Common Sense Canadian

BC LNG: Shale gas expert David Hughes debunks minister’s math

PostedSeptember 29, 2013 by in BC

Video by Damien Gillis, analysis by David Hughes

On Sept. 18, BC’s Minister of Natural Gas Development Rich Coleman gave the above speech to northern mayors and councillors at the Union of BC Municipalities’ annual conference in Vancouver. Coleman makes some extraordinary claims about the opportunity liquefied natural gas presents for BC’s future – acknowledging he’s “an optimist” when it comes to mounting questions about the viability of his government’s “prosperity” vision. Here, renowned geoscientist and unconventional energy expert David Hughes drills down on Coleman’s claims

Rich Coleman recently stated that the province could supply North American markets with 1.8 trillion cubic feet per year (tcf/year) of gas, along with 5 BC LNG terminals exporting to Asia for 84 years – and that would only use 30% of BC’s gas resources.

Let’s do some math.

The National Energy Board has approved 3 export permits, totalling 1.66 tcf/year (Douglas Channel Energy, Kitimat LNG and LNGCanada) and 3 more are pending for 3.1 tcf/year (Exxon, BG Group, Pacific Northwest) – for a total of 4.76 tcf/year.

Now, to give Rich a break, let’s assume that those 5 BC LNG facilities only export 3.2 tcf/year, not 4.76. So Rich needs 5 tcf/year in total, along with supplying North America with 1.8 tcf/year. So over 84 years Rich needs 420 tcf of gas – but wait – that’s only 30% of the gas that he says is recoverable. So Rich says BC has 1,400 tcf of recoverable gas and that leaves lots for his grandchildren and all future generations.

The realities of BC’s gas production

Now let’s look at BC production. It has been on a plateau recently, although at an all time high, at about 1.2 tcf/year, produced from nearly 9,000 wells, despite the much-vaunted shale resources in the Horn River, Montney and Cordova Bay fields of northeast BC.

Much of any growth in BC gas production would have to come from a very aggressive increase in the number of fracked wells in northeast BC.

In fact, these shale fields have only been offsetting the decline in all the rest of BC’s gas production. If Rich bothered to consult his own BC Oil and Gas Commission, he would see that natural gas reserves totalled only 34.6 tcf, or less than 7 years of his 5 tcf/year requirement, at yearend 2011.

Many estimates have been made of a higher “ultimate potential”, particularly for the shale fields, based on undiscovered resources – but it is highly questionable to base longterm policy on the assumption they exist and can be liquidated at the rates committed to.

So to put it bluntly, BC has 34.6 tcf of reserves in the bank and Rich is counting on 1365.4 tcf of undiscovered gas to be discovered and recovered, to cover his LNG projects and commitments to North America as well as look after his offspring.

BC LNG = way more fracking

It is also one thing to look at purported undiscovered resources in the ground and another at what it would take to convert them into a flow rate of 5 tcf/year, which is roughly equivalent to Canada’s entire natural gas production as of 2013. Protests surrounding fracking for natural gas are legion in the U.S. and much of any growth in BC gas production would have to come from a very aggressive increase in the number of fracked wells in northeast BC.

No firm commitments

All this points to the fact that BC is being ill-served by politicians that don’t understand the numbers but seem mesmerized by their own rhetoric (if you say something often enough it must be true). None of the proponents of the major BC LNG facilities have made a final decision to spend the money (you can bet they have done the math), and the fourth LNG export facility in the US was recently approved.

BC’s LNG plan and Rich Coleman’s rhetoric are grasping at straws in the absence of any credible, longterm energy or economic strategy.

David Hughes is a geoscientist who has studied the energy resources of Canada for nearly four decades, including 32 years with the Geological Survey of Canada as a scientist and research manager. As Team Leader for Unconventional Gas on the Canadian Gas Potential Committee, he coordinated the recent publication of a comprehensive assessment of Canada’s unconventional natural gas potential.


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    Colin Coe

    I know this site is for the converted to preach to the choir – and looking for any source that supports their world view. But unlike a stopped clock which is at least right twice a day, the chicken little rantings of Mr. Hughes and Mr. Berman over the past three or four years have been hopelessly wrong. US production has more or less consistently increased over the past five years – to record levels despite prices which have fallen dramatically over that period. Six years ago we all thought US production would be below 50 BCF/day – it is now ~ 67 BCF/day. It has increased from about 52 BCF/day – about a 30% increase – prices have fallen from $8 to $3.75 MMbtu. The estimates of gas under in the US Lower 48 were raised dramatically by the US Potential Gas Committee to close to 2300 TCF, estimates by the DOE show the same magnitude of increase. In Canada the NEB has dramatically increased their estimates of the Montney Basin alone – see their just released study – they show marketable gas at 449 TCF ( current production is about 1 TCF annually). So BC, the NEB, every producer I talk to,every major consultancy, key reservoir engineering firms such as GLJ and everyone in the industry believes there is a huge amount of gas that is accessible at reasonable prices (<$6 MMbtu). Companies such as Exxon, Petronas and Mitsubishi have spent at least $15 Billion on gas assets in western Canada the past three years- after extensive detailed reserve analysis. But Mr. Hughes and others persist in spreading this nonsense of a pending shortfall around. Is it so hard to understand that the reason gas production is languishing in Canada is NOT because of a lack of gas but a lack of markets? Western Canada cannot compete with gas that major US markets have found in their backyard (Marcellus for example). If you don't have any customers you shut the well in. End of story. To imply that declining production reflects a shortage of gas is either hopelessly naive or intentionally misleading.
    By all means examine the environmental impacts of fracking to insure that it is safe, discuss issues like foreign ownership, discuss what you think is a fair royalty regime for the citizens. There are many valid issues that should and need to be discussed. But this continuing absurd position that we should not export gas because we are running out is a distraction and an embarrassment to the environmental movement. The NEB has also just released (late November) a 2035 Energy Outlook which continues to affirm the robust supply picture.

      Colin Coe

      .. a clarification “current production is approximately 1 TCF/day” refers to gas production in BC – not Canada

        Damien Gillis

        Colin, regarding your statement “US production has more or less consistently increased over the past five years – to record levels despite prices which have fallen dramatically over that period”:

        You’re dismissing a critical piece – the unexpectedly precipitous decline rates of these US wells. Based on wellhead data analyzed by Mr. Hughes, the top 5 US shale gas plays – accounting for 80% of all shale gas production – have seen an average 3-year decline rate of 84%!

        Besides the volumes of water and chemicals required for shale gas, these decine rates appear to be another major distinction between unconventional and conventional gas sources.

        The above figures mean that just to keep US production flat into the future would require an additional 7,000 wells a year at a cost of $42 Billion.

        Heck, we’re already seeing some of this come to bear as the Marcellus Shale in Pennsylvania collapses, with production down 50% from its 2010 peak, companies pulling out and royalty cheques drying up as a result.

        Will Canada’s shale gas plays be any different? Time will tell. But this data should give the BC and Canadian governments pause when making the bold predictions they are today.

        Furthermore, the numbers being touted by Coleman an co. are hugely misleading. They’ra confusing in place resources with marketable gas resources. They’re making huge assumptions about what is actually recoverable – and ignoring the enormous externalities involved in bringing that kind of production to bear. Take a good look at Texas:

        The reality is the NEB sees 376 trillion cubic feet of remaining “ultimate potential” for all gas in BC. That’s on the extreme high side, in light of what it would take to bring all that gas to market (I haven’t seen this latest outlook document – but if it’s dramatically different than these figures, I’d take it with a pound of salt…moreover, ask yourself why all of a sudden, just as BC is plugging LNG – I mean at the EXACT SAME MOMENT!!! – these new, wildly pumped-up figures come out? Now ask yourself what’s driving these numbers – geology or politics?).

        Also, the actual investment in new infrastructure from these foreign companies has been minimal. Sure, Petronas bought Progress and is now fixing to buy Talisman’s Montney assets. And CNOOC bought Nexxen. Chevron’s put $800 million into developing the Pacific Trails pipeline and related Kitimat LNG facility, but none of these companies are remotely close to making final investment decisions about the tens of billions that they would have to make to bring these LNG projects to bear.

        What we are seeing right now is a lot of giddy talk and very little material action. To deduce from this chatter that these companies must know something we don’t and therefore BC’s shale gas and LNG boom are the real deal is foolish speculation – certainly not anything I want to engage in as the rightful owner of the resource for which royalties and taxes are being slashed to record lows just to incentivize these companies to come here. That doesn’t sound like strong business or geological fundamentals to me – nor does it benefit me as a BC taxpayer.

    Forthe Halibut

    At least Richie’s right about one thing – it would totally change the landscape of BC.


    I hope somebody has brought this info to the attention of John Horgan. The big failure of the recent campaign debacle was the failure of the NDP to put together a rational, comprehensive energy/jobs element in their platform.

    ron wilton

    God forbid the Mr. C would have any offspring.

    Ed Nichol

    Most of the revenue for the government ends with the royalties at the wellhead. That rate is the low rate for North American gas. The rest of the business is a high capital, very automated industry owned by the major oil companies. We will get the sludge ponds. You go Richie!!

    Ed Nichol

    We are not the only players for the Chinese market. South America Is already on the move with staggering oil and gas. Right behind is Australia with Cody Peddy shale oil And Malasian Gorgon Gas, Russia already has a ‘no limit’ gas agreement. There will be no run away profit just another give away to Exxon/Shell/BP…..

    Sandy Slobodian

    p.s. has anyone checked if Mr. Coleman has any brothers in the oil and gas industry, or if Stan has been offered a promotion?

    Star Morris

    Thank you Damien and Mr. Hughes! You continue to provide invaluable information that fuels critical thinking.

    The other half of the equation seems to be missing from Minister Coleman’s math – the COSTS. Conspicuously absent is any mention of ‘water’ – the vast amounts needed for fracking the gas to be liquified and then the ‘double-dipping’ of water if natural gas is also used to fuel the cooling process. But then again, given that Britisth Columbian’s identified ‘water’ as our most valuable natural resource, talking ‘truth’ about water would not support Minister Coleman’s ‘optomistic’ projections.

    The recent Clean Energy Canada report ‘The Cleanest LNG in the World?’ contradicts the perception that LNG is ‘clean’. The report is admittedly carbon-focused; however, it would no mention is made of water.

    Imagine what it would be like if, in the context of ‘energy’, it included all the commons – air, land and water – a ‘Clean Energy INDEX’. What would it look like if government and industry reports were mandated to include a ‘Clean Energy Index’?

    Sandy Slobodian

    ow, my head hurts I want to share this kind of news but I need it broken down into one liner math problems in order to follow the logic. sorry. and please can anyone help me out by simplifying these important facts?

      Damien Gillis

      In a nutshell, Sandy, Rich Coleman says we have 40 times more gas than we actually have. In other words, this whole LNG scheme is bollocks.

      How’s that?

    Kevin Logan

    Always appreciate insights from Mr Hughes.

    All companies in extraction industries, especially those tied into publicly traded companies or anchored at Wall Street, fudge numbers.

    Overblown estimates of whats in the ground, to much reduced costs on how to exploit it.

    Speculators rule this domain and have a huge impact on these processes, all the while producing absolutely nothing but demanding more and more, usually in the form of government giveaways. There is a reason speculation was at one time not allowed.

    Governments and especially politicians should never get involved in such hubris nor should their bureaucrats even care about this stuff.

    The job is simple for government and should not extend past setting appropriate royalty rates, sufficient permitting and access processes while ensuring and monitoring the practices of business are in keeping with the laws of the land. These are the basics its time we stop overlooking them and return to them.

    In fact “social license” should be the sole responsibility of industry as well. These industries and players are well greased, have endless resources and are not in need of endless subsidies and assistance from “the people.”

    Today we accept politicians as if they are part of the industry. They are to “sell” the deals, find the markets, build the infrastructure…. its ridiculous…… especially in Canada.

    In other jurisdictions where the resource exploitation is done by SOEs then it begins to make sense, but in Canada its just insulting that politicians and governments play such roles.

    A full and proper accounting of all outright subsidies including the above, as well as tax and royalty breaks is required.

    Coleman should just stand down, stop cheerleading, stop selling, stop doing all the stuff that is the job of industry and start doing the job of government. What I describe above is conservative Lougheed style approaches to governance, behave like the owner, ensure you get proper returns and the private sector can operate but responsibly while ensuring the environment is protected and monitored.

    Instead with Coleman we get smoke and mirrors, as if he is on the board of the petro giants. Same goes for Clark, Redford and the Harper crowd.

    We should demand Coleman get back to these basics and start by telling us who he singed non disclosure agreements with and when. And have him leave the marketing and social license for these industries to the companies themselves.

      Damien Gillis

      Thanks Kevin. I commend to our readers your piece from last week on taxpayer handouts to this industry:

        Kevin Logan

        Thanks Damien,

        I could not help but comment on this piece and repeat a call for a full accounting and a return to the basics.

        To listen to Coleman talk about the future generation and kids and how all this is about ensuring the future made me sick to my stomach.

        The fact is this is the frame they need to push to ensure as much upfront giveaway as possible. That we as taxpayers accept huge giveaways and subsidies to “attract” oil and gas mega players.

        For the kids of course.

        What absolute asinine bullshit.

        Here is what we are doing for the future and Coleman’s grandkids. We are rolling out the red carpet to the largest oil and gas players who have literally toyed with governments and public purses the world over, often leaving them empty and turning governments into tyrannies.

        They are opening the door to destroying so much water and land that our children will not ever know what we have known.

        There will be no prosperity windfall “in the next generation” as Coleman touts.

        There will be Fracked water, debt ridden public purses, drone filled skies, environmental degradation all of which will enrich foreign interests and provide foreign jobs.

        Generations of British Columbians will be fleeced like lambs.


    Interested readers may want to read a sobering report by Arthur Berman, a veteran petroleum geologist specialized in well assessment.:

    “What Berman and others have also concluded is that the gas industry key players and their Wall Street bankers backing the shale boom have grossly inflated the volumes of recoverable shale gas reserves and hence its expected supply duration. He notes, “Reserves and economics depend on estimated ultimate recoveries (EUR) based on hyperbolic, or increasingly flattening, decline profiles that predict decades of commercial production. With only a few years of production history in most of these plays, this model has not been shown to be correct, and may be overly optimistic….Our analysis of shale gas well decline trends indicates that the Estimated Ultimate Recovery per well is approximately one-half the values commonly presented by operators.” [18] In brief, the gas producers have built the illusion that their unconventional and increasingly costly shale gas will last for decades.”


    Well , if anyone would be an “expert” in Natural Gas it would be Rich Coleman……he’s full of it.


    Thank you very much for this important analysis and I look forward to your upcoming series on LNG. If we thought river diversion projects were a big boondoggle, LNG is a much bigger boondoggle, which will have even greater environmental impacts. Wake up, BCers.

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