Economic slump could herald infrastructure shortage, TransCanada Corp. boss says
Project delays caused by the current economic slump sow seeds of future energy supply shortages and price hikes
“We’ve got a fully loaded energy infrastructure in North America today. As investments in infrastructure get delayed because of the financial infrastructure, it will be very expensive in the future,” Kvisle warns.
His company is not holding back on any infrastructure spending. He reports that TransCanada is currently in the middle of the largest investment program in its history. However, these investments are based on agreements struck before the current downturn. The current freeze in the capital markets is setting the stage for lower investment two or three years from now.
Another point of worry on the horizon is the other ingredient in Kvisle’s recipe for an energy shortage: a scarcity of supply.
“In North America we produce and consume about 75 billion cubic feet a day of natural gas and every year we face about a 20 per cent decline rate in first year production. So every year the industry has to bring between 13 and 16 billion cubic feet a day of new gas to market just in order to meet flat demand. If there is any growth in demand above that, then we have to bring more gas to market,” he says.
To shed light on those figures, and to put all the talk about the recent North American gas supply glut and new gas supply sources into perspective, Kvisle draws on another set of impressive statistics.
Supply gluts are generally characterized by a falling price, as in the case of natural gas which fell from upwards of $9 per thousand cubic feet in the summer of 2008 to around $5 by early 2009 and dropped more by mid-year. However, Kvisle says this price decline was due to more than just an excess of supply brought on by abundant new sources of unconventional gas, led by production from the Barnett Shale formation in central Texas. The financial downturn caused a demand contraction. Although the slippage was only about two billion cubic feet per day, in combination with the simultaneous burst of shale production and the oil price collapse, it was enough to drag down natural gas markets.
“A little bit of extra supply, decline in demand due to the recession and crude oil prices put broad downward pressure on all energy prices,” he says. While significant, Kvisle does not think that shale gas plays are going to contribute to a long supply glut and correspondingly extended price depression.
“You look at all the shale gas plays taken together in the near term and they might produce one or 1.5 billion cubic feet a day. That will be part of that replacement of decline, and I just fit shale gas in as a very significant opportunity for reserve and production replacement. But it is just the latest of what people do to offset that decline that occurs every year.”