Canadian Natural Gas Has Gone Global: An Interview with Mike Rose from Tourmaline
This week Michael (Mike) Rose, Chairman, President, and Chief Executive Officer of Tourmaline joins us as our guest.
Tourmaline made some exciting announcements last week. First, they announced a partnership on a compressed natural gas (CNG) fueling station network across Western Canada to enable heavy-haul trucks to get off diesel. The company also announced that they plan to double the amount of gas they ship as LNG by 2026.
Here are some of the questions that Jackie and Peter asked Mike: How have Western Canadian gas producers survived low gas prices? Why is Tourmaline investing in natural gas stations for heavy-haul trucking now, considering it still has GHG emissions? Has Tourmaline reduced its environmental footprint, including greenhouse gas emissions? How challenging is it to achieve the federal government’s goal of reducing oil and gas emissions in the range of 40 to 45 percent by 2030? Are you exporting LNG to international markets today? Can Canada compete with the U.S. to supply gas to LNG export terminals on the U.S. Gulf Coast? How much WCSB gas could ultimately be shipped off Canada’s West Coast?
Other information referenced in this podcast:
- Alberta Government’s aspirational plan to reach net zero by 2050 “Alberta emissions reduction and energy development plan.”
- Global News (April 18, 2023) “Tourmaline, Clean Energy Fuels to partner on natural gas fueling station network.”
- Bloomberg (April 18, 2023) “Tourmaline Aims to Double Portion of Gas Shipped as LNG by 2026.”
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Episode 198 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. So, Jackie, it’s been about a week since the provincial government announced its climate plan. What do you think?
Jackie Forrest:
Alberta Emissions and Reduction Energy Development Plan. Long title. I think it’s a big deal. There has been some criticism of it: not enough details. But there was something in there. I think the most important thing there is that they have an aspirational goal of achieving a carbon-neutral economy, net zero by 2050.
The criticism is there aren’t a lot of details on how they’re going to achieve that, and they have the word “aspirational” in there. But if you had asked me a few years ago, or maybe even a few months ago, about the likelihood of the current Alberta government making a net-zero goal, I would’ve said it would’ve been pretty low. I think from that perspective, it’s a big change.
Peter Tertzakian:
It’s a big change just to have a position. I don’t want to get into the semantics of the word, “aspirational.” You have to aspire to something to make it happen. Why don’t we just leave it at that? I think it’s important that the Alberta government has finally come forth with a statement and a plan. Because for the past couple of years, the provincial government, which is the custodian of our natural resources on behalf of the people of Alberta, has been noticeably absent.
If we think about the way mineral extraction, oil, and gas extraction work, it’s the provinces that act on behalf of the people of Alberta or the people of the provinces. They get into a landlord-tenant type relationship with the operators, in this case, the oil and gas companies. And that deal has royalties and so on attached to it.
We were in this peculiar situation where the oil and gas industry was effectively negotiating as a tenant with the federal government and the provincial government was absentee on all emission-type negotiations. All of which is to say, they have now come forth to say, “On behalf of the people of Alberta, here’s our position.”
Jackie Forrest:
And I think it will narrow the gap with the federal government. Find some point of common ground. If you read the document … You know I did, Peter.
Peter Tertzakian:
I knew it.
Jackie Forrest:
There were some words about, “Alberta wants to do it our way.” We don’t want to be told how to do it. I think it’s constructive that way. We have some common ground that we want to achieve that goal, but we’re going to figure out how to do it our way. We don’t want to be told how to do it. I think it’s positive.
Peter Tertzakian:
You have to get to the table. You have to. Nobody wants to be told what to do. Especially, after decisions have been made. This is why the three parties must be now at the table, the federal government, the province as a resource owner, the oil and gas industry as the licensee of the mineral rights, and the operator of the facilities.
Now, I think there can be a discussion. The good news is the province has come to the table. The challenging news is that a two-party problem is now a three party-problem. We shall see where it goes because it will have ramifications on everything from oil sands to the broad economy.
Jackie Forrest:
Electric power will be a big one.
Peter Tertzakian:
Power will be a big one. The Clean Electricity Standard, which also leads to natural gas, powers a lot of the province and is expected to power a lot more of it. And that is what we are going to talk about today. We are going to talk about natural gas. We are delighted to have with us Mike Rose, who is the CEO of Tourmaline. Welcome, Mike.
Mike Rose:
Thanks, Peter. Thanks, Jackie.
Jackie Forrest:
Well, Mike, it’s great to have you. You are one of the most successful entrepreneurs in the Canadian oil and gas landscape. Just tell us about yourself and our audience and some of your prior ventures and your time at Tourmaline.
Mike Rose:
Sure. Well, I’m a geologist. I graduated from Queens University in ’79 and moved out West. I’m 45 years in the business. I do feel lucky every day to be working in what I consider to be the greatest industry in the world. I’m a little biased and I don’t know how to do anything else. I had my first 14 years at Shell in E&P, between ’79 and ’93. Enjoyed every single assignment I had with them.
The last one was running their Canadian E&P research, which was for the last three years I was at Shell, which was a fabulous job. It gave me great insight into the power of technology and what it can do. I left in ’93 to start Berkley Petroleum, and it grew over its eight or nine-year history to about 40,000 BOEs a day. It grew up mostly through exploration and a little bit of acquisition as a compliment.
Peter Tertzakian:
That was a big success.
Mike Rose:
We sold to Anadarko in 2001 for $1.6 billion after an unsuccessful hostile offer from the Hunt Brothers at Christmas time in 2000. Started Duvernay Oil Corp right after that. Summer of ’01. It also grew to an intermediate producer, primarily through positions in the Deep Basin and in BC. Initially, Doig and then Montney. We were one of the pioneers in the Montney play. ARC, Encana, and then Duvernay drilled the first three Montney horizontals. Just to get the order right. That was in ’07, ’08. And then, Shell approached and bought Duvernay for $5.6 billion during Stampede Week of 2008.
I started Tourmaline right after that in ’08 during the financial crisis, which, if you’re well capitalized, was a good time to be starting a company. Because assets were available in the right places in one of those rare windows of opportunity. And then, Tourmaline has grown to a senior. We’re 15 years old now, so a teenager still. We produce over 525,000 BOEs a day.
Peter Tertzakian:
Wow.
Mike Rose:
Largest gas producer in the country. Largest natural gas liquids producer. But we look at it like we’re still just getting going. We’ve always viewed Canada’s best and most internationally competitive natural gas plays as the Alberta Deep Basin and the BC, Alberta Montney.
We have massive positions in both. We’ve built all our own infrastructure and gas processing capability. We’re the fourth-largest gas mid-streamer in the country with a total processing capability of about 2.7 BCF a day. It’s been a real key for surviving volatile, and as it turns out mostly low natural gas.
Peter Tertzakian:
Well, it’s just amazing. Your track record as a serial entrepreneur with three big wins, each progressively larger than the previous one, and through some exceedingly difficult periods. Tell us a little bit more about Tourmaline. Because I know it survived through the low gas price era of circa … I don’t know. 2012 to 2021?
Mike Rose:
’14 to ’21.
Peter Tertzakian:
’14 to ’21. A dollar a GJ for a gas. What’s the secret here in keeping the costs down?
Mike Rose:
Well, a couple of things. We have a particularly strong engineering function in all disciplines. We are the low-cost capital executor. And that infrastructure I was just referring to, which costs a lot of money to put in place, but once it’s in place, it allows you to have a much higher margin.
Peter Tertzakian:
You get the sunk cost out of the way. And then, you can operate at lean and mean. To get a trim.
Mike Rose:
We can make it a full cycle down to close to $1.50 in MCF. If gas is $2.50, we make a really good return and generate lots of free cash flow.
Peter Tertzakian:
Which you can then invest to grow in the market. Give us a sense of Tourmaline. The oil and gas production split. Its geographic reach across the basin.
Mike Rose:
Sure. We’re about 75% gas, 25% oil. Condensate and liquid. As I mentioned, the largest NGL producer. I’d say from the southeast corner to the northwest extent, it’s about 450 kilometers, which is a long way. But if you look at the size of the Western Canadian Sedimentary Basin, that’s quite focused.
We’ve stuck to that geography, so it’s sort of along the western margin of the Western Canadian Sedimentary Basin. Staying focused, it’s allowed us to keep the staff counts small. And so, head office, we’re still only about 250 people, which is on a relative basis if you look at peers, is very small. And that comes with that geographic focus.
Jackie Forrest:
You talked about some of the strategies that enable you to reduce your costs like being geographically concentrated and having your infrastructure. But I think the quality of our basin is another thing that’s enabled Western Canadian producers to survive the last 10 years, which has not been easy. It’s been surprising.
Even in the last year, we’ve seen natural gas production in Canada grow to an all-time high. Something like 18 BCF per day now. Up about one-and-a-half BCF per day above the pre-covid level. We’ve had some higher prices. Now, it’s back down in the $2.50 range.
How can we grow in these types of prices? How do our basin and the rocks and the technology, that’s advanced quite a bit over the last 10 years, compare to places like Qatar where they have very cheap gas? Can we compete with that?
Mike Rose:
Well, that one particular reservoir you’re talking about in Qatar, probably not. It’s awesome. And it’s a conventional reservoir. What we’re working on are resource plays, but you talked about 18 BCF a day. We still have about a BCF a day of headroom, because of the NGTL build-out, which went on for four or five years …
Peter Tertzakian:
That’s the pipeline?
Mike Rose:
Well, all the various expansions intra-basin. It’s complete. There’s a little bit of room for growth, which is helpful for pricing. And then, in the second half of ’25, when LNG Canada starts up, you add 2 BCF a day of essentially capacity. Or market, if you like.
It doesn’t sound like a lot, but on a percentage basis, that’s the same amount of growth that the initial start to the Gulf Coast LNG Complex brought to total US production. It was a 12% to 15% increase. We think that’s going to be very positive for intra-basin pricing at our two big hubs, which are AECO and Station 2.
Jackie Forrest:
You’re looking at new ways to sell your gas. It’s great to have you this week. Because last week, you announced that you’re partnering to create natural gas fueling infrastructure for semi trucks. According to this article, I can put a link to the article in the show notes, but it was saying that natural gas would be at 20% lower emissions for using these trucks than diesel, which is used today.
The plan is to put stations in Edmonton, Calgary, Grande Prairie, and Kamloops. Now, the federal government, as you know, has the goal that transportation should get to net-zero emissions. One question is, why do you think now’s the time to invest in this natural gas fueling? Considering it still will have some emissions.
Mike Rose:
Well, because of the technology for the heavy haul 18-wheelers, the engine technology has arrived. And , natural gas is abundant. It is a lot cheaper than the other alternatives that are out there. With the arrival of this engine technology, there’s a wonderful opportunity to reduce emissions at the same time as growing nat gas demand.
I think we need all the solutions in the transportation sector. Electric. Ultimately, Hydrogen. They are both a long way away. But in the meantime, for the next 20 or 25 years, there’s a wonderful opportunity to displace diesel with nat gas. It’s something we’ve started in our operations. We’ve moved all of our drilling rigs from diesel to natural gas. And then, subsequently, the engine technology, because you need more horsepower with fracking. But now, we’re moving frack fleets off diesel and onto nat gas. We’re doing that with Trican.
Ultimately, we want to get all of our frack spreads onto nat gas as well. But over the last five or so years, just ourselves, we’ve displaced over 100 million liters of diesel in our operations, but it’s also saved over $100 million. It’s a double-win for shareholders. They get a cleaner environment and they get a more profitable underlying company. I will point out, when you displace diesel, yes, it is a CO2 reduction. But it’s a huge reduction in carbon monoxide: NOx and SOx.
Peter Tertzakian:
The particulates.
Mike Rose:
And particulates. It’s 90%. China for the longest time has been displacing diesel with nat gas. I think they’re running … Gosh. It’s over three BCF a day. This is a small gas volume to start, but we’ll do 20 to 25 stations. But the ultimate target across Canada, just in 18-wheelers, if they all converted to nat gas, it’s 1.6 BCF a day. Maybe you get 10% to 20% of the trucks off. But that’s a big gas amount to build as well.
Peter Tertzakian:
It’s big. It’s big. Just for perspective, a lot of people say, “Well, why don’t we just go to renewable natural gas? Get the gas from municipal waste from agricultural products.” This, that, and the other, which is very expensive. But it’s also not that consequential in volume.
I think people don’t fully appreciate the amount of energy in one well. One gas well compared to the energy that would be produced from, say, a municipal waste site.
Mike Rose:
It’s orders of magnitude greater. The total amount of RNG is very small. It’s probably 0.1% of the total gas production.
Peter Tertzakian:
Even if you ramp it up, it’s not that much.
Mike Rose:
But this is all set up to incorporate RNG as well, correct.
Peter Tertzakian:
You’re partnering with Mullen Trucking?
Mike Rose:
And Clean Energy Fuels in the United States, which have been around for a long time. If you read the press release, they were originally formed with T. Boone Pickens. They’ve got 600 fueling stations across the United States. These guys know what they’re doing, which is why we partnered with them because they’ll run all the stations. It’s not a big change to Tourmaline’s business.
We’ll bring capital and we’ll bring natural gas. And then, Murray Mullen is going to use the stations and he’ll secure more and more nat gas-powered trucks over time. Of course, there are all the other trucking fleets that you can go and access as well.
All the energy solutions going forward … I know you guys agree with this because I listen to your podcast. It’s “and” not “or.” We need all of it. Whether it’s in transportation or heating or electricity, it’s “and.” We need more of everything. The trick is to make the whole stack cleaner. And the reality is that the whole stack is getting cleaner, and it’s driven by technology.
Jackie Forrest:
All right. Well, let’s talk about another thing. You’re talking about all the things that are helping to reduce costs and add new demand for your product, but there’s a lot of policy burden that comes with being in Alberta and BC. We’ve seen a lot of things happen in the last few years.
For instance, in BC, there were parts of the province where you couldn’t drill wells for a while. Or get new permits, anyway. There’s more climate policy coming. How do you keep on top of this policy? Can you continue to be a low-cost producer when you think about the burdens of costs that are adding to your operations?
Mike Rose:
Kind of two separate questions. Yes, we can continue to be a low-cost producer, because that’s almost entirely driven by capital costs and operating costs. But is there an increased regulatory burden? For sure. We, for the longest time, divvied it up on an ad hoc basis between myself and Brian Robinson, who’s our CFO, and Al Bush, who’s our COO.
They’re all very good at it. Sherra Aspin, who’s our VP of marketing and transportation, does pretty much everything on the nat gas side for us now, but it just keeps multiplying or blossoming or metastasizing, however, you want to view it. Now, we have a dedicated team that’s led by Leah Turner. She has a small number of staff working for her. She does an awful lot of it. It’s always about getting the right people, and she’s the right person.
We’re still involved, the senior executives, where we think it’s appropriate. If you’re talking to energy ministers or premiers or senior government officials, we’ll divide that up between Brian and Sherra, and me. But it’s been a huge help in the evolution of how the world works. And so, you’re right. You have to stay on top of it. You kind of have to be the best at everything to be successful, unfortunately now. You can’t ignore anything. If you’re going to do it, you might as well be good at it.
Peter Tertzakian:
Let’s talk about being good at everything and adapting over the decades that you’ve been in business. You started in 1979 in Shell. This is your third company since. You’ve seen a lot of changes in dealing with Indigenous Peoples. And so, talk about the relationship with indigenous people. Their involvement in the oil and gas industry has evolved over the decades. Where you’re at with Tourmaline today.
Mike Rose:
Sure. Well, it has evolved in all aspects of the business. More specifically, in BC, we work very closely with the BRFN or the Blueberry River First Nation. The BC government and Tourmaline did help get the new framework across the line or in place that allows oil and gas resource development to proceed. In the end, it allows the province and the residents and the BC First Nations, and the industry to prosper from go-forward resource development. We think that’s just great.
Jackie Forrest:
All right. Well, let’s talk about the big issue of greenhouse gas emissions a bit. Maybe we’ll start with what you’ve achieved so far. And then, we want to talk a little bit about the goals that the federal government has and how achievable those are. But let’s start with what you’ve accomplished within Tourmaline.
Mike Rose:
Sure. We take a little bit of a different approach. We don’t just focus on CO2 and emissions. We call it environmental performance improvement or EPI because then I hate writing out “environmental performance improvement” every time. It’s air, land, and water. Man is polluting all three at a pretty good clip, and we need to address all three.
Our other mantra is, “Let’s not wait till 2030 or 2050. Let’s go reduce emissions right now.” What’s in our DNA is executing and we think that’s what matters. I talked about diesel displacement, and that’s been a wonderful initiative. I think we’ve led the industry in that. We also have built an enormous water management business, because lack of fresh water is a huge issue for mankind around the world, and it’s going to get worse and worse.
We have built 36 recycling or storage facilities to ultimately get all of our well-stimulation businesses to not use any fresh water. And so, we’re there in BC. We’re about 70% of the way there in the Alberta Deep Basin. It’s a little more geographically dispersed, so it takes a little bit longer, but that’s a big goal we have. On methane abatement, we run the only emission testing center in the world at scale, and it’s at one of our Deep Basin gas plants. What we’re developing there is the technology to go to zero-emission well sites and eliminate any kind of methane coming out of your business.
We’ve got 47 different experiments running there. And that’s in conjunction with Natural Gas Innovation Fund, which is what a few gas producers have banded together to share technology and improve. We hit our methane reduction target of 25% net reduction, not intensity. We hit it three years early, and that’s despite growing production by 20% along the way. I think different companies focus on different things and collectively that’s how we win and how we improve our performance.
Companies will star in certain roles, and then when we share them, the industry will get cleaner and cleaner. To some extent, there’s a revolution going on now that’s largely ignored in our business. It revolves around clean tech. On just how much better we’ve gotten over the past 10 years and will going forward. It’s all driven by technology. The last revolution was the ability to frack horizontal wells. That gave birth to the shale revolution if you like. And this is the next revolution that’s coming.
Peter Tertzakian:
The revolution of mitigating unwanted emissions, using less water.
Mike Rose:
Everything. Yep.
Peter Tertzakian:
The whole package is the next revolution.
Mike Rose:
And surface impact.
Peter Tertzakian:
And surface impact.
Mike Rose:
With 12, 16, 24 well pads, the amount of energy per acre, if you like … I’ve got all those numbers, but I don’t have them in front of me.
Peter Tertzakian:
It’s substantially less.
Mike Rose:
Yes.
Peter Tertzakian:
But one of the big issues is the CO2 because the geographic span expands. This is not like Fort McMurray where all operations are largely closely concentrated, largely flat areas. Whereas things like carbon capture can work in the Fort McMurray area, on the conventional side, it’s far more difficult. Isn’t it?
Mike Rose:
It is. You’re correctly pointing out that nat gas business is completely different than oil sands. The largest remaining emission that nat gas producers have is plant effluent or the discharge from their gas plants. If your plant is electrified, the vast majority of emissions are gone.
Peter Tertzakian:
That is the majority or the dominant solution for conventional natural gas, oil, and gas, which is everything that’s not oil sands. Given the span and the circumstance, it’s much more electrification than it is …
Mike Rose:
Going forward, as the grid gets built out, we do at our North Montney development, for example, we’ll set it up such that we can run electric compression when the grid shows up. But most compression for gas producers runs off that gas because that’s the cheapest solution and that’s what is available. But going forward, electrification is a solution.
On existing plants, several technologies are being developed that will take plant flue gas, and then what we want to be able to do is separate a pure CO2 stream. And then, you’ll just inject it locally. We’ve been securing the reservoirs around our plant to do that. There are four or five promising technologies. It’s hard to say exactly what year it happens, but we will put that in place or select two or three of them.
And then, we can seriously reduce emissions. The last big piece for gas producers, it’s a local, or we call it a distributed solution rather than a centralized hub. I think gas producers largely will do it without requiring any government subsidies because they’re smaller and have more local projects.
Jackie Forrest:
Well, electrification is a solution, but you mentioned that there are areas where you don’t have the grid and you’re waiting for it. It’s kind of out of your control when transmission lines might get built to very remote places.
How much of the conventional industry isn’t electrified today, doesn’t have the infrastructure, and therefore electrification may not be a solution? We’re talking about the 2030 timeframe for … I think the government wants a 40% to 45% reduction in that timeframe.
Mike Rose:
That’ll be extremely difficult to accomplish. I think the grid will get there, but I don’t think it’s going to get there in 2030. Will it be there by 2050? Probably.
Jackie Forrest:
Also, you were in the news a couple of times last week. Tourmaline is aiming to double your LNG from 6% today to potentially 10% to 15% of your production by 2026. That’s not very far away. First, tell us about your current LNG exports. Do you have gas molecules from Western Canada that are going overseas today?
Mike Rose:
Yes. We struck a deal with Cheniere on the US Gulf Coast after putting together a transportation route from either the Montney or the Alberta Deep Basin to get gas all the way down to the Gulf Coast on a series of Trans Canada pipes. We deliver 140 million a day to the plant gate.
We pay our pipeline toll to get there. We also pay our liquefaction fee and our boat fee. We realize the full JKM price minus those three fees, so a very lucrative contract for us. It equates to one LNG boat a month, and they’ve gone both to Asia and Europe so far.
Jackie Forrest:
JKM is the Japanese price?
Mike Rose:
Japan-Korea Marker is what it stands for.
Jackie Forrest:
When did that start? Was that recently?
Mike Rose:
January of this year.
Jackie Forrest:
Jan one. So it’s a very new development. Western Canada is in the international business. It’s exciting.
Mike Rose:
It is. One of the keys to “how do we do well when gas prices are low” is our transport and marketing diversification. The main tenant of it is we get to US markets on existing depreciated pipes, so the tolls are relatively low. They’re less than what our US counterparts will pay. We can get to the same market as one of our large-cap US gas producers. We’ll go three times the distance, but we’ll pay the same toll. We’re only paying 86 cents to get to the Gulf Coast.
Peter Tertzakian:
And the Gulf Coast LNG facilities are expanding. They need the gas as well. The Montney is in the first inning where you are. And so, it seems like a natural, rather than crossing two mountain ranges to the West Coast, which is going to happen with LNG Canada. However, that infrastructure is far more expensive because of the mountain ranges and because it’s brand new infrastructure. Rather than fully depreciated established tools.
Mike Rose:
And it carries higher tolls. We like both. The Montney and the Alberta Deep Basin, to a lesser extent, can support 10 BCF a day on the West Coast. And then, maybe we have two to four BCF, a day industry heading straight south. Our competitor, or the main gas basins in the US right now, is much closer to their 50% tipping point.
Peter Tertzakian:
Right.
Mike Rose:
That being the Marcellus-Utica combo and the Haynesville. And so, when the Gulf Coast goes from 12 to 24 BCF a day, they’re going to need the Western Canadian sedimentary basin to be one of the supplying coasts.
Peter Tertzakian:
The Americans are determined to grow it to that, if not more, because of the global geopolitical situation with the displaced Russian gas. I guess it begs the question: why not send even more down the spine of North America to the Gulf Coast?
Mike Rose:
I think ultimately that happens. Probably, the second half of the decade. You need some of the existing pipeline capacity and routes to open up. There is a decline going on in various parts of the US. And then, we believe transportation will open up. Right now, it’s as difficult to build a pipeline straight south and build pipelines in the US as it is in Canada.
We’re getting down on existing pipes with some brownfield expansions, and there’ll be more of those. The US also wants to grow their gas production, because they’ve accomplished such an enormous CO2 reduction on a global basis with coal displacement, which is what LNG Canada can do too. Got a good fact for you though. Alberta between 2015 and 2022 has reduced their CO2 emissions by 41%, and the vast majority of it is coal displacement and electrical generation.
Peter Tertzakian:
With our natural gas-fired power.
Mike Rose:
That’s a huge stat.
Jackie Forrest:
Now, you mentioned that you think the potential of West Coast LNG from Canada is 10 BCF per day. We have LNG Canada. If it goes to phase two, that would be four BCFs. We have some smaller projects that have been announced like Cedar, and Wood Fibre, but we’re not getting to 10. Maybe those get a little closer to five.
Mike Rose:
But that rounds up to 10. No, we need some more pipelines.
Jackie Forrest:
Do you think that’s going to happen? Considering the current political environment and the concerns around greenhouse gas emissions domestically. Do you think that we’re going to see those?
Mike Rose:
Well, it’s challenging, but we’re going to push it. I think ultimately, as the world needs more and more energy, and Canada on average does produce the lowest-emission natural gas in the world, there’s a really good rational story or positive story to make that happen. It’s a great thing Canada can do for the global atmosphere and a great thing for the economy across the country.
Jackie Forrest:
Now, BC came out with a framework that talked about if the facilities could be net-zero by 2030. You’re telling me that the upstream side is going to decarbonize when clean electricity comes to all the sites. Do you think that if we achieve very low emissions on both the upstream production and the LNG terminals, that will help open up the market for us to be able to deliver more gas?
Mike Rose:
I think the market’s there. It would maybe open up the reluctance that the federal government currently has to sponsor more nat gas growth. I think that’s what we’re talking about here. And it involves electrifying the liquefaction facilities as well. There’s an effort to do that as much as possible with the new liquefaction facilities on the West Coast.
Jackie Forrest:
But infrastructure is the issue there too. Because they need to bring the big transmission lines.
Peter Tertzakian:
You mentioned our gas is going out the back door to the Gulf of Mexico to markets. Where are the tankers going? Are they going to Europe? Or are they going through the Panama Canal?
Mike Rose:
Both.
Peter Tertzakian:
Both?
Mike Rose:
Yep, That’s Cheniere’s choice. We give up custody of the gas at the plant gate, but we get the world price net our fees.
Peter Tertzakian:
In terms of the call from Europe to displace Russian gas, some of our gas is finally getting there. It’s just not necessarily through our sovereign land. It has to go through the third-party United States to get there.
Mike Rose:
Yep, that’s right. With what happened with Russian gas not sourcing Europe anymore, you’ve created another LNG market almost overnight and a big one. It was an LNG market anyway, but now it’s evolved into a much larger market than it was before, which creates even more opportunities for Canadian gas and gas producers.
Peter Tertzakian:
Talk about your transit, down the spine of North America through the biggest American gas fields in places like Texas. Talk about your costs in being able to compete with Texas gas. I think you said it’s $1.50 Canadian, which is 30% cheaper than the US …
Mike Rose:
We have lower supply costs just because of our resources. Generally, cheaper to develop. It’s a little shallower. It drills quickly. We’re drilling certainly in our North Montney area consistently. We’re drilling completed horizontals from spud to having the assembly in the ground in around six days.
Peter Tertzakian:
Wow. And so, you can bring it to market a lot faster. Let’s call it $1.50 to get it out of the ground per GJ. I’ll use GJs. What did you say? To transit to the Gulf Coast is 80 cents.
Mike Rose:
86 cents.
Peter Tertzakian:
86 cents. We’re at $2.00. We’ll call it 2.40 cents. 80 US? 86 cents US?
Mike Rose:
That’s right.
Peter Tertzakian:
I’m just doing this mental math. $1.10. You’ve got $2.60 Canadian. $2.70 Canadian. Is your, I’m going to call it American $2.10, $2.20 cost competitive with the Americans?
Mike Rose:
Yep. I think we’re cheaper. That’s kind of the tenant of getting the gas down there on existing pipelines with lower tolls. That’s the other way you win. The other thing Canadian Gas has an advantage with is we’re much more liquid-rich, so that helps your overall margin.
Peter Tertzakian:
Right. You extract the liquids. The condensates and things.
Mike Rose:
Right. And that helps your margin. It’s all a margin game.
Jackie Forrest:
Well, it’s exciting to see our gas get to the international markets. Especially, at a time like this. Exciting to hear that there’s going to be growth in LNG. We know that for sure. We’ll hope that it grows more than we think today.
Mike Rose:
It’s bigger.
Jackie Forrest:
It was great to hear about all the things you’re doing at Tourmaline.
Peter Tertzakian:
Well, Mike Rose, CEO of Tourmaline. You’re a legend in the business. We were fortunate to get you on the podcast. Thanks so much for joining.
Mike Rose:
Thanks. Does legend mean you’re old?
Peter Tertzakian:
No. No. No. We’re the same vintage.
Mike Rose:
Anyway, thank you, guys, for having me on.
Jackie Forrest:
Thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
Announcer:
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