For combined capital and operating costs of up to C$6.8 billion it should be economically feasible to use one of three options to develop natural gas in Canada’s High Arctic at some point in the next four to 15 years and stretching through to 2040, a Canadian Energy Research Institute study has concluded.
It said each of three schemes — liquefied natural gas, compressed natural gas or gas-to-liquids — would generate more than the required 15 percent minimum rate of return to exploit two fields on Melville Island with total gas-in-place of 10.2 trillion cubic feet.
The study — commissioned by Canada’s Department of Indian and Northern Affairs and the Nunavut government — said the Drake Point and Hecla fields on Melville’s Sabine Peninsula could be developed in harness in a single onshore/offshore project.
A previous study by the institute in March 2004 concluded that production and ship-borne transportation gave CNG a significant economic margin over the GTL and LNG alternatives.
CNG avoids costs of liquefaction facilities
In an updated analysis, institute researchers Luke Chan, George Eynon and David McColl said CNG shipments to a Mackenzie Corridor pipeline avoided the larger capital costs of liquefaction facilities needed for LNG.
Because CNG vessels have only about one-third of the capacity of LNG tankers, they are better-suited to short-haul routes, making transportation from Melville to the Mackenzie Delta commercially feasible, the study said.
LNG would offer two options — one using a fleet of icebreaking LNG tankers to carry shipments to third party regasification facilities in Nova Scotia or New Brunswick, which are both dealing with applications for LNG terminals; the other would transship LNG from icebreaking tankers to conventional vessels in West Greenland, thus minimizing capital costs for vessels and offering greater flexibility in the choice of markets.
GTL, although presenting several options to U.S. East Coast refineries, is relatively inefficient because 35 percent of the input energy is consumed in the conversion process, the authors said.
Earlier study proposed LNG
The study noted that an Arctic pilot project application in 1981 proposed deliveries from Melville to Quebec and Nova Scotia using LNG carriers.
That plan called for delivering 320 million cubic feet per day of gas from the Drake Point field to a barge-mounted liquefaction facility at Bridgport Inlet on Melville. From there two vessels would deliver the LNG to regasification terminals in Quebec and Nova Scotia, about 3,120 miles away.
A second phase would increase throughput to 550 million cubic feet per day, using four LNG carriers.
Finally, development of the Hecla field would transfer 1.375 billion cubic feet per day to nine LNG carriers.
The institute based its near-term findings on two baseline Henry Hub prices of US$4.50 and US$5.67 per thousand cubic feet for the 2005-2015 period.
The study said the development of Melville gas with its shipping option for the production stream “might well be seen as more environmentally sensitive than conventional offshore exploration and development of Beaufort Sea resource potential and could well have an impact on the timing of that activity.”
In weighing important socio-economic and environmental issues, it said the GTL option offers three potential benefits: a home-grown substitute for the volumes of diesel that are currently imported into Nunavut communities, improving economic conditions in the region and reducing greenhouse gases.
