Delta gas vital to oil sands: Shell Canada executive

Mackenzie Delta Producers Group says where natural gas is consumed will be a decision for the individual producers

Gary Park

PNA Canadian Correspondent

With the odds strongly favoring a Mackenzie Valley pipeline this decade, speculation about where the gas will end up is getting a fresh working over.

For the Mackenzie Delta Producers Group, which owns at least 5.8 trillion cubic feet of marketable reserves, the answer is not an overwhelming consideration.

“We’re indifferent as to where it goes,” Hart Searle, the group spokesman, told Petroleum News Alaska March 12.

So long as the gas fetches market price, “where it’s consumed is not an issue for the producers. Each of the companies (Imperial Oil Ltd., ExxonMobil Canada, Shell Canada Ltd. and ConocoPhillips Canada Ltd.) will market its own share of the gas.”

However, he acknowledged that there have been “musings” that the gas may travel no farther south than the Alberta oil sands region, where gas is vital to the extraction and processing of the raw bitumen and where the four Delta partners all have current and planned oil sands interests.

Oil sands could consume 1 bcf per day

The Alberta Energy and Utilities Board has set a lower threshold, estimating gas consumption in 2001 at 389 million cubic feet per day, tripling to 1.07 billion cubic feet per day by 2011.

At 2 billion cubic feet per day, the consumption would exceed the current design basis for a Mackenzie Valley pipeline of 1.9 billion cubic feet per day.

At the Canadian Energy Research Institute’s North American natural gas conference March 4, Neil Carmata, Shell Canada’s senior vice president of oil sands, said a failure to bring the Delta on stream would cause the price of gas for oil sands operators will rise.

“There will be some sucking of teeth” among oil sands developers that could see some projects deferred or dropped, he said.

Carmata told the Financial Post there is a concern that a fundamental change in the supply-demand outlook for North American gas is taking place that has serious implications.

Even with adequate gas supplies at present, the operators face a headache from rising commodity prices.

When Shell Canada’s new Athabasca oil sands project reaches its capacity of 155,000 barrels per day this year it will be consuming 100 million cubic feet of gas per day.

Every C$1 increase in the price of gas per thousand cubic feet adds another 60 cents per barrel to synthetic crude production.

With gas prices at C$3 per thousand cubic feet, Shell Canada could aim for oil sands production costs of C$10-$12 a barrel; at C$5 for gas, those costs would climb by C$1.20 per barrel.

One barrel requires 1,000 cubic feet

Carol Crowfoot, president of GLJ Energy Publications Ltd., told an oil sands conference in February, that the “potential high usage of natural gas in bitumen production and upgrading has exposed the companies involved to the risk of volatile prices.”

To reduce the reliance on gas, the sector is probing alternatives, including a current study by the Alberta government and Atomic Energy of Canada Ltd. to use nuclear power as the primary fuel source to extract and process the raw bitumen.

A quicker, less controversial solution may rest with new technology, including a process being tested by Genoil Inc. to reduce the cost by 15 percent and speed the process of refining.

Although still in its infancy, the idea has attracted interest from ConocoPhillips and PetroChina.

Genoil is now aiming to develop a pilot upgrader capable of processing 1,000 barrels per day of heavy crude and is looking for a small refinery somewhere in North America to support its tests.