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To Asia from Canada: Natural Gas via the Oil Sands

COMMENTARY—ProspectingJournal.com— With a deep recession looming and the world awash with joblessness, debt and fear, it seems that Canadians are still on a somewhat solid footing thanks to our dumb luck of living in a land with vast resources. But with our biggest trading partner stumbling towards the wrong door, the need to funnel our resources into Asia is greater than ever. The proposed Keystone project leading to the US, despite protests, will likely go ahead. So, I am guessing, will Shell Oil’s proposed Liquid Natural Gas (LNG) terminal in Kitimat, BC, offering our precious hydrocarbons to the Asian market.

Natural gas has taken a beating these last couple years, with the discovery of shale gas in the US having dealt a strong blow to Canada’s industry and a falling off of domestic demand. Despite its use as a key component in the oil sands extraction process, heating houses, fertilizers and power generation, natural gas now finds itself in a period of being the unpopular kid. Its discovery is often reported as an annoyance from drillers hoping to hit black gold, as the low price ($3.62 as of today) doesn’t equate to large profits. But there’s lots of it, it powers, separates and makes things, we know where to find it and we have the infrastructure in place to extract, store, and ship it.

An abundant resource like this, of course, can only stay out of the spotlight for so long. Thus its no surprise that Shell Oil has staked its position by purchasing the terminal from Cenovus Energy Inc. [CVE – TSX], along with partners Korea Gas Corp., Mitsubishi Corp. and China National Petroleum. As the names of Shell’s partners imply, the idea is to ship as much natural gas as possible to the Asian giants. In fact, the site could export approximately 2 billion cubic feet of gas per day, which is two thirds of BC’s current gas production. The gas would likely travel via a pipeline traveling along the same route from Alberta’s oil sands, which many suggest should follow Enbridge Inc’s [ENB – TSX] “Northern Gateway.”

Sounds like two things for Canada: jobs and money—and during the current global climate this says a lot. With doomsday economic reports coming out of the western countries, an opportunity to increase exports to Asia should probably be welcomed with open arms. The provincial and federal governments have stressed their commitment to establish stronger ties with Asia, so now’s their chance.

Whether the environmentalists have much say in the development of the terminal remains to be seen. Their valid concerns centre around the hydro electricity used to power the terminal, the danger of the highly explosive terminal itself, and the risk of yet another dangerous pipeline.  And Shell, let’s be honest, doesn’t exactly have a great track-record with environmentalism (see: Nigeria). Another deep concern is the ongoing depletion of our natural resources, gas being one of them. If we ship it to China, will we not stop until it’s gone? Then what?

At the end of the day, as the Keystone project will likely show, resource-based developments will triumph, for good or evil. As the current #Occupy_____ movements show, increasing unemployment and decreasing wealth are, perhaps, just as much of a recipe for national disasters as environmental degradation. The hard-hit job-seekers in Canada may find that their ideals, like those of so many others, tend to wane in the face of basic economic survival. And judging from the support this terminal is gaining from the government, it’s only a matter of time before we connect the hose and start the pump.

Chris Devauld
ProspectingJournal.com

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Disclaimer – The author does not own shares in the companies mentioned in this commentary.

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