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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.

Economy

Taxpayer watchdog slams Trudeau gov’t for increasing debt ceiling: ‘Put down the credit card’

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From LifeSiteNews

By Anthony Murdoch

Canadian Finance Minister Chrystia Freeland authorized an additional $73 billion in borrowing this fiscal year.

After Canadian Finance Minister Chrystia Freeland gave herself and the government the authority to borrow an additional $73 billion this fiscal year, the head of the nation’s leading taxpayer watchdog group said the federal government needs to “put down the credit card” and return to common-sense spending.

Freeland, as per a February 15 cabinet order made under the Financial Administration Act, allowed the extra borrowing to take place.

The government has set “$517 billion to be the maximum aggregate principal amount of money that may be borrowed” before April 1. Before this cabinet order, however, the maximum amount was $444 billion.

Despite Freeland claiming that the increase in borrowing is “in no way a blank cheque,” Canadian Taxpayers Federation federal director Franco Terrazzano said the borrowing needs to end.

“The Trudeau government needs to put down the credit card and pick up some scissors,” Terrazzano told LifeSiteNews.

“The government should be cutting spending and balancing the budget, not racking up more debt for years to come.”

In 2021, Canada’s Parliament raised the federal debt borrowing amount by a whopping 56% under the Borrowing Authority Act. The amount went from $1.168 trillion to $1.831 trillion.

“What it does is set a ceiling for how much the government can spend,” Freeland said at the time.

Terrazzano told LifeSiteNews that the Trudeau government should be cutting spending and balancing the budget, not racking up more debt for years to come.

Terrazzano observed that in the coming year the Trudeau government will be spending “more money on debt interest charges than it sends to the provinces in health transfers.”

“In a handful of years, every penny collected from the GST (Goods and Service Tax) will go toward paying interest on the debt,” he noted.

Under Prime Minister Justin Trudeau, due to excessive COVID money printing, inflation has skyrocketed.

Last month, LifeSiteNews reported that fast-rising food costs in Canada have led to many people feeling a sense of “hopelessness and desperation” with nowhere to turn for help, according to the Canadian government’s own National Advisory Council on Poverty.

Last year, the Bank of Canada acknowledged that Trudeau’s federal “climate change” programs, which have been deemed “extreme” by some provincial leaders, are indeed helping to fuel inflation.

Terrazzano told LifeSiteNews that Trudeau should “completely scrap his carbon tax,” which is making everything more expensive.

Conservatives blast increased debt

Conservative Party of Canada (CPC) MPs have been critical of the raised debt ceiling. “You’re simply saying, ‘Give me a blank cheque and then trust me,’” MP Ed Fast said.

Freeland claimed that the “characterization of the borrowing authority limit as a blank cheque is simply false.”

CPC leader Pierre Poilievre recently asked, “Is there a dollar figure to which she would limit the debt?”

She replied that the government is “mindful that limits exist.”

During a February 13 Senate national finance committee meeting, Budget Officer Yves Giroux noted how Trudeau’s cabinet plans in terms of spending are not clear.

“We don’t know exactly what the government plans on spending or doing in terms of new spending or potential spending,” he said when asked by Senator Elizabeth Marshall if the new borrowing limits are “still realistic.”

Marshall added, “As it stands now, do you think it looks reasonable?”

“It looks sufficient, but the government always wants to give itself some room to maneuver in case there are unforeseen events that require borrowing on short notice,” Giroux replied.

A report from September 5, 2023, by Statistics Canada shows food prices are rising faster than headline inflation at a rate of between 10% and 18% per year.

According to a recent Statistics Canada survey of supermarket prices, Canadians are paying 12% more for carrots, 14% more for hamburger (ground meat), and 27% more for baby formula.

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Inflation

Trudeau’s carbon tax rebrand lipstick on a pig

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From the Canadian Taxpayers Federation

Author: Franco Terrazzano

the Liberals are now calling it the ‘Canada Carbon Rebate.’

The Canadian Taxpayers Federation is criticizing the federal government for rebranding its carbon tax rebate instead of providing relief by scrapping the tax altogether.

“Prime Minister Justin Trudeau’s carbon tax rebrand is just lipstick on a pig,” said Franco Terrazzano, CTF Federal Director. “Canadians need tax relief, not a snappy new slogan that won’t do anything to make life more affordable.”

“The federal government is rebranding the carbon tax rebate,” reported CTV News today. “Previously known as the Climate Action Incentive Payment, the Liberals are now calling it the ‘Canada Carbon Rebate.’

“The change does not come with any adjustments to how the federal fuel charge system and corresponding refund actually works.”

The carbon tax will cost the average family up to $710 this year even after the rebates, according to the Parliamentary Budget Officer.

The federal government is increasing the carbon tax again on April 1. After the hike, the carbon tax will cost 17 cents per litre of gasoline, 21 cents per litre of diesel and 15 cents per cubic metre of natural gas.

“Trudeau’s real problem isn’t that Canadians don’t know what his government is doing, Trudeau’s real problem is that Canadians know his carbon tax is making life more expensive,” Terrazzano said. “Instead of a rebrand, Trudeau should scrap the carbon tax to provide real relief.”

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