Expert gasses LNG myths

An energy expert is in town to talk myths that mess with our understanding of the natural gas industry.

"The myth of evergrowing cheap gas from shale is the big one," said David Hughes, a geoscientist and president of Global Sustainability Research Inc.

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Hughes is speaking at the annual lecture for UNBC's Natural Resources & Environmental Studies on Thursday night.

"The myth is that production will go up in a linear manner and keep going up."

Not so, according to his research into the major shale and unconventional gas sites in the U.S.

After the first three years, the well production typically declines by about 70 per cent and similar numbers should be expected in Canada.

"They typically have a core area which is the most productive and then they have a larger area which is less productive," he said, adding in that larger area more wells are needed to yield a similar output.

He referenced Texas' Barnett shale that peaked in 2011, the Haynesville Shale in Louisiana down 50 per cent from its peak in 2012, and Marcellus Shale in Pennsylvania, now 20 per cent below its peak.

"The wells don't get any cheaper, it's just that they're less economic."

His October 2014 report dubbed Drilling Deeper advises caution for those projecting a constant energy boom.

"B.C. is in a much earlier stage of development of its unconventional gas, however it's likely to follow the same trajectory as the U.S. plays will," said Hughes, who for 32 years worked at the Geological Survey of Canada as a scientist and research manager. "It's directly analogous. It's the same technology."

Despite the drop in oil prices - used to estimate LNG shipment prices - B.C. has maintained its projection of three terminals by 2020.

To Hughes, that's optimistic.

"My take would be somewhere between zero and two."

At the height of LNG hype about four years ago, gas costs in Japan were around $18, Hughes said. Compare that to the $6.80 US it brought in April, according to the Federal Energy Regulatory Commission.

"They'll probably go higher but if you look at the history of gas, it's been volatile," he said, also adding if North American costs rise, that affects the value of exporting. "Companies are extremely attune to these risks. That's why it's not surprising to me that none of them have made a commitment."

While private companies may bring their business elsewhere, state-owned companies like Petronas could still be convinced despite low gas costs and high oil prices.

"They also have energy security as a motive so they're looking to diversify supply. So even if they don't make a profit it may still be worth it from an energy security standpoint."

In Canada, natural gas consumption is second only to oil.

Alberta, he said, produces two thirds of Canada's natural gas while 28 per cent comes from B.C. Natural gas production peaked in 2002, he said and now sits at about 20 per cent below that level.

Hughes questions some of the numbers from the National Energy Board.

"They're calling for a continued decline in Canadian gas production up until about 2017 and then a miraculous reversal and a ramp-up to almost the peak level in 2002 by 2035."

That means B.C.'s gas production must increase by more than three times.

"What I've tried to do is understand as much as I can about the cost and how to make this as sustainable as possible going forward," he said.

"I don't think we're really looking at that in Canada. We're looking at how to liquidate our resources as fast as possible in the name of the economy of the government of the day."

We'll need them all, Hughes contends, but ultimately we should try to need non-renewable energy less.

"My thinking is we have to reduce consumption quite a lot," he said, adding Canada outpaces even Americans for energy consumption. "I would look at slowing the liquidation of the resource because we're likely to need it in the long term."

Hughes said there's no question natural gas will remain an important Canadian industry but it's a matter of scale.

"Canada really needs a real strategy for energy long term and I don't think we have that beyond how to get pipelines built and how to expedite projects like LNG terminals."

Hughes's talk, called BC LNG and the Shale Revolution: Myths and Realities is at UNBC's Canfor Theatre at 7:30 p.m Thursday. He will also speak Friday at UNBC from 3:30 to 4:30 p.m. in lecture room 7-238, giving a lecture titled The Energy Sustainability Dilemma: BC LNG, Oil, and the Shale Revolution.

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