What’s Next for Hal Kvisle and Talisman Energy?

Hal Kvisle at Talisman  offices in Calgary.

Hal Kvisle at Talisman offices in Calgary.

About five minutes into an interview at his Calgary office, Hal Kvisle, CEO of Talisman Energy Inc., pauses, grins and says: “I haven’t met anyone that doesn’t like electricity.
“Some people don’t want cars. And some people don’t want pipelines, but I don’t know anyone who doesn’t use something like this,” he says gesturing at the lights overhead in the 36th floor boardroom.

The electricity quip is an icebreaker, but it’s also a mission statement. Kvisle, 61, has been in the business of finding, extracting and delivering energy for nearly four decades, most notably as president and CEO of TransCanada Pipeline, a position he held for nearly a decade.

bulbHe says that securing reliable energy sources is a universal, urgent need.
In September 2012, he came out of retirement to lead Talisman, a Calgary-based oil and gas producer. His stated goal when he took the position was to get Talisman on track financially before stepping down sometime this year (2014).

There will always be naysayers, he says, those politicians and interest groups opposed to infrastructure construction. But opposition won’t blunt the need to keep the lights on.

flameThat said, Kvisle said he’s optimistic about the future role natural gas will play in meeting North American and global energy needs, particularly the impact of the shale gas revolution. Natural gas, he says, is poised to become North America’s main source of power generation. The discovery of large quantities of natural gas in layers of shale rock was a game changer that cut prices and gave the industry a huge boost. Shale gas is extracted through hydraulic fracturing or “fracking” of the rock. The process has opened up large reserves of previously untapped natural gas, most notably in North America.

Right now, less than 10 per cent of the electricity generated in Canada comes from natural gas fuelled power plants, behind hydroelectric power, nuclear power and coal.

That figure will climb steadily in the next decade, he said. “I think that power generation (in North America) is about to surpass residential, commercial and industrial demand as the largest single consumer of natural gas,” Kvisle said. “I think in the years ahead, power generation will absolutely be the largest consumer of natural gas.”

“he’s optimistic about the future role natural gas will play in meeting North American and global energy needs ”

Gas powered plants are cheaper and more efficient than coal or nuclear power, he says. And Canada, which is currently the fourth largest producer of natural gas behind Russia, the United States and Norway, has a vast supply of the source rock used in shale gas extraction.flags

“Western Saskatchewan, all of Alberta and northeastern B.C. and The Mackenzie Valley is full of source rock,” Kvisle says.
“And we have now learned how to drill right into the shale, go straight to the source. So I think we’re at the very, very early stages of writing the story about Western Canada, and just how much gas we’ve got here.

“We absolutely have enough gas to supply everything Canada could need for hundreds of years. We could probably supply 25 per cent of the U.S. market for hundreds of years. And we can build a very big energy export program that would run for at least 100 years.”

“We absolutely have enough gas to supply everything Canada could need for hundreds of years.”

Amid the optimism, Kvisle’s main concern is price. At the time of the interview last August, gas prices had been falling since the onset of shale extraction, and sat below $4 per million BTU. Since then, prices have surged past $5, a level still low enough to spur usage but high enough to pay for exploration costs, he says.
“You need roughly $5 gas price in Western Canada and in the producing basin in the United States in order to develop and produce that gas.’’
The low price is good news for consumers and manufacturers.

In the United States, cheaper gas prices have breathed new life in the steel industry, which is used in drilling shale gas and for steel manufacturing. Lower prices could do the same for the plastics industry and fertilizer manufacturers, which both use natural gas for production.

“If you’re Dow Chemical or Nova Chemical here in Alberta, and you’re making plastic bottles or you’re making polyethylene sheeting or you’re making styrene of any of these chemicals, it’s either natural gas, which is primarily methane . . . or the second biggest component of any gas stream is ethane.”

“Not only does natural gas make sense as an affordable on-road fuel choice, but all the big trains could be converted to natural gas”

Natural gas meets over 30  per cent of Canada’s energy needs.

Natural gas meets over 30 per cent of Canada’s energy needs.

piggyThere are also applications for the transportation industry, especially long-haul trucks and rail.
“Not only does natural gas make sense as an affordable on-road fuel choice, but all the big trains could be converted to natural gas because it would be relatively simple for a long freight train to have a car behind the engine that would have liquefied natural gas in it, and that could supply the train with fuel.”

It’s a far cry from the scene a decade ago when natural gas prices hovered at $8, threatening manufacturers that used the resource.
Kvisle, at the time, sat on the National Petroleum Council in the U.S.
“We had many presentations from people at Dow Chemical and other chemical companies, (who said) that if we did not do something to bring down the price of natural gas, which was heading (to) six, seven, eight dollars at the time, Dow Chemical was going to have to relocate all its chemical plants outside of North America.’’

“Some really zany people said: ‘Gee, let’s try this. Let’s try getting gas out of coal bed methane. Let’s try getting gas out of shale. Let’s try getting gas out of really tight rock.’ ”

crane

“They looked at the oil industry and said: ‘You guys have got to do something to bring down the price of natural gas.’ And we all went: ‘It costs a certain amount to get this out of the ground.’ ”
That was the impetus that led the energy sector to research new extraction methods that led to the discovery of shale gas, he says.

“It’s so interesting that the price of gas had to be really high . . . to motivate companies to try different forms of horizontal drilling and hydraulic fracturing,” he said.
“Some really zany people said: ‘Gee, let’s try this. Let’s try getting gas out of coal bed methane. Let’s try getting gas out of shale. Let’s try getting gas out of really tight rock.’ ”

Shale gas exploration has met with some opposition from environmental groups concerned the process could damage drinking water. In Canada, British Columbia, Alberta and Saskatchewan permit fracking. Quebec has a moratorium on fracking under the St. Lawrence River and there’s a review of the process in Nova Scotia.

Politics too has come to play an increasing role in infrastructure construction, Kvisle says. In Ontario, former premier Dalton McGuinty cancelled two proposed gas-fired power plants in Toronto’s suburbs in the lead up to the 2011 provincial election campaign.

Hal Kvisle at Talisman  offices in Calgary.

Hal Kvisle at Talisman offices in Calgary.

“Whether it’s pipelines or power plants in Oakville Ontario – you can’t get this stuff built anymore – and Dalton McGuinty’s whole legacy has been destroyed because of Not-In-My-Backyard concerns about power plants.
“This has been carried to such an extreme that the two biggest impediments to a glorious future for gas are: Will the price be high enough to support the drilling? And can we ever get infrastructure built?’’

But these are temporary impediments, Kvisle says. Canada’s vast supply of shale gas means, “we’ll be good for a long time.

“One thing we won’t do is freeze in the dark,” he says with a grin.

ABOUT THE AUTHOR

Jane Armstrong is a national newspaper award-winning journalist who has reported for Canada’s two largest newspapers, The Globe and Mail and Toronto Star.