I’m thrilled Alberta will again have a pro-business government in power as of April 30. But Premier-designate Jason Kenney and the United Conservative Party (UCP) will have their work cut out for them, especially to fulfil their campaign promise of getting a “fair price” for Alberta’s natural gas.

The Shale Gas Revolution has turned the North American and global gas markets on their heads, with our best customer, the U.S., now our most formidable competitor. At the same time, the revolution has opened massive new resource for potential development in Alberta — and British Columbia.

The UCP as much as admitted that its natural gas strategy is a work in progress in its official election campaign document when they wrote they have “plans to develop a strong natural gas strategy,”and that is a good thing. This leaves lots of room for new ideas and creative policymaking, especially as the little that is there is of dubious value for opening markets.

As for crude oil, reduced regulatory burden and improved competitiveness for the province’s natural gas industry does not help much if we lack markets for our massive resources.

Reopen markets?

The UCP’s platform was sparse in terms of options to open new markets, and in fact appeared to focus merely on regaining market share in traditional Alberta gas markets. The document read as follows:

 “A United Conservative government will …

• Work with producers, the National Energy Board, and TransCanada to evaluate changes to regulations and policies pertaining to the NGTL system, including tolls and tariffs, and interconnection to the TransCanada Pipeline System through to the export points in Saskatchewan and Manitoba;
• Work with producers, TransCanada, and regulators to increase throughput, reduce price volatility, and lower shipper tolls on major natural gas pipeline systems.”

But, by all appearances, the ship has already sailed for traditional Alberta markets such as Ontario and the U.S. Midwest, and depending how the Sino-U.S. trade war plays out, competition in these markets could become even tougher. Bakken and Marcellus producers locked up a large proportion of these markets through long-term contracts while Alberta and federal regulators and governments and many producers slept at the wheel, according to Jihad Traya, manager of strategic energy advisory at Solomon Associates.

At the same time, the trade war between China and the U.S. has the potential of curtailing growth of the American LNG industry, assuming the primary cause is geopolitical rather economic, and drags on indefinitely — as I recently argued in IEA Too Bullish On Global Oil Consumption. In this case, U.S. gas production would likely be somewhat lower than otherwise, but there would be even greater competition for markets such as Ontario and the American heartland.

In their November 2018 report for the provincial government, Roadmap to Recovery: Reviving Alberta’s Natural Gas Industry, the Natural Gas Advisory Panel — industry heavyweights Hal Kvisle, Brenda Kenny and Terrance Kutryk — wrote:

 “Global natural gas demand is expected to grow significantly, but primarily in growing economies outside North America. With limited market opportunities in North America, the health of Alberta’s gas industry will be increasingly dependent on access to international markets via LNG.”

B.C. LNG

On the campaign trail Premier-designate Kenney acknowledged the importance of B.C. LNG projects to open new markets when he said a UCP government would support the development of infrastructure to move Alberta gas to the west coast.

But when all is said and done, a Kenney government may have to provide even more “support” than their free enterprise inclinations would suggest, possibly even taking an ownership stake in a LNG project to ensure market for Alberta gas.

B.C.’s share of marketable Montney gas is massive unto itself, accounting for 60 per cent of the 449 tcf total, and this gas has a natural advantage over Alberta gas because of lower transport costs to the west coast. As of now, it appears the LNG Canada partners are all planning to source their share of gas for the first phase of the project from B.C. This would only benefit Alberta producers indirectly, if it keeps B.C. Montney gas from moving eastwards.

An even more important reason the Alberta government may ultimately have to take an ownership stake in a B.C. LNG project is if China and the U.S. cut a trade deal. Chinese officials have said on numerous occasions that they are willing to import substantially greater volumes of U.S. LNG in the future as a means to reduce their massive bilateral trade imbalance.

The competition for siting new liquefaction plants is already fierce, especially with Qatar back in the growth game, and it tends to be relatively difficult to achieve a final investment decision (FID) for a project without at least one significant Chinese buyer. For what it’s worth, the International Energy Agency (IEA) is forecasting China to account for a fifth of global LNG market growth through 2040.

Finally, the need to export Alberta gas to new markets via B.C. LNG projects is yet another reason for Kenney to reconsider proclaiming Bill 12 — the so-called “Turn off the Taps” legislation — law, and even more so using it against B.C. if the province’s government continues to obstruct construction of the TMX crude pipeline to the west coast — see New UCP Government Could Bolster Alberta Separatism for other reasons it’s a bad idea.

In retaliation, the B.C. government could always pass legislation allowing only gas sourced from the province to be exported from its LNG projects. In this case, Kenney’s fight back strategy would suddenly become a bite back one.