Calgary鈥� We鈥檝e often heard compelling arguments about why it is so important to get our oil to tidewater, but we don鈥檛 often hear the case for natural gas. Yet there is a very strong one 鈥� in particularly the opportunity to double, or more, the current gas prices. In fact, it鈥檚 bigger than that, as the current disfunction in the domestic gas markets has led to gas producers, at times, giving away their product for nothing, or even paying for it to be taken away.
Jason Skehar grew up on a farm near Theodore and got his mechanical engineering degree from the University of Saskatchewan in 1994. These days he鈥檚 the president and CEO of Calgary-based Bonavista Energy.
Skehar will be talking in Regina on Sept. 4 at a Saskatchewan Chamber of Commerce luncheon as part of Energy Week. Similar events are happening across the country in early September, with a number of oil and gas CEOs talking about Canada鈥檚 role in the global future energy mix. Skehar will also be taking part in a panel later that afternoon with the Petroleum Technology Research Centre.
Pipeline News聽spoke to Skehar at length by phone on Aug. 23.
Founded in 1997, Bonavista Energy is principally a natural gas and oil producer. Skehar started with Bonavista very early on, as a production engineer in 1999. By 2012, he had worked his way up to president and CEO.
The company has roughly 65,000 boepd production in west central Alberta (gas), Deep Basin (gas) and East Duvernay (oil). The company is weighed 70/30 gas to oil.聽
鈥淭his event is largely centred around Energy Week,鈥� Skehar said. 鈥淭he whole purpose of guys like me participating in Energy Week is to continue to bring transparency to the role energy plays in our society, and in our lives as Canadians. As we think about market access, having one customer in Canada for our fossil fuel energy, we are experiencing some tremendous discounts for the products we produce, and as a result are going through some very, very challenging times. So, when I think of market access, I connect these challenges we鈥檙e faced with in Canada, with finding alternative markets or expanded markets associated with the constant growth in demand for energy around the world.
鈥淚 think to myself, what an opportunity we would have, as a nation, and all the strengths we have as Canadians to find an efficient way to develop alternative markets, other than the one buyer we have for our product today.鈥�
It鈥檚 no coincidence that Bonavista鈥檚 current corporate presentation on its website starts off with several pages highlighting the importance of shipping liquified natural gas to markets across the Pacific and to southeast Asia.聽 聽
Over its 22 year history, Bonavista has cycled in and out of Saskatchewan. 鈥淭oday, we probably have the least amount of production in Saskatchewan, relative to any other time in our history. Specific to heavy oil country, our position in northwest Saskatchewan is largely shallow gas. That鈥檚 primarily because we ended up selling our significant footprint in primary heavy oil country about six years ago.
鈥淐orporately we don鈥檛 produce a lot of oil, and we don鈥檛 produce a lot in Saskatchewan.鈥�
鈥淚n 2007-2009, we were very active in the Bakken. Like the Lloydminster area, we ended up selling that position ten years ago. We had, at one time, three or four rigs working in the Estevan area.鈥�
鈥淲e felt we could not compete as well as we needed to in those areas. Our land footprint wasn鈥檛 significant enough for us to compete at the level we needed to, and secondly, we had some challenges in getting our product to market without having the scale we felt we needed, in both of those areas. 聽At the point in time we decided to divest in those areas.鈥�
They weren鈥檛 connected to pipe, and everything was on truck.
Market access
These days, Bonavista moves most their gas shipped either on the TC Energy mainline to Eastern Canada, or through Northern Border into the Midwest region of the U.S.
鈥淚n both cases, the gas gets gathered on the NGTL system and leaves out of one of the border connections. That鈥檚 what we spend most of our time on, when it comes to market access.
鈥淐learly, we鈥檝e spent most of the last two years selling our gas at a discount of 50 plus per cent to the equivalent U.S. NYMEX Henry Hub pricing. We can鈥檛 seem to simplify our regulatory process and build enough pipeline egress quick enough out of the producing regions of Western Canada, and hence are experience a significant discount for our product.鈥�
One of the key reasons behind the whole concept of the now-defunct Energy East pipeline project was that the TC Energy (formerly TransCanada) mainline to Central and Eastern Canada was running at significantly less than full capacity, and one of those pipes, the largest one at 42 inches, would have been converted to oil service. Asked if the reason Bonavista was having difficulties was due to lack of pipeline capacity, or the lack of clients in the east due to displacement by gas from the eastern United States, Skehar said, 鈥淚t鈥檚 a little bit of both. Clearly there is a portion of the mainline that is not 小蓝视频 utilized, and it鈥檚 going to require some capital, and regulatory efficiency to bring it into service.
鈥淪pecifically, when you talk of Energy East, that was a very topical discussion for us because not only could that pipeline be used for incremental oil egress for Western Canada to serve markets that, right now, are importing oil on the eastern side of our country, it could also be used to serve incremental natural gas egress. The reason it鈥檚 not is largely because there were insufficient contracts on the consumer side to warrant keeping that pipeline operating and delivering incremental gas to the eastern seaboard.鈥�
West Coast
Skehar is really keen on getting natural gas to the West Coast, liquifying it, and shipping it overseas to foreign markets.
He said, 鈥淟et鈥檚 look at it from a global perspective. The global LNG market today, as you assess the forecasts in energy demand, you have a number of developing countries that have a significant air quality issue. A number of Asian countries are, today, burning solid fuel like wood and coal to cook food and heat homes. With that fuel source, there is a tremendous amount of health risk. When you look at those countries and their aspirations to clean up their environment and their air quality, those aspirations are driving global growth forecasts in natural gas demand in the order of 40 or 50 per cent in the next 20 years.
鈥淲hen you think of those countries demanding this much clean fuel, and you connect that to the natural resources that exist in Canada, there鈥檚 a tremendous opportunity for Canada to participate in providing those countries in need.
鈥淐learly, if we could find a way to have our natural gas exported off our shores, be it the West Coast or the East Coast, not only would it be a significant step in the context of our economy, it would clearly have a significant and positive impact on the environment,鈥� he said.
As an example, back in 2010, both the U.S. and Canada began on the same foot, with the potential to provide the rest of the world with a clean and reliable source of energy, natural gas. 鈥淭en years later, Canada will not be shipping a molecule of gas off our shores as LNG, and our neighbours to the south will be shipping in excess of 10 BCF per day,鈥� he said.
Currently the U.S. is shipping about 6 BCF a day of natural gas, mostly from the Sabine Pass facility near the Lousiana/Texas border. Next year that number will be greater than 10 BCF. 鈥淎s grateful as we are for LNG Canada to have reached FID (final investment decision) and a pretty strong signal that project is going to go ahead, it鈥檚 going to be 2024-2025 before we ship our first molecule of gas out of LNG Canada.鈥�
Bonavista is not signed on to ship out of that project. Skehar noted it is principally three or four very large, integrated companies, and likely they will be the only ones to ship through that facility.
鈥淲e鈥檙e part of a consortium referred to as Rockies LNG. It鈥檚 a consortium of nine producers in Western Canada. These nine companies have allocated in excess of a BCF a day of natural gas production that will feed another LNG facility on the West Coast, provided that we can, in cooperation with our governments and all stakeholders, find a way to get our gas to the West Coast, get a facility built, and get natural gas shipped to the countries in need.
鈥淕eographically, we鈥檙e situated well to get that LNG to southeast Asia, to China, some of the countries in desperate need of this energy. These countries only 10-12 day by ship from our West Coast versus 24 days from the US Gulf Coast.鈥�
Resurrection of other projects
Bonavista is not part of the Woodfibre project, either. 鈥淲e鈥檙e trying to create our own project,鈥� he said, noting that nearly 20 projects have been proposed over the past decade.
鈥淢any of those have been deferred or cancelled due to regulatory, commercial, social and/or political issues. We鈥檙e trying to pick up the pieces of one or more of projects so that we can find a way to move forward, where our predecessors have left the projects suspended or abandoned. In many cases, these projects met their fate prior to LNG Canada getting approved, and the landscape has changed since that project has been approved,鈥� Skehar said.
Natural gas prices have dropped so much that, at times, they have experienced 鈥渘egative pricing,鈥� where not only are they giving away the product for free, but paying someone to take it.
鈥淲e鈥檝e had such volatile pricing, largely because our infrastructure is bottlenecked and, outside of our domestic consumption, we have only one buyer for our product. We鈥檝e experienced points in time over the last 2 years whereby natural gas pricing at AECO was worthless, or as you just pointed out, negative. We鈥檙e paying the consumer to take our natural gas away. They鈥檝e fluctuated from that level to $2 a gigajoule, certainly a more normalized price level, in the matter of a week.鈥�
Asked how you stay in business when you鈥檙e giving away your product, he said that鈥檚 front and centre for many Western Canadian natural gas producers. 鈥淲ithout certainty, and at least some stability 鈥� again, this is a free market, so don鈥檛 misinterpret my comments 鈥� but without some stability, it鈥檚 difficult to build a long-term business plan.鈥�
To that end they are hedging their products whenever the opportunity exists and pursue alternative markets outside of the AECO natural gas market. 鈥淏ut at the end of the day, we need to experience some level of price certainty in western Canada to not only stabilize, but grow the business as we look forward.鈥�
Western Canadian natural gas production levels sit around 15 to 16 BCF per day. With LNG Canada and an incremental two to five LNG facilities, there鈥檚 a believe Western Canadian natural gas production could grow in excess of 20 BCF per day.
But can they make money at $2 per gigajoule?
鈥淥h, yes. When you get into the natural gas business, and look at what producers have been able to do with technology and innovation, we鈥檝e significantly reduced the finding, development and operating (costs) of a natural gas molecule over the last five years. We believe that while we鈥檙e not as profitable in the natural gas business as we once were, a good, solid $2 natural gas price goes a long way relative to the Canadian prices we鈥檝e been experiencing the last two years.鈥�
What difference on price would having their own LNG export facility make?
鈥淣atural gas is on the emerging as a global commodity,鈥� he said. Right now, there鈥檚 nearly 50 BCF per day, on a boat, in transit, at any given time. That volume is expected to double in the next 15 years. That will make that product a much more global product, whereby the pricing that we see in each region, in Canada and North America, will converge towards a global price. Today those prices are at an all-time low because numerous LNG projects have recently been commissioned around the world, selling gas around $5-$6 per MMBTU (one MMBTU = 1.05 gigajoule). A year ago, it was closer to $10-$12 per MMBTU
鈥�$2.25 for a MMBTU works well for Western Canada, so $2.25 is half of what the global price is today,鈥� Skehar said.
With LNG demand expected to double in 15 years, that鈥檚 going to bring the global LNG price up. It may not be the $10-$12 it was, but it will be better than the $5-$6 per MMBTU, and will be a lot better than the current price in Western Canada. It comes down to a more than doubling of the current gas prices.
When it comes to our environment, Article 6 of The Paris Agreement allows countries to receive emissions credits when they are able to supply other countries with cleaner fuel, he noted.聽 The federal government committed to a 30 per cent reduction of Canada鈥檚 GHG emissions from 2005 to 2030 under the Paris Agreement. 聽By 2040, approximately 1,500 megatonnes of carbon dioxide equivalent (MtCO2e) emissions could be eliminated every year if new power plants in China, India and 小蓝视频east Asia are fuelled with natural gas instead of coal.聽 To put this in context, Canada generates approximately 700 MtCO2e of GHG emissions each year.聽 Bottom line, exporting natural gas off the West Coast of Canada is a momentous win for our climate, our reputation and our economy, according to Skehar.
The nuclear disaster at Fukashima, Japan has led that country to convert much of its energy usage from nuclear towards LNG. India is expanding their infrastructure to handle natural gas and its import.
