in a way that fully respects the environment."
"This is back to trying to find that balance of how we kind of coexist with the growth in industry," said Bernier.
"It's great to say that … it will bring a lot of prosperity … and jobs into the region, but there's some of these social impacts, environmental impacts that have to be considered on all of these projects any time there's growth. And that's whether it's oil and gas, agriculture, forestry.
"Every industry and every operation has its own impact in one way or another."
Bernier said it comes down to developing good relationships with the producers and ensuring they earn their social license to operate.
"They can invest here, they can do business here, but it's not at such a cost where people in the region will have to pay the price so somebody else can prosper."