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Asian markets critical for British Columbia Province’s shale gas development challenged because too high cost to compete with Lower 48; US expected to be self sufficient soon Gary Park For Petroleum News
Development of British Columbia’s shale gas is at a crossroads, pointing to either a flourishing future if markets are opened in Asia, or, in the view of one producer, a “doomed” outlook.
Underlying everything is the challenge of overcoming the high costs of drilling, well-fracturing and transportation in the resource-rich Horn River and Montney basins, several speakers told a Calgary conference in late April.
Basim Faraj, vice president, international with Questerre Energy, delivered a blunt message, describing the two basins as economically “doomed” because they sit at the end of pipelines in the Western Canada Sedimentary basin, meaning they have no hope of competing with gas produced in the United States.
Predicting the U.S. will be self-sufficient in gas within a few years, he said that places extreme pressure on Canada to start developing new offshore markets.
Jeff Tonken, chief executive officer of Birchcliff Energy, said the combined costs in the current weak gas price environment makes Horn River economics difficult, although Montney, which is farther south, has a slight advantage.
Bentek: Kitimat needed Adam Bedard, director of the Canadian upstream group with Colorado-based Bentek Energy, said Horn River can only work if the Kitimat LNG export project by Apache, Encana and EOG Resources goes ahead.
He said production and development at Horn River are already hinging on a positive Kitimat decision, although Montney is a “little more attractive based on pricing, liquids and location.”
“Production and development at Horn River will be paced by (what happens at) Kitimat,” Bedard said.
However, there is optimism that the British Columbia coast is capable of handling one or more LNG export projects, even though the competition from Australia for buyers in Asia is fierce, said Tim Watson, a managing director of Bank of America/Merrill Lynch.
He said a partnership of Talisman Energy and South Africa’s Sasol is keeping two options on the table — LNG exports and the first gas-to-liquids project in Canada, but Ashok Gupta, senior vice president with Mizuho Corporate Bank, rated LNG as the most viable option for Horn River gas.
TransCanada betting on growth For all of the doubts, TransCanada is betting heavily on the future of northeastern British Columbia, forecasting that the region will produce 5 billion cubic feet per day by 2020.
It is pressing ahead with expanded pipelines out of the region, encouraged by its latest contractual commitment from shippers to add 100 million cubic feet per day by 2014 and 300 million cubic feet per day by 2020 to its approved pipeline that is scheduled to come on-stream in 2014, feeding 630 million cubic feet per day from Horn River into its Alberta network.
TransCanada said several applications have been filed with Canada’s National Energy Board for further expansions of the Alberta system to handle new gas supplies from northern British Columbia and Alberta.
The Horn River projects along with the existing Groundbirch pipeline have combined shipping contracts of 1.9 bcf per day by 2014, volumes that TransCanada said are critical to partially offset declining volumes of conventional gas in the Western Canada Sedimentary basin and contribute to lower tolls on TransCanada’s mainline system to eastern Canada and the United States.
It estimates the total cost of its new Horn River projects, including 60 miles of pipeline extensions, at C$475 million.
However, Gary Wellinger, vice president of strategic development with Spectra Energy, which has 2.4 bcf per day of transmission capacity in British Columbia, stressed the importance of a “big breakthrough” for plans to export LNG to “facilitate accelerated growth” in Horn River and Montney.
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