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No relief from Mackenzie gas Lehman Brothers report says Delta gas will likely all go to oil sands Gary Park Petroleum News Calgary Correspondent
Incremental oil sands production scheduled for northern Alberta could consume all of the initial natural gas production from the Mackenzie Delta, says a new report by Lehman Brothers analysts Thomas Driscoll and Philip Skolnick.
They estimated that up to 1.1 million barrels per day of additional bitumen will be produced by 2012 and upgraded into synthetic light crude by projects that rely heavily on natural gas.
Thus, they said, the delta will provide �no relief to tight North American natural gas markets.�
The new oil sands projects � including 514 million bpd from steam-assisted gravity drainage operations and 610 million bpd from mining plants � will need 98 to 100 percent of the delta pipeline�s initial planned base capacity of 1.2 billion cubic feet per day and the oil sands demand could reach 1.5 billion, the analysts said.
They calculated that 0.5 to 0.7 thousand cubic feet of gas is consumed in the upgrading process for every barrel of bitumen produced, rising to 1 to 1.2 thousand cubic feet for every barrel generated by the steam-assisted gravity drainage process.
Pipeline still faces obstacles The report also warns of the obstacles yet to be cleared if a pipeline along the Mackenzie Valley is to come on stream between late 2008 and late 2010.
� The regulatory review and environmental impact assessment could stretch into 2006 and require 500 to 600 approvals, permits and agreements. �Interference by regulatory agencies and other individual land owners during this process is a risk to the project,� the authors said, noting that Native groups outside the Aboriginal Pipeline Group could delay the process or cause a change in the proposed route, possibly adding to costs or even forcing a cancellation.
� Construction of the pipeline would need two consecutive winter-access seasons to complete. �Because construction is limited to the winter, missing one season would delay completion by a year,� in addition to which �this is a major project that is susceptible to potential labor shortages and cost overruns.�
� There is also the potential for labor shortages, which would not only delay construction, but could add to costs, as developers of the oil sands have discovered in recent years.
Driscoll and Skolnick also cautioned that the prospect of a separate line to carry natural gas liquids from the Inuvik natural gas liquids plant to Norman Wells in the central Mackenzie Valley carries greater risks than stripping the liquids from the gas at Norman Wells. They said the dual line option would likely require more workers than a single line, which is estimated to need 2,600 workers at peak building time.
�If there is a labor shortage, the project could incur cost overruns like the labor-related ones experienced by oil sands projects,� they said.
Delta gas could sell at discount to hub prices On the economic front, the report estimated that inclusive of transportation and toll charges and a potential market discount, Delta gas could sell at about a US$1.30-$1.50 per thousand cubic feet discount to Henry Hub and a US70-80 cents discount to AECO prices in Alberta.
It noted that some have forecast total toll and transportation charges will be about US70-80 cents per thousand cubic feet to ship gas from the Mackenzie Delta to connect with the TransCanada pipeline system in northern Alberta. Transporting the gas through Alberta would cost another US20-25 cents per thousand cubic feet.
Driscoll and Skolnick said that, assuming regulatory approvals, the design and construction phase could begin as soon as late 2005 and take three to four years to complete.
The construction plans require connecting of the three anchor fields � Taglu, Parsons Lake and Niglintgak; a gas-gathering system and main Mackenzie Valley pipeline; compressor stations and natural gas liquids facilities.
Development drilling of the three fields could start by late 2005 and continue through 2009, with the operators counting on drilling up to 40 wells, most of them directionally drilled from central pads.
The study estimated that Taglu will need 10 to 15 wells from a single surface; Parsons Lake 10 to 15 wells from two surface sites and several well pads; and Niglintgak six to 10 wells from three to four surface drilling sites.
The Northern Gas Project secretariat, which is establishing offices in Yellowknife and Inuvik, has indicated it is confident a joint environmental assessment and regulatory hearing can be completed in two years from the time it receives a formal application.
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