Expanding Natural Gas Markets Working Group Day 1 of PNWER Summit

The Expanding Natural Gas Markets Working Group session was widely attended by legislators from PNWER’s 10 member states and provinces, Alaska Governor’s office staff, federal agency officials from Canada and U.S., university professors, private investors and oil/gas industry leaders.


Ian Burkheimer, Director of Business Development at Plum Energy in Seattle, co-chairs the working group with Rep. Caddy McKeown of the Oregon State Legislature, representing Coos Bay, Oregon.


Concerns Associated with Natural Gas Development

Dan Kirschner, Executive Director of the Northwest Gas Association (member states are Oregon, Washington, Idaho and British Columbia), started the panel discussion by focusing on the concerns of the Pacific Northwest region’s legislators.


Kirschner said that in the last eight years, the Pacific Northwest has increased focused on how to use and take advantage of the region’s natural gas. He provided a detailed overview and video about hydraulic fracturing (“fracking”) methods and other conventional and unconventional development. Burkheimer noted fracking is just one-step in a multi-step process in developing liquid natural gas (LNG).


Kirschner said there are four issues of concern in fracking – water, water, water and air:

  1. To protect groundwater in the fracking process, LNG wells are drilled vertically down through groundwater, with the wells isolated from the groundwater around them. One-half of one percent of fluids are chemicals other than sand and water, but three to five million gallons of water are needed for well completion. This may not sound like a lot, but 0.5 percent of that amount is 15,000 to 25,000 gallons or more of other particles, from which groundwater must be protected.
  2. Water use is another major concern as freshwater is a cost-setter for the industry. The three to five million gallons of water used per frack amounts to less than one percent of all water. To preserve agriculture and personal use water located close to the fracking sites, the industry is working to recycle as much water as it can, and to reduce water use.
  3. Water disposal is a concern given the problems associated with each disposal method. The three main ways to dispose of fracking water are to dump it into specially built pits for evaporation, channel it through water treatment plants, and inject it into underground disposal wells, which has been shown to contribute to seismic activity.
  4. Regarding air, methane emissions are a concern. “It’s not as much as we thought,” Kirschner said. “And where they are released, the results are skewed, with few locations for actual emissions.” BC highly regulates methane emissions, for example.


Between 1990 and 2004, while shale resources were not assessed, total available LNG resources were stable, Kirschner said. In 2006 through 2014, the estimated number of total available LNG resources increased by 125 percent because of new technology used to access known resources. An estimated 191 trillion cubic feet of LNG was available in 2014, he added.


In general, while there is less LNG input, volumes and forecasts continue to increase because of technical improvements and a better understanding of LNG production.


Kirschner said oil and gas spot prices started to disconnect in 2008 due to the recession, and improvements in LNG development technology. Until 2008, gas and oil prices were tied closely together.


Highlighting that LNG is the up-front least expensive resource, Kirschner concluded, “The only thing we know about natural gas forecast prices is they’re always wrong.” He noted the core residential, commercial and industrial markets for LNG in Washington, Oregon, Idaho and British Columbia are growing extremely slowly.


Northwest Energy Supply and Asia Markets

Dr. Abraham Kim, Director of the Maureen and Mike Mansfield Center at the University of Montana, covered the Northwest Energy Supply and Asia Markets.


Dr. Kim said the U.S. will be a net exporter of LNG by 2017, and by 2030, the U.S. will be a net exporter of all fuels. The booming shale revolution, greater energy efficiencies, tighter regulations, and improved technology are driving the outcome, he said. Also at the core is Asia’s exploding demand for energy.


Dr. Kim described the dialogue and outcomes of the Asia Montana Energy Summit, hosted by the University of Montana in April 2015. The summit highlighted Asia’s growing demand for energy consumption, focusing on South Korea, China and Japan.


Asia’s Economic Demands

Dr. Kim said the Asia-Pacific region economies will grow collectively by 7 percent, and will account for 70 percent of the world’s electricity demands. Fossil fuels will still be the major energy source, but renewables will be significant. From 2010 to 2035, more than half of the world’s energy consumption will be in Asia.


With nearly 1.4 billion people, China is the world’s largest energy consumer, with coal (60 percent), oil (20 percent) and natural gas (5 percent) supplying most of their energy resources. Japan and South Korea do not have their own natural resources to develop, Dr. Kim said. While China has some of the best deposits, plus hydropower capabilities, its consumption is outpacing production.


Dr. Kim also said China is dependent on pipeline gas. Qatar provides 34 percent of China’s LNG imports, and China is working with Russia on LNG imports, and working with Pakistan to bring in Iranian gas.


One of the most significant developments, however, is a paradigm shift in China’s efforts to deal with pollution. At the conference, a senior Chinese leader said China’s priority is no longer energy, but the environment. With China’s high level of economic development, the focus is shifting from survival to the quality of life and standard of living. Coal consumption has reduced from 66 percent to 60 percent, and by 2020, renewables will account for 15 percent of energy consumption. In the last two years, China spent $425 billion on renewable energy.


Japan is the world’s largest natural gas importer, second largest coal importer, and third largest crude oil importer. Before the Fukushima disaster in March 2011, Japan was the third largest nuclear energy producer, until they lost 20 percent of its nuclear capacity. LNG, along with some coal and oil, filled the gap in resources.


Japan is now looking for cheap LNG sources, including bank loan incentives to Japanese companies to purchase LNG (read more here from the U.S. Energy Information Administration about this and Japan’s LNG market).


South Korea is the second largest LNG importer, depending on tanker shipments, and imports 97 percent of all its energy resources, making the country vulnerable and dependent on trade.


Japan mostly depends on Southeast Asia and Middle East sources, and five percent on Russia, which had planned in 2008 to build a pipeline from Sakhalin, Russia, through North Korea to South Korea, a route with major risks.


Asia faces energy security challenges, but provides opportunities for more investment in North America. Other promising ventures and opportunities include an aggressive Australia and Qatar, already one of the world’s largest LNG exporters. Together they account for 50 percent of world’s LNG exports. Dr. Kim posed the question: “Will the U.S. be able to capitalize on these opportunities?”


Low oil prices have brought down LNG prices as well, which can lower LNG project profitably and progress.


Political Demands

Highlighting the political impact of Asia’s growing energy consumption, Dr. Kim said the U.S. needs to protect stability in the Middle East as 80 percent of Middle East oil and gas goes to Asia. He said the U.S. is the only country with the strategic ability to stabilize the Middle East.


International sea-lanes and delivery routes also need to be stabilized, he said. The Straits of Malacca—a transit route for 80 percent of world’s oil and gas—is vulnerable to piracy. China’s expanding control of the South China Sea could affect 60 percent of the world’s oil and gas shipments. Dr. Kim encouraged the U.S. to remain engaged in the Asia-Pacific region to promote both stability and resource diversification.


Concluding his presentation, Dr. Kim recommended the following action items to PNWER:

  • Invite Asian policy and business leaders to be part of the discussions to move forward with cooperation and innovation.
  • With the Trans-Pacific Partnership and other Free Trade Agreements, Pacific Northwest businesses have an opportunity to engage. Small and medium businesses, however, also need strong support to access the Asia energy market.
  • Encourage universities to become involved in finding innovative solutions for the toughest energy development problems that governments have not had the capacity to solve.


Asked why the U.S. should send natural gas to market now, and not let other nations exhaust their resources first, Kirschner answered, “Because it (the U.S.) needs to find a home, and needs to link resources to demand.” Dr. Kim said the U.S. is not the only player in natural gas and Australia is its biggest competitor. Timing provides a window of opportunity because Asian partners are looking for accessible resources now.


Climate change is driving demand away from carbon-intensive fuel sources, Dr. Kim elaborated. The U.S. should get gas to market when buyers are ready to buy. “There are entities who want to see a return on investment, which warrants producing the resources today, not 50 years from now even if it might be more valuable,” he said.


One attendee from Alberta said natural gas producers and the farming industry have tensions over fracking because of the large volume of water used. He asked Kirchner and Dr. Kim if other technology that does not use as much freshwater is available for shale production.


Kirschner responded that a large number of producers are trying to drive down the cost of water, either by recycling or by using water that is not otherwise useful. He referenced a growing company, Water Tectonics in Bellevue, WA, which pretreats fracking water for oil and gas producers.


A resident of Montana said the biggest threat to coal use is not environmental regulation, but natural gas. Kirschner responded that while regulations are driving up coal costs, natural gas is still abundant. Even if the two achieve price parity, fuel prices still have risk.


As an action item, Kirschner later proposed that PNWER work with Dr. Kim and the University of Montana to learn more about natural gas production opportunities in the region, and the technology needed to exploit it.


Ines Biccinino, Assistant Deputy Minister of the Upstream Development Division at the Ministry of Natural Gas Development of British Columbia, gave a presentation on the responsible production and regulation of natural gas.


Biccinino said her ministry is a policymaker with the BC Oil and Gas Commission, and regulates with all activities within BC.


BC accounts for about 30 percent of Canada’s natural gas production, Biccinino said. As more reserves are discovered, gas is not a scarce commodity in Canada anymore. She said BC has a deep royalty program, which, by creating a favorable fiscal regime, has contributed to the shale industry’s success.


Biccinino also discussed the successful engagement and consultation with BC First Nations and local governments. Specifically, in Treaty 8, First Nations work closely with the Oil and Gas Commission and actively participate in market negotiations. The treaty also established a timeline for First Nations consultation.


Most of the First Nations in BC see the economic opportunity, are largely in favor of natural gas development, and have signed agreements, Biccinino said.


Vern Wadey, Vice President of Jordan Cove LNG in Coos County, Oregon, described how his company serves the Asia Pacific natural gas market. As oil and coal decline, natural gas has increased and is now on par, though renewable energy is growing as a percentage of energy portfolios.


Traditional buyers and customers of U.S. natural gas include Taiwan, China, South Korea, and Japan among Southeast Asian countries, along with India. With its high petroleum consumption, Hawaii is also a potential LNG consumer.


Canada and the U.S. could supply 80 billion cubic feet of LNG per day, Wadey said, but do not have the capacity to produce it. He expects LNG export capacity from Canada and U.S. to increase to 10-12 billion cubic feet per day.


Wadey also said logistics and shorter shipping distances give the U.S. West Coast a competitive advantage over the U.S. Gulf Coast. That difference makes up for the more expensive “green” facility at Jordan Cove and other locations in the region.