Alberta Energy Minister Murray Smith has officially declared that the North Slope and Mackenzie Delta are in a race to get their natural gas to market first.
If the U.S. Congress approval of US$18 billion in loan guarantees for an Alaska pipeline moves the North Slope ahead of the Mackenzie on the construction schedule, Canadian Arctic gas could miss its planned 2009 start-up by 15 years or more, he said.
Telling the Financial Post that the “great pipeline race has commenced,” he said U.S. security interests could override other considerations if gas prices move above US$8 per thousand cubic feet.
He warned against underestimating the U.S. ability to mobilize resources, effort and engineering technology to fast track the Alaska project.
Hal Kvisle, chief executive officer of TransCanada, which has major stakes in both projects, said the backing of Congress now suggests 2012 is a “reasonable target” for gas to start flowing, although he described the Alaska pipeline as “50 times” more complicated than a Mackenzie Valley pipeline.
Prospect of long-term Mackenzie delays
But the heightened prospect of long-term delays for the Mackenzie could see the project shelved “for as long as 25 years.”
That would erode hopes of opening up a new gas frontier in Canada and bringing “huge benefit” to the North, he said.
Kvisle said the pressure is now on the Canadian government “to think of a way to resolve” the opposition by the Deh Cho First Nations and “make the (Mackenzie) project go ahead fairly quickly.”
Against that background, consultants’ reports supporting the Mackenzie Gas Project applications filed with the National Energy Board make an urgent case for developing both Mackenzie Delta and North Slope gas.
Commissioned by the Mackenzie partners, Navigant Consulting Inc. and Energy and Environmental Analysis Inc. (collectively the NCI-EEA Team) examined the long-term need for gas from the Delta and factored in the possibility of an Alaska pipeline as early as 2013.
“The addition of a large Alaska pipeline (carrying 4 billion cubic feet per day) in the middle of the next decade does not alter the fundamental mismatch between ever-increasing gas demand and weakening gas production growth” in North America.
“While large in absolute terms, deliveries of Alaskan gas would represent less than a 5 percent increase in supplies to the overall Canadian and U.S. Lower 48 gas market, which is projected to require 88.1 billion cubic feet of gas a day in 2015 and 98.3 billion cubic feet per day in 2030,” the NCI-EEA study said. Consumption in 2002 was 68.4 billion cubic feet per day.
Consultants say markets support possible Mackenzie expansions
The overall conclusion is that Canadian and U.S. markets support a 1.2 billion cubic feet per day Mackenzie pipeline by 2009, with possible expansion in 2015 and 2020.
“The projected growth in gas demand will create a significant need for the incremental gas supplies delivered by the Mackenzie pipeline during the initial 21 years of its operations (to 2030).
“Even if demand growth is less than projected, the need for a pipeline to access Mackenzie Delta resources remains underpinned by the anticipated decline in gas supplies,” NCI-EEA said.
The consultants said the outlook is for steady growth in residential and commercial gas consumption, robust growth in gas demand for electric power generation and a large increase in gas usage for bitumen extraction, processing and related cogeneration in the Alberta oil sands.
Because of these trends, the study forecasts demand in Canada and the Lower 48 will have climbed by 16 percent or 11.1 billion cubic feet per day from 2002 to the first full year of Mackenzie deliveries in 2010, with gains of 21 percent in Canada and 15 percent in the Lower 48.
“The growth in demand is expected to outstrip gas production in traditional producing basins by a widening margin, including frontier gas resources and liquefied natural gas.
“By bringing a large incremental supply of gas to the marketplace, the Mackenzie pipeline will help fill the growing supply shortfall,” the researchers said.
Supply forecast to peak next decade
Dealing with the supply outlook, the study forecasts production in Canada and the Lower 48 will “grow only moderately through 2030,” peaking by 2020 at 56.2 billion cubic feet per day in the Lower 48 and by 2016 in Canada at 20.9 billion cubic feet per day, giving a combined peak of 77 billion cubic feet per day in 2016, or up 14 percent from 2002.
Underlying the weakening supply is the long-term decline in the productive capacity of mature basins in the U.S. Gulf Coast, Midcontinent, San Juan and Permian Basins and the Western Canada Sedimentary basin.
The only hope, the study said, is in the Rocky Mountains and deepwater Gulf of Mexico, with other regions limited to modest gains at best.
The declines reflect the tapering off in quantity and quality of remaining producible reserves, increases in well-decline rates and lower initial productivities of newly-connected wells.
For that reason, NCI-EEA said a much greater share of gas supply will have to come from non-traditional sources from new frontiers in the Mackenzie Delta, Rocky Mountain region, deepwater Gulf of Mexico and Eastern Canada offshore, which the study concludes will have to meet 23 percent of demand in 2010, compared with 15 percent in 2002.
In addition, LNG imports are projected to soar to 26.8 billion cubic feet per day by 2030, meeting 31 percent of the Lower 48 consumption.
By 2030, the Western Canadian Sedimentary basin is forecast to have fallen below 10 billion cubic feet per day from 13 billion in 2009, although export pipeline capacity from the basin will be 15.4 billion cubic feet per day.
Demand close to 100 bcf per day by 2030
NCI-EEA said the gas demand in Canada and the Lower 48 will reach close to 100 billion cubic feet per day by 2030, including industrial at 30.2 billion, power generation at 27.7 billion, residential 20.2 billion, commercial 14.2 billion and other 6.9 billion.
However, after 2025, the study projects power generation demand will decline because of increased competition from coal, oil and, to a lesser degree, renewable energy.
Although NCI-EEA views the market environment for Mackenzie gas as “positive,” it cautions there are risks and uncertainties, principally:
• A slowing of heavy oil and oil sands production in Alberta, or greater use of coal for meeting projected fuel requirements, thus reducing the market’s capacity to absorb Mackenzie production.
• More rapid expansion of gas production in general could meet a larger share of future demand.
• Increased gas output in Alberta — if coalbed methane production builds more rapidly than assumed and is coupled with markedly slower growth in oil sands gas demand — which could open up capacity on pipelines within Alberta or on major export pipelines from the province. Higher utilization of existing capacity could reduce the amount of spare capacity available to deliver Mackenzie gas to major markets.
• Overbuilding of LNG capacity could lower gas prices and lessen the capacity of U.S. and Canadian markets to absorb Mackenzie volumes.
• Higher gas prices relative to oil and coal could encourage more rapid development of lower-cost energy supplies, such as coal, perhaps facilitated by technological advances.
• Changes in Canadian and U.S. energy policies to promote alternative sources, cutting into the need for Mackenzie gas. Initiatives could include a renewed focus on nuclear power, promotion of cleaner coal-combustion technologies and renewable energy portfolio standards, all or any of which could lower the need for gas-fired power generation.
