Canadian Gas Exports Threaten Energy Security

2 Dec

From the Watershed Sentinel

November 2011

Sacrificing BC’s Energy and Environment for Profit

by David Hughes

by David Hughes

Download a pdf of this article or download a Word version of this article

Natural gas has been hyped of late as a way to reduce carbon emissions and reliance on oil and coal inbusiness-as-usual growth scenarios. Much of this speculation rests on new technology to produce gas from previously inaccessible shale reservoirs. 

Governing politicians in British Columbia have been particularly receptive to the perceived gold mine

 that could result from developing shale gas in northeast British Columbia and constructing the Pacific Trail Pipeline so that gas may be exported to Asia via a new terminal in Kitimat. Does this make sense considering the longer term interests of Canadians?

The Current Situation

Figure 1 – Canadian natural gas production from 1950 through 20102. Note the rapid growth of production after the end of the National Energy Program when “let the markets rule” became Canada’s de facto energy policy. Note also that all regions of Canada except British Columbia are past peak production.

Natural gas provided 22% of Canada’s total energy consumption in 2010. It is utilized in residential and commercial heating, electricity generation, as an industrial feedstock, and, of course, as a primary energy source for extracting bitumen from the tar sands.

Its use is forecast to grow by 43% in real terms through 2035, when natural gas would make up 25% of an expanded energy requirement, according to the venerable US Energy Information Administration (EIA)1. Unfortunately for the veracity of continual consumption growth projections such as those of the EIA and Canada’s own National Energy Board (NEB), natural gas is, like all hydrocarbons, a finite, one-time, non-renewable resource.

Canadian gas production peaked in 2001, and notwithstanding some record high prices and record drilling rates prior to the onset of the Great Recession in 2008, is now down 16% from that peak (Figure 1). All gas producing regions in Canada, with the exception of British Columbia, are past peak. The Western Canada Sedimentary Basin (WCSB), which is the source of 97% of Canada’s gas production, is a very mature exploration area. The largest pools, with the greatest net energy payback (ie. the amount of energy returned through gas production compared to the amount of energy expended in drilling and production), are typically found early in the exploration cycle.

The Law of Diminishing Returns inevitably takes over as basins mature, with ever greater expenditures of effort in terms of exploration and production for ever diminishing returns. This is illustrated for Western Canada by Figure 2, which shows that in just 15 years, the number of operating gas wells has tripled while the amount of gas produced by each well has decreased by two-thirds.

The Royalty Bonanza

Figure 2 – Number of operating gas wells in western Canada versus the average productivity of each well from 1995 through 20103. Note that the number of gas wells has tripled whereas the amount of gas produced by each well has declined by two-thirds in just 15 years.

Natural gas production has long been a royalty- and lease sale-revenue gravy train in Canada, particularly for politicians in Alberta, where it is the number one source of government revenue. Now that Alberta gas production is in steep decline (down 21% from its 2000 peak), and is expected to decline a further 32% by 20204, Alberta is running large deficits – an addict deprived of its gas revenue fix. BC politicians, who have long played second fiddle to Alberta when it comes to royalty and lease sale revenue, are salivating at the thought of ramping up production of shale gas in the northeast and development of one or more LNG export facilities to ship this gas to Asia, where it would command much higher prices than in North America. The questions thus become:

1) How rational is it, from a Canadian energy security standpoint, given that Canada is well past peak production, to be committing to long term gas exports to Asia?

2) What are the environmental implications of this when most of this gas is projected to come from highly controversial hydraulic-fracturing operations to produce shale gas?

Canada has had no energy strategy since the demise of the National Energy Program (NEP) in the mid-1980’s other than “let the markets rule.”5 Gas production from Canada’s best quality deposits ramped up after the end of the NEP until it peaked in 2001 (Figure 1), much of it sold at rock bottom prices through exports to the US. The NEB, ostensibly the country’s energy watchdog, became, after the NEP’s demise, a facilitator of the market-based push to expand production and exports. As a result, short term corporate needs for profit and growth rule the day, often at the expense of the longer term energy and environmental needs of Canadians. The Canadian Association of Petroleum Producers (CAPP) advocates a continuation of this practice6:

“A Canadian Energy Strategy must be grounded in a fundamental view that market forces are the key determinant in decisions on energy supply, transportation and use, both domestically and in Canada’s trading relationships.”

The Kitimat LNG export facility, which is the furthest advanced of a number of natural gas export proposals7, is yet another project in the long Canadian tradition of liquidating irreplaceable non-renewable resources as fast as possible in the name of revenue generation and economic growth.

Figure 3 – Forecasts of Canadian gas production since 2007. Forecasts are from the NEB in 20079 and 200910, Ziff Energy in 201011 and CAPP in 201112. Ziff forecasts exclude imported LNG and Compressed Natural Gas (CNG).

The Production Forecasts

Figure 3 illustrates Canadian gas production forecasts by the NEB, CAPP and Kitmat LNG consultant Ziff Energy. Notwithstanding the fact that Canadian gas production peaked in 2001, despite record amounts of drilling and high prices, these forecasts are all over the map. Virtually any outcome is covered, from natural gas deprivation and dependence on LNG imports to a surfeit. Most of the forecasts, however, present the current decline as temporary with a flattening out or rise in production in the medium term. This lends new credence to the old adage “the purpose of economists is to make astrologers look good.”

The realities of Canadian natural gas production show that the Law of Diminishing Returns is in control (Figure 2), and although significant new production may come from shale gas, its ability to offset declines from more conventional production is unlikely to happen, despite the wishful thinking of politicians, some bureaucrats and industry proponents.

Perhaps the most rational assessment of where natural gas production is going comes from Canada’s largest gas producer – Alberta – which projects that its production will decline by 32% over the next 10 years, despite the shale gas hype8. Strangely, British Columbia, despite its politicians’ enthusiasm for developing and exporting natural gas, has no equivalent provincially-sanctioned, publicly-available forecast of gas production.

Shale Gas

Figure 4 – Shale gas as a percentage of forecasts of Canadian gas production since 2007. Forecasts are from the NEB in 200714 and 200915, Ziff Energy in 201016 and CAPP in 201117 Ziff forecasts exclude imported LNG and CNG.

Production of natural gas from previously inaccessible shale deposits utilizing multi-stage hydraulic fracturing technology has been seized upon by the gas lobby and governments as a panacea for the energy woes of North America. The actual ability of shale gas to live up to this hype is questionable, for a variety of environmental, thermodynamic and geological reasons, which I attempted to address in a recent report for the Post Carbon Institute13. Public pushback against the environmental impacts of hydraulic-fracturing in the US is rampant and is growing in Canada and internationally (France has imposed an outright ban on the practice). Nonetheless, the entire rationale for the Kitmat LNG export proposal rests on the astronomical growth in the production of shale gas from northeast BC fields.

Kitimat LNG’s consultant, Ziff Energy, projects that shale gas will grow to 35% of Canadian production by 2035, partially offsetting declines from other gas sources. This amounts to a 17-fold increase from today’s production levels with all of the attendant impacts in terms of surface infrastructure, water consumption, contamination risks and so forth.

LNG Exports and Imperilled Energy Security

Figure 5 – Kitimat LNG consultant Ziff Energy’s projections of Canadian gas production and consumption from 2010 through 203521. The implications of exporting LNG from Kitimat and Shell’s proposed Prince Rupert facility on Canadian supply are shown. If both facilities are built, Canada will require natural gas imports by as early as 2023 to meet demand.

The LNG facility in Kitimat, if built, would initially export 5 million tonnes per year with potential for expansion to 10 million tonnes or more18 (0.65 to 1.3 billion cubic feet per day [bcfd] which is equivalent to between 4.5% and 9% of 2010 Canadian production). The proposed facility would be owned by two American companies, Apache (40%) and EOG (30%), as well as the Canadian company Encana (30%).

The proposal is based on the assumption of boundless shale gas production from northeast BC. Premier Christy Clark has signed on to the hype and supports the proposal19:

“Creating a new industry with the capacity to export BC’s natural gas to overseas markets for the very first time will instantly increase economic prosperity and create jobs. By adopting a more aggressive approach to the development of the natural gas sector, I am confident British Columbia can create a prosperous LNG industry that will bring local jobs to our communities and deliver important dollars into our economy.”

The Kitimat facility is the most advanced of several export proposals. Shell is considering a Prince Rupert (or Kitimat) LNG export facility in the range of 8.5-14 million tonnes per year (1.12 to 1.84 bcfd which is equivalent to between 8% and 13% of 2010 Canadian production), and a First Nations consortium is considering an additional Kitimat facility20.

As noted in Figure 1, Canadian gas production peaked in 2001 and all regions except BC are past peak. The rhetoric of Clark belies any knowledge or consideration for the longer term energy security requirements of Canadians.

Figure 5 illustrates Kitimat LNG’s consultant Ziff Energy’s forecast of Canadian gas production and consumption, and the impact of exporting LNG on Canadian’s future energy security. Even if no LNG is exported, Canada will become a net importer of gas in 2034 according to these forecasts.

At maximum capacity, the Kitimat LNG facility moves the time that Canada becomes dependent on natural gas imports up to 2030, and if the Shell LNG export facility is built this advances the date to 2023 – just 12 years away. Bear in mind that this is an absolute best case scenario requiring a 17-fold increase in shale gas production and the construction of the Mackenzie Valley pipeline to access northern gas. Both of these assumptions are questionable, and if they are not realized, Canadian energy security will be impacted even sooner.


Canadians, who after all are the owners of Canada’s natural gas resources, are served last when it comes to their longer term energy security and environmental interests. The lure of obtaining prices that are double or triple North American prices through LNG exports is impossible to resist for corporations looking at the near-term bottom line. The lure of royalty and lease sale revenue, and jobs building infrastructure and producing gas, is impossible to resist for politicians strapped for cash. This does not bode well for Canada’s energy future.

It is long past time to look at the bigger picture of our reliance on non-renewable sources of energy and develop a coherent strategy for managing the inevitable supply declines going forward. Fixation on short term corporate profits and short term political gains to the exclusion of longer term planning is a recipe for disaster.


David Hughes is a geoscientist who served for 32 years with the Geological Survey of Canada and is a Fellow of the Post Carbon Institute.


1. U.S. Energy Information Administration, International Energy Outlook 2010, Reference Case,

2. Data from Canadian Association of Petroleum Producers, Statistical Handbook, 2011, accessed September 10, 2011,

3. Ibid.

4. Alberta Energy Resources Conservation Board, Report ST-98,

5. Under the National Energy Program, the National Energy Board required that “Established reserves sufficient to meet current Canadian needs and anticipated export volumes for the next 25 years would be set aside before granting new export permits.” Canada had a reserves-to- production ratio of 10.8 years in 2010 according to the BP Statistical Review of World Energy 2011.

6. CAPP on Canadian Energy Strategy, July, 2011,

7. LNG trying to dock, Financial Post, July 1, 2011,

8. Alberta Energy Resources Conservation Board, Report ST-98,

9. National Energy Board, 2007, Canada’s Energy Future: Reference Case and Scenarios to 2030,

10. National Energy Board, 2009, Reference Case Scenario: Canadian Energy Supply and Demand to 2020,

11. Ziff Energy Group, 2010, Natural Gas Supply and Demand Forecast, North America and Canada (2010-2035),

12. CAPP, 2011, Canadian Natural Gas Production – two price scenarios,

13. J.D. Hughes, 2011, Will Natural Gas Fuel America in the 21st Century?, Post Carbon Institute,

14. National Energy Board, 2007, Canada’s Energy Future: Reference Case and Scenarios to 2030,

15. National Energy Board, 2009, Reference Case Scenario: Canadian Energy Supply and Demand to 2020,

16. Ziff Energy Group, 2010, Natural Gas Supply and Demand Forecast, North America and Canada (2010-2035),

17. CAPP, 2011, Canadian Natural Gas Production – two price scenarios,

18. Kitimat LNG, accessed September 10, 2011,

19. Press Release, September 19, 2011, B.C. Government to develop LNG industry,

20. Vancouver Sun, May 27, 2011, Shell says it’s looking at B.C. Coast for new LNG terminal,

21. Ziff Energy Group, 2010, Natural Gas Supply and Demand Forecast, North America and Canada (2010-2035),

[Watershed Sentinel, November-December 2011]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: