In November 2003 the following summary of the key influences on by bigbro22

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									   BC Natural Gas Market
   SUBMISSON TO OFFSHORE REVIEW PANEL

         CANADIAN GAS ASSOCIATION                    –      ASSOCIATION CANADIENNE DU GAZ

Introduction

British Columbia, like other jurisdictions in North America, has
shown an increasing preference towards natural gas as its
energy source. This decision is well founded given that natural             Value of BC Energy Production
gas is the most energy efficient choice in many applications, it                   $9.1 billion total
is the most flexible and responsive choice in many applications
and it is the lowest emissions choice of all the fossil fuels.
                                                                        Nat ural Gas                                         Elect ricit y
B.C. is the third largest natural gas consuming province in             $4.1 billion                                        $3.5 billion
                                                                            45%                                                 38%
Canada. Currently there are over 880,000 customers using
natural gas in British Columbia, including over 790,000
residential customers, over 91,000 commercial customers, and
almost 2,000 industrial enterprises. Just over half of the
natural gas used in B.C. is consumed by industry, and the price
of gas is a critical contributing factor to their competitiveness.
                                                                                                                         Crude Oil
                                                                                                  Coal
BC needs to have as much information as possible to be                                         $0.8 billion
                                                                                                                        $0.7 billion
                                                                                                                            8%
assured of its future natural gas supplies. But restrictions on                                    9%

the exploration of potential in-province natural gas resources,
such as a moratorium on exploration of basins of the B.C.
coast are limiting the information available to government, the
public, and industry in their efforts to design and implement a                        BC Energy Exports
sustainable energy plan for the province and indeed Canada.

B.C. Natural Gas Supply Potential                                    Natural Gas       NGL's
                                                                                                      Electricity              Crude Oil
                                                                       35.5%                             1.3%                     10%
                                                                                        1.0%
B.C. is the second largest natural gas producing province in
Canada with total marketable gas production of over 910 bcf.
Natural gas accounts for 45% of the province energy
production and over 35 % of its energy exports.

Currently all of the gas produced in B.C. comes from the
northeast region which is part of the Western Canada
Sedimentary Basin (WCSB).
                                                                                                                            Coal
                                                                                                                            52.2%
Recent National Energy Board estimates place B.C.’s total
marketable natural gas resource potential at 68 trillion cubic
feet (tcf), of which 44 tcf remains undiscovered. This includes
offshore resources and natural gas in unconventional
formations such as coal bed methane.




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   BC Natural Gas Market
   SUBMISSON TO OFFSHORE REVIEW PANEL

        CANADIAN GAS ASSOCIATION                      –   ASSOCIATION CANADIENNE DU GAZ

Natural Gas Supply and Price in B.C.

North American natural gas markets are fully integrated. As a result the tripling of natural gas prices seen in
North America since the late 1990’s have been reflected in natural gas prices in B.C. as well. However the B.C.
market is uniquely at risk to this escalation for a number of reasons, specifically…

        B.C.’s primary reliance on a single natural gas producing area in the WCSB.
        B.C.’s lack of natural storage capability near its large consuming region in the province’s lower mainland
        region.
        B.C.’s reliance on a single pipeline to deliver natural gas from it’s northeastern WCSB supply basin.
        The under development of the province’s own domestic natural gas potential.

Some of these restrictions are a result of the province’s geology and as such cannot really be influenced. For
example, the lack of natural storage capability can only be addressed in a limited fashion by the use of
constructed storage such as LNG storage or by low load factor pipeline expansions which connect to production
or storage facilities in other locations.

What can be addressed is the development of “in-province” supply capability closer to the major consuming
region in the province’s lower mainland. As with
any commodity a diversity of supply options and
capacity serves the public interest through better
pricing, and in the case of natural gas, it provides a
more flexible, responsive and environmentally
preferable energy supply option.


Diversification of B.C’s Natural Gas Supply
Options

Increasing the supply diversity of natural gas will
help reduce the solitary reliance on production
from the WCSB and the exposure to supply-
induced price volatility. At present a single major
transmission pipeline connects northeast B.C., the
only producing area in the province, with the Lower
Mainland market around Vancouver. That said
there are many areas of the province that have the
potential to diversify the province’s natural gas
resource specifically.

        Slave Point formation at Ladyfern
        The Foothills region, on the western edge
        of the WCSB
        Several sedimentary basins, Bowser,
        Whitehorse and Nechako Basins
        Queen Charlotte, Tofino & Winona basins
        located offshore from the B.C’s west coast.



                                                                                                 2
   BC Natural Gas Market
   SUBMISSON TO OFFSHORE REVIEW PANEL

         CANADIAN GAS ASSOCIATION                    –     ASSOCIATION CANADIENNE DU GAZ


That said an informed decision as to how best to address the province’s energy needs has been limited by the
moratorium on the identification of B.C. offshore potential. The National Energy Board’s recent report on B.C’s
natural gas potential states “it has been difficult to estimate the ultimate potential of natural gas resources
due to the limited geological and geophysical information that is available.”

Development of new supply basins that are closer to the major consuming region in the B.C. lower mainland
would improve utilization of the pipeline system and help mitigate seasonal price spikes and limit the impacts of
price volatility on the B.C. consumer.

Moreover, such supply would be of particular benefit to downstream consumers during times of pipeline constraint
which typically occur during peak demand periods when storage is most critical. Such peaks in demand can occur
either with the arrival of an Arctic cold front, or when the west coast experiences low water level conditions, with
the accompanying reduced ability to generate hydro electricity. When electricity from hydro generation is limited,
gas-fired electrical generation is a common back-up.

Summary

North America has abundant natural gas supplies. Estimated resources are equivalent to around 75 years of
production at current levels. An increasingly tight supply/demand balance and higher natural gas prices over the
past three years have led some observers to question the long term availability of natural gas but the issue is not
one of supply but rather of access and investment. Our challenge is to attract the investment needed to improve
both the supply and demand responsiveness of the market and help relieve upward pressures on prices.

To foster an environment for the sustainable development and delivery of new sources of natural gas to
consumers, governments and the natural gas industry will need to work together to:

    •   improve natural gas supply responsiveness and reduce the time required to bring new gas supplies to
        market;
    •   improve demand responsiveness and efficiency to help consumers manage the impact of higher prices;
    •   continue to endorse a market-based energy system that builds on the benefits of deregulation but also
        manages its shortcomings by putting in place the necessary rules and incentives to support longer
        investment horizons;
    •   create a smarter regulatory framework that improves coordination across jurisdictions and renders stable,
        predictable, timely decisions; and
    •   ensure a consistent and well-articulated policy framework that encourages innovation and efficient use of
        natural gas.

Taken together, these initiatives will maximize the benefits of our safe, reliable supply of natural gas for Canadian
companies and consumers, bring new sources of natural gas to market and reduce price volatility. If British
Columbia and Canada are to be able to develop a sustainable energy future it is crucial that we understand fully
the resource potential of the country. That understanding will allow for fully informed debate and choices to be
made and provide the certainty needed to attract investment required to develop the resource base.

Lifting of the moratorium on work to identify B.C.’s offshore natural gas resources will allow for the development of
a more complete understanding of the potential benefits of this preferred resource for the province of British
Columbia.



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