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Providing coverage of Alaska and northern Canada's oil and gas industry
July 2006

Vol. 11, No. 27 Week of July 02, 2006

Gas exploration to resume at Red Dog

Expert: Tests show shale gas resource near zinc and lead mine compares favorably with huge Lower 48 deposits By Rose Ragsdale

Petroleum News

The more explorers learn about shale gas deposits near the huge Red Dog Mine in northwest Alaska the more they like the idea of exploiting the resource to replace costly diesel supplies now being shipped there to power the zinc and lead mining operation.

But the jury is still out on whether natural gas locked within shale rock formations near the mine can be produced economically, Red Dog General Manager John Knapp said June 28.

“We know the gas is there, but we don’t know if it’s there in sufficient quantities and at sufficient pressure to be produced,” Knapp said told Petroleum News.

Teck Cominco Ltd., the mine’s owner, will spend $6 million to $8 million this summer on a second year of drilling wells and conducting tests of gas deposits in the vicinity, Knapp said.

Modest output could be economic

Jonathan Kelafant, senior vice president of Advanced Resources International Inc., said the 2006 exploration program will include drilling another three or four holes for production wells and further injection testing looking for an underground area suitable for disposing of water produced with the methane.

Consultant ARI is directing the gas exploration effort for Teck Cominco.

Mineral exploration crews doing small-diameter core drilling discovered natural gas near Red Dog on NANA Regional Corp. land in the late 1990s. NANA also owns the land where Red Dog is located.

Kelafant said the idea to produce the gas to power the Red Dog Mine first surfaced in 1998. During the next four years, about 200 gas content analyses were collected and eight whole geophysical logging sets were run.

Last year, Teck Cominco budgeted nearly $4 million to drill two wells, conduct flow tests and build a one-mile access road.

In addition to the follow-up drilling this year, mine officials say it will take another three to five years for permitting and drilling more wells before first gas might flow in 2010-2012.

With 25 years of defined ore reserves left to mine at Red Dog, plus the possibly of extracting other nearby lead/zinc deposits still being explored, Teck Cominco will need plenty of fuel in the future. The mine, which can produce more than 600,000 tonnes of zinc concentrate a year, uses about 18 million gallons of diesel annually.

It would take 60 billion cubic feet over 20 years to replace the diesel, and some 40 to 60 wells likely will be required for adequate production. Estimates of shale gas in the area have ranges as high as 3 trillion cubic feet.

Still, producing as little gas as 70,000 to 80,000 cubic feet a day would be economic for Red Dog, with diesel currently costing the equivalent of $12-$15 per thousand cubic feet of gas, Kelafant said.

Shale quality looks promising

Tests, so far, show shale basins near Red Dog compare favorably with the geology of some of the hottest unconventional gas plays in the Lower 48, Kelafant told members of the American Association of Petroleum Geologists attending a conference in Anchorage May 8.

“The shales at Red Dog compare favorably in permeability, gas content and recoverability,” with such formations at the Barnett Shale in the Fort Worth basin in Texas and the Ohio Shale in the Appalachian basin, Kelafant said.

The 2005 exploration program was a learning experience, according to Kelafant. “We learned we could produce gas from the shale,” he said.

The exploration team also found it could reduce the time required to drill the wells, which had targeted depths of about 1,500 feet to 2,600 feet.

They also found the gas quality was good at 98 percent methane, Kelafant said. “We had an 81 percent test rate on hydraulic fracturing, and I thought that was pretty good in a frontier reservoir like this. It will require tweaking as we go along.”

Kelafant said the second well drilled last summer produced water at a rate of 100 barrels a day.

Disposal of water produced with any future gas output will not be allowed in the mine, so part of the challenge of producing the gas will be finding a suitable way to dispose of the produced water.

“There was a lot of gas in that water, and we are looking at water injection issues,” Kelafant said.

A model for rural gas exploration?

Ultimately new technologies may be required to make the project economic. If slim-hole production methodologies can be designed for implementation in rural areas the cost savings would be phenomenal, ARI officials have said.

Knapp said rural communities in Northwest Alaska are monitoring the project. “They are optimistic the technologies we’re developing can be used to find gas in their communities,” he added.






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