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Shale Drilling Driving Canada to LPG Export Projects

Canadian natural gas developers aim to build overseas export outlets for liquid petroleum gas (LPG) byproducts that are on the rise as horizontal drilling and hydraulic fracturing spread in northern Alberta and British Columbia (BC) shale deposits.

Pembina Pipeline Corp. made the latest addition to tanker terminal plans with a BC replacement for an aborted project in the United States. A new site has been secured on the northern Pacific Coast near Prince Rupert, according to a company progress report to shareholders.

City-owned Prince Rupert Legacy Inc. has agreed to make municipally owned land on nearby Watson Island available for a gas-liquids terminal, Pembina said. The plan calls for a 20,000 b/d start on tanker exports, with facilities costing C$125-175 million (US$94-131 million).

The BC project replaces plans for an Oregon coast terminal that were scrapped after environmental and community objections prompted Portland’s city government to withdraw a site agreement.

The Pembina project is the second LPG export terminal in the Prince Rupert area. AltaGas is building a C$400-500 million (US$300-375 million) terminal, for loading 20-30 propane tankers per year on nearby Ridley Island.

Unlike far larger, costlier and mostly stalled BC liquefied natural gas projects, the LPG terminals do not require new pipelines and use well-established shipping corridors for numerous bulk commodities from inland Canada.

Pembina said its new Canadian location “features a sheltered berth, existing dock adequate for activities associated with LPG export, as well as well-established rail connections between Redwater, Alberta and Watson Island, while also offering efficient shipping routes to Asian, North, Central, and South American markets.”

Pembina holds a 25-year license from the National Energy Board (NEB) to export 787 million bbl of LPGs at a rate of up to 75,000 b/d. Counting permits granted to AltaGas and Petrogas Energy, NEB has authorized 1.6 billion bbl of LPG exports at a brisk pace of 220,000 b/d.

Pembina set no construction date, except to predict the project will take two years to complete after a final investment decision. Like rival “midstream” processing, storage and delivery companies, Pembina is building facilities in step with shale supply development by gas producers.

Pembina described the Prince Rupert terminal as part of “response to the step change in LPG productive capability of the Western Canadian Sedimentary Basin.” The northern Pacific Coast site was secured on the heels of a 20-year deal with Chevron Canada. The deal gives Pembina the infrastructure service franchise for a 936-square-kilometer (360-square-mile) swath of the Duvernay Shale formation known as Kaybob.

While most Canadian shale supply development to date concentrates on liquids-rich sweet spots in BC’s share of the Montney geological formation, the Chevron-Pembina deal marks a beginning on tapping a second immense deposit.

Kaybob is only the best-known zone of the Duvernay formation, a shale layer up to 99 meters (327 feet) thick that carpets 130,000 square kilometers (52,000 square miles) of western Alberta along the eastern side of the Rocky Mountains. Other slices of the vast formation are under evaluation by senior firms such as Encana Corp. and Shell Canada.

A mid-2016 assessment by the resource appraisal arm of the Alberta Energy Regulator (AER) affirmed that the Duvernay stands out as a Canadian shale gas and byproduct liquids mother lode.

Proven and probable reserves to date were estimated to be 1.2 Tcf of gas, 164 million bbl of byproduct gasoline-like condensate, and 38 million bbl of oil.

But vastly greater potential supplies await advanced fracking technology.

“The total in-place resource endowment for the Duvernay ranges from 350 to 540 trillion cubic feet of natural gas, seven to 16 billion bbl of natural gas liquids, and 44 to 81 billion bbl of oil,” the AER report said.

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