The North American natural gas industry is pushing ahead with plans for new supply sources but is currently struggling to meet steadily rising demand.
That was the consensus view of industry and government experts at a Canadian Energy Research Institute conference in Calgary last week on the gas outlook. Topics covered ranged from conventional basins to frontier gas, coalbed methane and LNG.
Keynote speaker Andre Plourde, a senior executive with Natural Resources Canada, said short-term markets for gas are in reasonably good shape, with relatively strong prices. He said that drilling for gas in Canada in 2003 likely will total 14,000 wells, compared with 9,000 wells in 2002.
Plourde said the longer-term picture is less clear, with major supply areas such as the Western Canada Sedimentary Basin and the US Gulf Coast reaching maturity. The challenge for the industry, he said, is flat production and rising demand—a situation that will contribute to much higher price volatility.
He said that Canadian Arctic gas and CBM production would begin to contribute to supply by the end of the decade. Plourde said there are complex technical and socioeconomic issues involved in building a Mackenzie Valley pipeline from the Canadian Arctic, but progress is being made.
He noted that 60% of land claims for the pipeline route from the Mac- kenzie Delta through the Northwest Territories now have been resolved.
LNG's increasing role
Ron Billings, vice-president, LNG, for ExxonMobil Gas & Power Marketing Co., said the gas industry is in an enviable position today with growing demand. He said that, by 2020 world energy demand will be 40% higher than today, with 80% coming from fossil fuels. And by 2020 gas will supply 20% of that demand because of environmental benefits it offers and its use as a preferred feedstock for power generation.
Billings said LNG imports would play an increasingly important role in meeting demand. The challenge will be finding ways to develop new supplies from remote areas. He said increased train sizes and more efficient units as well as larger LNG tankers are reducing LNG costs. The executive said gas supply growth in the North American market cannot be sustained without LNG supplies. He said LNG will not make a significant contribution to supply before 2011 because of long lead times for project development.
Billings said many of the 40 LNG terminal projects now on the drawing boards for North America would not be developed because of factors such as regulatory delays and competition.
Pipeline possibilities
Randy Ottenbreit, an executive with the Mackenzie Gas (pipeline) project, said an application to regulatory authorities is likely this summer and, subject to approvals, first gas could flow by 2009.
The complex regulatory process involves separate applications for development of three onshore gas fields, a gathering system, and the pipeline from the Mackenzie Delta to connect existing pipelines in northern Alberta. The 30-in. pipeline, with a capacity of 1.2 bcfd, could be expanded to 1.9 bcfd.
The project executive said there would be provisions to handle additional gas if there are new discoveries and the line can be looped. Ottenbreit said challenges for the project include controlling construction costs and the complex regulatory process.
Rise of CBM
CBM, which is already a significant source of gas in the US, now is gaining momentum in Canada.
Tom Byrnes, a reservoir engineering specialist with the Alberta Energy and Utilities Board, said most of the CBM potential is located in Alberta and there are no accurate data on reserve potential. He said extremely preliminary estimates places total potential reserves at 598 tcf. He said cumulative CBM wells have grown from about 50 in 2000 to an estimate of more than 1,000 wells in 2003. He said these figures could increase by 1,000 wells next year as companies move into development planning.
Byrnes said issues on CBM include land use, environmental impact, and water production, use, and disposal. He said production is viable from dry coals, which account for the largest deposits; questions still exist, however, about the economics of wet coals.
East Coast plays
Dave Collyer, vice-president, frontiers, for Shell Canada Ltd., said 2004 is a crucial year for Canada's East Coast exploration plays.
Collyer said the industry has invested more than $10 billion in exploration off Nova Scotia and Newfoundland and that there is $2 billion in work commitments. He said a string of dry holes in the Sable Island region in recent years has been disappointing.
Collyer said the industry is now at a key juncture on the East Coast and must deliver substantial results in 2004.
The economics of the Deep Panuke gas discovery off Nova Scotia are still being evaluated, and the Sable Island project is now producing 430 MMcfd, a drop from an initial 500 MMcfd. The Venture platform is now under construction to increase production.
Collyer said deepwater exploration off Newfoundland is a high-risk, high-reward play, with wells costing $75-100 million and having a 1:4 chance of success.
