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Canadians Continue to Emphasize Unconventional Resources

From remote foothills of the Rocky Mountains to the outskirts of the Alberta capital of Edmonton, "unconventional" has become the watchword among Canadian producers mounting natural gas supply development programs.

The word no longer refers only to coalbed methane (CBM), although it remains a mainstay of industry planning for a drilling revival when gas prices recover sustained strength. Shell Canada highlighted the expanded meaning of the term in an annual corporate budget announcement.

Shell's 2007 commitments include C$470 million (US$420 million) to unconventional gas, up 16% from C$405 million (US$360 million) in 2006 (see related story). Often a contrarian, and able to afford it due to a wide portfolio of operations from oil sands mining to service stations, the company is stepping up gas drilling at a time when the Canadian herd is cutting back due to a full storage network and shaky prices.

The retreat has reduced activity enough to stabilize and potentially reduce formerly runaway contract day rates for drilling rigs. As of the week of Nov. 20, a total of 473 rigs were running in Western Canada, still a big number by historical standards but down from the 662 that were busy during a record field activity frenzy a year earlier. Also helping producers with cash to continue drilling is expansion of the Canadian rig fleet, which grew to 835 units from 764 over the past year.

Shell has a history in CBM dating back to 1975, when it was part of a consortium that commissioned Sproule Associates to do a landmark assessment report on the gas potential of all the coal seams that carpet the Canadian plains. The consortium eventually included the National Energy Board, its work became a cornerstone of the emerging Alberta CBM industry, and Shell and Sproule remain active in the field.

<>But in Shell's vocabulary, unconventional gas also includes a variety also known as "basin" deposits. They occur in big, high-pressure pools and require novel underground technology to liberate from "tight" or dense rock formations. Basin gas is the hot spot in the company's 2007 program, which sets a production target of 100 MMcf/d from the deep and difficult targets by the end of the year. Shell has more than 100 square miles of basin targets in one rugged region alone of west-central Alberta, in wild country east of Jasper National Park.

A pioneer development of an entirely different breed of unconventional gas has been launched in Edmonton by the municipal government, its wholly owned Epcor Utilities and a provincial assistance program known as the Alberta Energy Innovation Fund. A C$87 million (US$78 million) gasification plant will tap a projected 100,000 tons a year of mostly residential solid waste arriving at the city's mammoth central landfill, where the site name of Clover Bar evokes greener times in early local history. A 14-year-old network of wells and pipelines will continue to collect methane generated by more than 12 million tons of rubbish in the Edmonton dump.

The new operation's output will be blended into the old system's production of fuel for three small Epcor power plants. The Edmonton plant is intended as a demonstration project in a new technology that shreds trash and turns it into energy treasure with a thermal chemical reaction process. The project will use the most environmentally difficult form of municipal solid waste, "residuals" of plastic, wood, mixed paper and textiles left over from landfill sorting and biodegrading systems.

"It positions Edmonton as a world leader in municipal waste treatment," said Eddy Isaacs, executive director of the provincial government's Alberta Energy Research Institute.

Despite the strong government role, there is an entrepreneurial flavor to the dump gasification project. Partner Epcor, although municipally owned, is structured as a competitive corporation and has a growing chain of interests in power and water treatment plants across Canada and the United States.

Acting Alberta Innovation and Science Minister George VanderBurg set his sights on the Canadian gas capital of Calgary for the next dump gasification project. "Edmonton is miles ahead of Calgary on this one. Calgary needs to step up to the plate. We'll help them," VanderBurg said.

The southern Alberta city was promised no money but will be shown the technology and encouraged to form partnerships with industrial sites that could use gas and plant byproducts including the ash or "char" left by the gasification process. Power and cement plants are prime candidates for potential partnerships in using the new unconventional gas technology, VanderBurg indicated.

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