While bracing for a drilling slump to continue through 2008, Canadian natural gas producers continue to work on grand designs for new supply development, including the grand-daddy of Arctic visions.

At a corporate investor day in the Alberta capital of Edmonton, also known as Canada’s “gateway to the North,” Petro-Canada President Ron Brenneman said his personal favorite long-range scheme would be to develop gas in the remote Arctic Islands.

Petro-Canada controls about 12 Tcf as an inheritance from its birth as a federal government-owned Crown corporation three decades ago. The legacy assets include 1960s and 1970s discoveries by Panarctic Oils, a bygone Calgary-based operation that ran spectacular northern drilling expeditions while majority-owned and financed by Ottawa. The Panarctic heritage “makes a pretty ideal LNG (liquefied natural gas) project,” Brenneman said. “This is a project that I think makes a lot of sense from a resource point of view and from Canada’s point of view.”

He pointed out that in addition to opening a new gas region, the development would clearly affirm Canadian sovereignty in the Arctic, where Ottawa lately puts a high priority on affirming control over the Northwest Passage. A small Petro-Canada team is reviewing the feasibility of an Arctic Islands gas development, Brenneman said. But the project remains a remote prospect for an unknown future date while surviving as a perennial favorite among earth scientists and engineers with a taste for breaking new ground, he added.

Petro-Canada will line up with other producers, such as Canadian Natural Resources Ltd. and Talisman Energy, in cutting 2008 drilling budgets down to match lowered gas price expectations, Brenneman said. His company will announce its program for next year in mid-December.

But the pioneer spirit among gas producers is not entirely pie-in-the-sky visionary ambitions. The Arctic Islands scheme feeds on periodic reminders of the scale of Canada’s resources and a national treasury of technical knowledge built on adventurous exploration that was heavily subsidized by governments during the 1970s “energy crisis” era.

The reminders include a refresher study by the Canadian Energy Research Institute (CERI) on a grand design for icebreaking tankers to deliver liquefied gas south from Canada’s Arctic Islands.

The scheme deserves to be revived as economically feasible if the industry believes annual average gas prices will take off to a range of US$8-12/Mcf starting in about 2015, CERI said in a study done before the current flat spell on markets.

CERI, a semi-official institute supported by an industry foundation and Canadian federal and provincial government agencies, found that a number of options are practical if such high prices materialize. Arctic Islands production and deliveries would work using LNG, compressed natural gas (CNG) or gas-to-liquids (GTL) technology, the study found.

Confidence that commercial navigation is possible offshore of Canada’s Arctic coast dates back to a celebrated 1969 demonstration voyage through the Northwest Passage by an American supertanker, the S.S. Manhattan. The trip showed that ocean deliveries of oil were possible from the then-new Prudhoe Bay discovery while transportation options were being evaluated.

Panarctic Oils, inspired by visions of even bigger discoveries in the Canadian Arctic, drilled more than 170 wells in areas so remote that some of the rigs operated on ice floes in the neighborhood of the North Magnetic Pole.

Arctic Islands discoveries remain well known among experts on the national resource endowment such as CERI, the Canadian Gas Potential Committee and the National Energy Board (NEB). The recognized results of the Panarctic drilling campaign are 17 Tcf of gas in 18 significant fields and 500 million bbl of oil. The known resources continue to inspire belief that the Arctic Islands potentially harbor much more.

The Panarctic legacy also includes Canadian demonstration voyages by ice-strengthened vessels that delivered a series of annual 100,000 bbl shipments from the Bent Horn oilfield on remote Cameron Island to Montreal in the 1980s.

Also still on industry shelves is the Arctic Pilot Project. Advanced in 1981, with a C$2 billion (US$1.6 billion) price tag, the proposal called for icebreaker tanker deliveries of LNG equivalent to 320 MMcf/d. The gas would travel about 5,200 kilometers (3,250 miles) by sea from discoveries named Hecla and Drake Point on remote Melville Island to terminals in Nova Scotia and Quebec. The project’s NEB application anticipated eventual expansion to 1.4 Bcf/d via a fleet of nine icebreaker LNG tankers.

CERI portrayed the dormant Arctic Pilot Project as potentially a logical add-on to the northern pipeline sought by the Mackenzie Gas Project (MGP). But with the MGP stalled by regulatory delays and escalating costs, Brenneman said he sees an Arctic Islands development as an LNG project with no need to build a pipeline.

Options identified as realistic by CERI if gas prices stay right include LNG tanker deliveries to terminals in Atlantic Canada or Gulf of Saint Lawrence, and a transshipment site in West Greenland where cargoes could be transferred from expensive icebreaker tankers to cheaper conventional ships.

CERI calculated capital costs for a revived Arctic Pilot Project at C$4.8-6.3 billion. But the estimates were developed before mammoth over-runs on Alberta oilsands developments and other large industry projects contributed to new calculations that more than doubled the MGP’s cost forecast to C$16.2 billion.

It is far too soon in the current Arctic Islands planning process to try estimating realistic costs or project schedules, Brenneman said. But the Petro-Canada president, whose industry career began when the Panarctic expedition was at its height in 1969, added he would be keen to pursue the northern revival if he was an enterprising 25-year-old engineer again. “It’s an extremely interesting project,” Brenneman said. “It has a certain personal appeal.”

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