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Economy

ON LOW NATURAL GAS PRICES…

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15 minute read

From the Frontier Centre for Public Policy

By Terry Etam

To say that “natural gas is a dying commodity” takes either some world-class mental dishonesty, disturbingly blind faith in policy over reality, or some kind of “clouds hate me” philosophical stance on life.

Is there any critical industrial material as bizarre as natural gas?

The stuff holds almost zero interest for the general public, for the same reason no one is interested in the sound of a washing machine. Both boring. Both ubiquitous. Natural gas isn’t even sold on Amazon. But forty-six percent of American homes use natural gas for heat, and surely more in Canada.

But consider the storm below the surface. Traders love it, because it is one of the most volatile commodities in existence, and volatility means trading profits. The volatility, at the slightest provocation, is almost unbelievable at times. The weather pattern shifts for three weeks out over a portion of the US and boom – the entire forward 18 months of prices can collapse or soar.

In the bigger picture though, natural gas today in North America trades at close to the same price it did a quarter century ago – not inflation adjusted, just the same old nominal dollar value, which is astonishing since global gas demand has increased by 60 percent in that time.

Natural gas is a critical fuel for much of the world, and usage is growing, particularly the relatively new field of LNG. According to the Global Gas Infrastructure Tracker website, which doesn’t even like the stuff, there are a total of 2,449 significant pipeline projects underway in the world for a total of 1.2 million kilometers (and that’s the big pipe, not the little straws that go to your house). There are 238 LNG import terminals and 189 export trains in development globally. One hundred and thirty countries either have natural gas systems or are constructing them.

Traders, consumers and businesses love the stuff even if they don’t say it often enough, while others loathe it because it is a ‘fossil fuel’. Natural gas is caught in an existential war whereby said opponents will do everything in their power to just make it go away (they really think they can). The Toronto Globe and Mail, “Canada’s news paper” (note to self: develop ethnocentric balloon head emoji, make millions), recently ran a pricelessly ludicrous opinion piece entitled ‘Natural gas is a dying commodity, and Canada needs to stop supporting it’. The article was written by one of those think tanks (International Institute for Sustainable Development) that produces nothing but ideological amplification, safely distanced from people that actually do stuff, and a mountain of impressive T4 income tax slips (latest fiscal year personnel/consultant expense: $33 million). There is no surprise that their team of political scientists would attack natural gas; their latest financials show that the Government of Canada granted them $40 million, a third of which is from climate activist/federal minister Guilbeault’s office. There’ll be no biting that little hand.

Many climate leadership icons of the world, the US, Canada, Western Europe, Japan… pretty much anyone that can, is building natural gas (LNG or non) infrastructure as fast as they can. Germany, home to the world’s most advanced green energy demolition derby, built an LNG import terminal in an astounding 5 months. Many that want to import LNG but weren’t able to last year because Europe hoovered up every molecule on the market are simply doing what it takes to attain energy security, and that can mean, lord tunderin’, coal. Pakistan is the most notable example – the country plans to quadruple coal fired power output and move away from gas only because it could not obtain it: “A shortage of natural gas, which accounts for over a third of the country’s power output, plunged large areas into hours of darkness last year.” The country’s energy minister went on, “We have some of the world’s most efficient regasified LNG-based power plants. But we don’t have the gas to run them.”

For those fortunate enough to line up LNG supplies, the ante is normally a 15-20 year contract.

To say that “natural gas is a dying commodity” takes either some world-class mental dishonesty, disturbingly blind faith in policy over reality, or some kind of “clouds hate me” philosophical stance on life.

Beyond the silly messaging looking to undermine natural gas though are some very powerful undercurrents that are shaping the world in ways most don’t consider, but they should.

Thanks to the shale revolution in the US and Canada, native natural gas production exploded onto a scene that couldn’t handle the excess, leading to persistently low prices. North America is turning into an LNG export powerhouse, but until that export capacity outpaces productive capability, natural gas prices in North America look set to remain far below global prices.

It is worth remembering how significant this scenario is for North America. Cheap natural gas is an industrial godsend, enabling many strata of industries and enterprises that simply would not exist without. In May of 2022, the head of the Western Equipment Dealers Association, said that the previous winter’s high natural gas prices were unsustainable for businesses that had to heat 30-40,000 square-foot shops. The 2021-22 winter of which he was discontented saw Henry Hub prices average $4.56/mmbtu – about a third of global prices, and a fraction of what the world was to face later that year.

The same article pointed out how the Industrial Energy Consumers of America, a trade group whose members include smelters, plastics and paper-goods makers, wanted the US to stop permitting new LNG export terminals because “The manufacturing sector cannot invest and create jobs without assurances that our natural gas and electricity prices will not be imperiled by excessive LNG exports.”

Those guys aren’t crazy. The US gas market is balanced on a knife edge. A change in next month’s forecast can create havoc in forward prices even up to several years out.

The rise of LNG is making things even more unstable. The Freeport LNG terminal had an 8 month outage due to an accident, removing 2 bcf/d of demand from the market (in a 100 bcf/d market); this single event caused a storage surplus in the US that has depressed natural gas prices ever since. All else being equal, the US natural gas storage scene would be in a deficit to the five year average as opposed to today’s surplus if Freeport had not gone down, and both spot and futures prices would most likely be significantly higher. The Freeport outage probably knocked US natural gas prices down by at least $1/mmbtu for a period of 8 months, and actually probably much more. But even at that level, in a 100 bcf/d market, where 1 bcf is equal to 1 million mmbtus, the cost savings to US consumers totaled $100 million per day. (Of course, had the price stayed higher, we might have seen far more drilling, which may have caused a collapse as well, just a bit further down the road.)

That $100 million per day cost saving came out of the hide of North American natural gas producers selling into that market, and you’d think they wouldn’t like that one little bit. And they don’t. But gas producers have their own realities and game plans which don’t generally involve sacrificing any of their sales for the good of all other producers, as economically sensible as that strategy may be.

US producers find themselves in an odd situation. Every one of the large producers knows that they could cut production by 5 percent and double their profits; the market is that tightly balanced. Doing so would single handedly drive up NG prices substantially – just observe how the gas market goes ape over a change in weather forecast.

But driving up prices, even if it is in their own self interest, will mean a spike in production, because at sustained $4 US gas, the market becomes flooded. EQT president Toby Rice, the largest US gas producer (EQT, not Toby), says at a sustained $4/mmbtu natural gas price, the US could export 60 bcf/d of natural gas. Keep in mind that $4 gas is a fraction, anywhere from a third to ten percent of global LNG prices.

Mr. Rice may very well be correct, but glosses over the reality of natural gas prices: we will never see a sensible sustained price like $4, even though we may average it – we will see 2 and 8 and 3 and 9 and so on and so on.

On top of this, solution gas from oil plays like Permian is providing massive amounts of gas in itself. The Permian, primarily an oil field, produces more solution gas than the entire country of Canada. Permian solution gas, if a stand alone country, would be one of the world’s top five largest producers.

So who cares? Well, you all do. We all do. The goofballs that wrote the Globe & Mail article do, though they either won’t admit it or simply refuse to understand.

Natural gas is the bedrock of most economies, and cheap natural gas is a special elixir to North America. It is absolutely crucial to the level of industrial activity we enjoy. There is no substitute for the clean burning capability of the stuff. Wander into a typical big box store or more crucially try to wander into an industrial building that you won’t be allowed to because it is unsafe… drive around an industrial park and look at all the magnificent industrial activity that gives us the life we live. Now imagine those being heated by wood stoves. Or solar panels in dead of winter. Geothermal? Sure, if you plan on drilling into the earth’s mantle. And if you live on an appropriate acreage. And have enough money. I guess there’s always coal.

And that sums up a lot of the world’s population’s situation: If countries aren’t building LNG, it’s likely because they are building coal, as in the countries that Europe outbid for LNG last winter in a shocking me-first display of hydrocarbon-swilling (accompanied by fossil-fuel-subsidizing self-loathing?) hypocrisy.

There are storm clouds on the horizon. The drilling efficiency that these companies boast about relentlessly in IR presentations and every 90 days in conference calls consists to a large degree on drilling longer horizontal wells. Do the math on that one. Reservoirs are finite in size. If you increase the length of wells by another mile or two, you’re just draining the reservoir faster. One day we will see true sweet spot exhaustion, which is not a laughing matter when one considers that three fields – Appalachia, Haynesville and Permian – account for more than 70 percent of US gas production, and about a fifth of global production.

But for now, North America reigns supreme with respect to the world’s most coveted heating and industrial fuel. The US, Canada and Mexico remain more or less isolated from global natural gas prices for now, which brings incalculable benefits to North American businesses and citizens, a benefit that shouldn’t be taken for granted.

Terry Etam is a columnist with the BOE Report, a leading energy industry newsletter based in Calgary.  He is the author of The End of Fossil Fuel Insanity.  You can watch his Policy on the Frontier session from May 5, 2022 here.

Business

Saskatchewan becomes first Canadian province to fully eliminate carbon tax

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From LifeSiteNews

By Clare Marie Merkowsky

Saskatchewan has become the first Canadian province to free itself entirely of the carbon tax.

On March 27, Saskatchewan Premier Scott Moe announced the removal of the provincial industrial carbon tax beginning April 1, boosting the province’s industry and making Saskatchewan the first carbon tax free province.

“The immediate effect is the removal of the carbon tax on your Sask Power bills, saving Saskatchewan families and small businesses hundreds of dollars a year. And in the longer term, it will reduce the cost of other consumer products that have the industrial carbon tax built right into their price,” said Moe.

Under Moe’s direction, Saskatchewan has dropped the industrial carbon tax which he says will allow Saskatchewan to thrive under a “tariff environment.”

“I would hope that all of the parties running in the federal election would agree with those objectives and allow the provinces to regulate in this area without imposing the federal backstop,” he continued.

The removal of the tax is estimated to save Saskatchewan residents up to 18 cents a liter in gas prices.

The removal of the tax will take place on April 1, the same day the consumer carbon tax will reduce to 0 percent under Prime Minister Mark Carney’s direction. Notably, Carney did not scrap the carbon tax legislation: he just reduced its current rate to zero. This means it could come back at any time.

Furthermore, while Carney has dropped the consumer carbon tax, he has previously revealed that he wishes to implement a corporation carbon tax, the effects of which many argued would trickle down to all Canadians.

The Saskatchewan Association of Rural Municipalities (SARM) celebrated Moe’s move, noting that the carbon tax was especially difficult on farmers.

“It puts our farming community and our business people in rural municipalities at a competitive disadvantage, having to pay this and compete on the world stage,” he continued.

“We’ve got a carbon tax on power — and that’s going to be gone now — and propane and natural gas and we use them more and more every year, with grain drying and different things in our farming operations,” he explained.

“I know most producers that have grain drying systems have three-phase power. If they haven’t got natural gas, they have propane to fire those dryers. And that cost goes on and on at a high level, and it’s made us more noncompetitive on a world stage,” Huber decalred.

The carbon tax is wildly unpopular and blamed for the rising cost of living throughout Canada. Currently, Canadians living in provinces under the federal carbon pricing scheme pay $80 per tonne.

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2025 Federal Election

Fight against carbon taxes not over yet

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By Franco Terrazzano 

As the federal government removes the consumer carbon tax, the Canadian Taxpayers Federation is calling on all party leaders to oppose all carbon taxes, including the hidden tax on business.

“Canadians fought hard to force Ottawa to back down on its consumer carbon tax and now the fight moves to stopping the hidden carbon tax on business,” said Franco Terrazzano, CTF Federal Director. “Canadians can’t afford a carbon tax on business that pushes up prices at the gas station and makes it harder for our businesses to compete while they’re already struggling with a trade war.”

Today, the federal government cut the consumer carbon tax rate to $0. This will reduce taxes by about 17 cents per litre of gasoline, 21 cents per litre of diesel and 15 cents per cubic metre of natural gas.

The federal government still imposes an industrial carbon tax on oil and gas, steel and fertilizer businesses, among others.

During the Liberal Party leadership race, Prime Minister Mark Carney said he would “improve and tighten” the industrial carbon tax and “extend the framework to 2035.”

Just 12 per cent of Canadians believe businesses pay most of the cost of the industrial carbon tax, according to a Leger poll commissioned by the CTF. Meanwhile, 70 per cent said businesses would pass most or some carbon tax costs on to consumers.

Conservative Party Leader Pierre Poilievre said he will “repeal the entire carbon tax law, including the tax on Canadian businesses and industries.”

“Carbon taxes on refineries make gas more expensive, carbon taxes on utilities make home heating more expensive and carbon taxes on fertilizer plants increase costs for farmers and that makes groceries more expensive,” Terrazzano said. “Canadians know Poilievre will end all carbon taxes and Canadians know Carney’s carbon tax costs won’t be zero.

“Carney owes Canadians a clear answer: How much will your carbon tax cost?”

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