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Alberta's Role as International Gas Supplier on the Decline

Alberta's role as an international natural gas supplier will decline even though its fledgling coalbed methane industry will compensate for dropping conventional production, the province's chief regulator predicts. In an annual reserves and production review the Alberta Energy and Utilities Board (AEUB) singles out rising home industrial gas demand as the chief cause of the role switch expected over the next 10 years.

The change affects a mainstay of the gas trade between Canada and the United States. Alberta accounts for four-fifths of Canadian production and exports, which in turn fulfill about 15% of total American gas demand.

Alberta production from aging conventional gas pools is forecast to decline at an annual average rate of 3% over the next 10 years from 13.4 Bcf/d in 2005. At the same time, coalbed methane output is projected to grow nearly seven-fold to 1.9 Bcf/d from 280 MMcf/d currently.

The coal gas growth could easily turn out to be greater. The AEUB observes the specialty is still in its infancy in Canada, and the symptoms of that stage include very limited information because reserves, production and investment intentions data is still sketchy and often cloaked in corporate confidentiality.

Oilsands requirements for thermal bitumen extraction and upgrading are much better known -- and they are rapidly rising. Over the next 10 years, oilsands industry gas consumption is projected to jump by 165% to 1.4 Bcf/d from 523 MMcf/d currently.

Oilsands expansion is also expected to continue for far longer than a decade. "It's important for Albertans and the world to know we have merely scratched the surface of Alberta's oilsands reserves," AEUB chairman Neil McCrank told the Calgary Chamber of Commerce when he released the annual reserves and production survey. "Only about 3% of our bitumen reserves have been produced since 1967," the year when the ancestor of Suncor Energy (Sun Oil of Pennsylvania) built the first commercial mine and synthetic crude upgrading complex. Reserves available to current technology alone are estimated at 174 billion barrels by the AEUB. Mammoth deposits awaiting further industry creativity carpet much of northern Alberta and harbor an estimated 1.5 trillion barrels of bitumen.

The provincial agency's projections vary only in detail from a recent forecast by the National Energy Board. The AEUB emphasizes, however, that at least the rate of increase in oilsands demand for natural gas could moderate.

The next generation of projects is devoting considerable effort to getting off expensive gas markets by replacing purchased supplies with fuel made from bitumen residue. "Gasification" is emerging as a central project engineering preoccupation. The next big plant, the C$3.5-billion (US$3.2-billion) Long Lake project by Nexen Energy and OPTI Canada, includes a new gasification system that will be watched closely by the industry as production ramps up next year, the AEUB observed.

But barring very big and rapidly spreading oilsands technology breakthroughs, the AEUB predicts the surge in industrial gas demand will cause Alberta requirements for its own supplies to jump to 42% of production from 27% over the next 10 years.

"As Alberta requirements increase and production declines over time, the volumes available for removal from the province will decline," the AEUB says. On top of obvious economic incentives to sell to the closest markets, gas producers will be affected by provincial regulation requiring supplies to be protected for local "core" residential and commercial consumers.

Alberta continues to require gas producers and marketers to obtain "removal permits" for all out-of-province sales, and the AEUB's mandate includes ensuring flows allowed by the licenses do not undercut long-range supplies for the home core market.

Alberta's decline as a national and international supplier is also bound to contribute to anticipated long-range, continued upward pressure on gas prices, the AEUB indicates. The agency predicts: "Despite the debate on the impact of intercontinental trade in liquefied natural gas on gas prices...LNG will not capture a high market share in North America over the forecast period (10 years), primarily due to the risk and regulatory requirement for construction of gasification terminals." The AEUB also notes that North American LNG project sponsors are having more difficulty than expected in securing reliable supply sources overseas.

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