What to do, what to do?
This is the question facing the United States right now when it comes to natural gas exports. The decision, when it comes, will have impacts felt not only in the United States but around the world.
These days, TransCanada's pipelines are running at a much lower level than that of which they are capable. Shippers on their main line are being hit with higher tolls as a result of the lower volumes. It turns out the market for Canadian gas produced in the West is shrinking.
It's not due to global warming, either. People in the East, even south of the border, still need to heat their houses in winter. Canadian gas is being supplanted by much cheaper U.S.-produced shale gas. It's driven the price of natural gas on this continent to the bottom of the barrel, to use a bad pun.
Whereas 10 years ago there were concerns about soon running out of natural gas on this continent, the revolution in horizontal drilling - combined with multi-stage fracking - has led to burgeoning supplies. The nation that couldn't get enough gas is now looking at exporting it.
It's an appealing idea for producers. If you can liquefy it and ship it to another continent, you can potentially triple your return, or thereabouts. That's a big deal in any business.
But some Americans, particularly those in positions of power and influence, are saying, "Whoa! Hold on here! Let's think about this for a minute."
Natural gas these days, and for the foreseeable future, is cheap on this continent, much cheaper than its energy equivalent for oil. That has a lot of people looking at using it for a transportation fuel, supplanting diesel and gasoline. We've already seen that here in Saskatchewan, as CanElson Drilling has been converting many of its drilling rigs to run on compressed natural gas or diesel.
While it could be cheaper at the pumps, what's got the Americans thinking here is the competitive advantage cheap energy has for its industries, from petrochemicals to manufacturing.
There's a reason they call it the rust belt. The American Midwest, once filled with factories and middle-class workers with decent wages, whose suburban white-picket fenced homes were the epitome of the American dream, could use any advantage they could get right now. Cincinnati is currently focusing on tearing down abandoned houses instead of seeing new factories built.
Even the iPhone is "Designed in California, assembled in China."
The Americans have found they can't compete when it comes to the cost of labour. They can't compete, some would say, on quality. But perhaps they could compete on energy. If their factory input costs, at least energy-wise, were a fraction of those in Japan, Thailand or China, then maybe, just maybe, they have a shot at pulling the country out of its economic malaise.
Maybe if it cost less for their workers to drive to work using compressed natural gas cars, it would help. Maybe natural-gas powered electrical plants will be cheaper than alternatives. Maybe, maybe, maybe.
There are all sorts of issues that restrict exports. Existing free-trade agreements, for instance, mean the U.S. government theoretically can't stop Canada or Mexico from buying U.S. gas. But since we want to sell them gas, and likely Mexico does too, I doubt this is a problem.
But for countries that America does not have a free trade deal with, they can stop any exports they please.
Should U.S. gas producers be prohibited from getting the world price for their energy production, just so manufacturers have a better go at it? These are not easy decisions.
If they do choose to kibosh exports of natural gas, that could be good and bad for Canada. It will be good for us in that the world price, without American gas, would surely be higher for our exports. But first, we have to start exporting to someone other than the U.S., which means a whole lot of export terminals would need to be built in a hurry.
It also means that the vast majority of our exported gas will not be getting a good price since it is being exported to the American market. That has broad implications for the upstream industry, including drilling.
Any way you look at it, the implications for Canada are going to be substantial, even though the question at hand is regarding American interests.
Brian Zinchuk is editor of Pipeline News. He can be reached at [email protected]
