TD report: Growth in shale natural gas saving U.S. consumers billions

CALGARY – Growing U.S. shale gas production means billions in cost savings for consumers, but the impact is somewhat more subdued north of the border, according to reports released by TD Bank on Thursday.

Technological advances have unlocked enormous supplies of natural gas from rock formations across the United States, keeping the price suppressed at around $3.50 per 1,000 cubic feet. The same fuel, by contrast, fetches around $12 in Europe and $16 in Asia.

TD says the U.S. price would be in the $10 to $12 range if not for burgeoning production in places such as Texas and Pennsylvania.

“Lower prices have cut costs for businesses and consumers and dramatically shifted the economics of power generation,” said the authors of The Shale Shift: Exploring the Impact of Shale Gas on the U.S. Economy.

American residential consumers can expect to save around $75 billion in home heating and electricity costs in 2013 — equivalent to about $650 per household — assuming prices average $3.75 over the next year.

Just over half of U.S. homes are heated with natural gas, which is also used to run appliances like stoves and water heaters.

In an accompanying Canada-focused report on the impact of the shale gas revolution, TD says the cost of natural gas for home heating in Canada over the past year is at a 10-year low. But that comprises only about one per cent of Canada’s Consumer Price Index.

“While Canadians are saving money, in terms of an overall household budget, it’s not a huge amount,” said economist Leslie Preston in an interview.

In the United States, coal has traditionally been the dominant fuel source for power generation, but that’s changing. Over the past 10 to 12 years, 82 per cent of new plants have been natural gas-fired.

Real electricity prices in the U.S. have fallen 7.6 per cent since 2009, the report said.

In Canada the energy mix is much more diverse, with hydroelectric power, for example, supplying a large amount of power in Quebec and Ontario. That means the drop in natural gas prices has had a much more muted effect on most Canadian consumers’ electricity bills.

“Canadians have traditionally just paid less for electricity, partially because our prices are more regulated,” said Preston.

But matters unrelated to natural gas pricing — the need to upgrade aging infrastructure, for instance — have raised prices.

On the industrial front, too, the Canadian and U.S. pictures differ.

Across the entire U.S. manufacturing sector, TD says $50 billion can be shaved off energy input costs annually as a result of the lower natural gas prices.

That’s not a huge amount for the whole industry, and the effect will be concentrated among a limited group of heavy users such as chemicals, petroleum and coal, food and beverage, paper and primary metals.

Demand growth from Canada’s industrial sector — driven mainly by Alberta’s energy-voracious oilsands — is expected to be much stronger.

Last year, the oilsands sector consumed about 10 per cent of all natural gas produced in Canada — a 14 per cent increase versus 2010. And Preston said that’s only going to grow in the years ahead as expansions come on line.

“Canada has a much larger oil and gas sector relative the size of our economy than the U.S., particularly in the oilsands in Alberta,” she said.

“There’s very strong production growth in the oilsands and that is going to consume a lot of natural gas and that’s a big difference versus the U.S., which doesn’t expect to see such strong industrial sector growth in natural gas demand.”

Although the oilsands are expected to soak up a lot of the shale gas supply from emerging formations in northeastern B.C. and northwestern Alberta, Preston said Canada is going to have to find new markets.

As the United States becomes more and more capable of satisfying its own energy needs — an International Energy Agency report earlier this week predicts the U.S. becoming all but energy independent by 2035 — there will be less of a need to import gas from Canada.

A number of companies are looking to build multibillion-dollar terminals on Canada’s west coast from which the western Canadian gas — chilled into a liquid state — could be transported to Asian markets by tanker.

The gap between liquefied natural gas prices in Japan versus what Canadian suppliers get for the gas currently is about $12, and Canada needs to act quickly if it wants to take advantage of that trend, said Preston.

“Canada’s not the only country eager to export LNG to Asia,” she said.

“Australia’s a major producer. You also have Qatar and the U.S. does have ambitions of exporting LNG, too. So it really is a bit of a race in Asia right now in terms of who’s going to supply liquefied natural gas to that market.”