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Vol. 15, No. 8 Week of February 21, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Arctic gas by 2017

Ziff sees Mackenzie online first, Alaska North Slope following in 3-4 years

Gary Park

For Petroleum News

Canada’s Mackenzie Gas Project could be onstream as early as 2017 and Alaska’s North Slope project could be delivering gas to Lower 48 markets three or four years later, predicts consultant Ziff Energy Group.

And, regardless of the enormous capital costs to develop Arctic gas and compete with abundant shale gas supplies, the two projects are tied to expectations for gas prices in the 20 years after they are completed, not what happens over the next decade, the Calgary-based firm said.

But getting the Mackenzie Gas Project, or MGP, out of the starting gate will require a key contribution from the Canadian government in sharing the cost of building basic infrastructure, said Ziff Vice President Bill Gwozd, suggesting that all-weather roads in the Northwest Territories would be better than using barges to deliver materials and equipment along the Mackenzie River.

Ziff’s big picture forecast for gas supply through the current decade is strongly linked to the growth of shale production and the chances of industrial demand rebounding.

Shale to grow to 33 percent

The study forecasts shale gas will account for about 33 percent of North American production of 76 billion cubic feet per day in 2020, compared with about 10 percent of current output of 70 bcf per day.

Supply growth will be determined by future industrial demand, which has plunged from 27 bcf per day in 1973 to 19 bcf per day currently because North American gas prices have driven new fertilizer and chemical plants to overseas jurisdictions, which have access to abundant feedstocks of cheap gas, Ziff said.

Gwozd is counting on lower gas prices through 2020 whetting the North American industrial gas appetite.

The impact of technological gains, which have brought shale to the forefront over recent years, have contributed to significant changes in the flow of shale gas, with Barnett wells in Texas which yielded an initial 500,000 cubic feet per day a decade ago now coming on at 2 million cubic feet per day and likely to generate higher productivity in the future, the study said.

Although Barnett drilling is likely to decline to 1,000 wells a year by 2020 from 3,000 completions two years ago, there is not likely to be any significant decline in Barnett production, Ziff said.

The same technologies should increase supply in Western Canada to almost 14 bcf per day in 2020 — almost 1 bcf per day better than Ziff’s previous forecast, but still down from the current 15 bcf per day.

If this new output forecast is attained, volumes on the toll-regulated Alliance and TransCanada pipeline systems will allow costs to be spread over a larger base, thus lowering per-unit shipping costs for producers.

Drop in 2011 prices predicted

Ziff expects gas prices to average US$6-$6.50 per million British thermal units on the New York Mercantile Exchange this year, and to drop to under US$6 in 2011, putting pressure on Western Canadian producers to cut costs.

Despite the distance from key United States markets for Western Canadian producers, there is some upside, notably access to the Alberta oil sands where producers currently consume more than 1 bcf per day of gas (excluding power generation) and are expected to need 3 bcf per day in 2020, Ziff said.

A second boost could come from plans by Apache and Kitimat LNG to build a gas liquefaction plant on the British Columbia coast which could create demand in overseas markets for 500 million cubic feet to 1 bcf per day of LNG, which would fetch much higher prices than gas in North America.

A third plus involves the province of Ontario, which is phasing out coal-fired power plants in favor of gas-fired electrical generation.

Also a boon to Western Canada is a decline in the Gulf of Mexico Shelf, where well completions are forecast to drop to 100-200 a year in 2020 from 1,000 wells at the turn of the century, thus reopening some of the U.S. Northeast market for Western Canadian gas, Ziff said.

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