Conventional natural gas production from the Western Canadian Sedimentary Basin (WCSB) basically has peaked, but the region's unconventional gas holds as much if not more potential -- if costs can be contained and prices are competitive, a Nexen Marketing USA Inc. executive told attendees at the annual LDC Forum Canada/Industrial Gas Users Association in Toronto.
David J. Slater, managing director of marketing for the Calgary-based company, offered an in depth take on WCSB supply prospects, both conventional and the emerging unconventional resources, which earlier this year piqued the interest of a bevy of gas producers. Western Canada "continues to be a significant supply source for eastern Canada," he said. However, Slater was less enthusiastic about the near-term prospects for the region's unconventional resources because of the global credit crisis and an oversupply of gas from Lower 48 basins.
"The WCSB is really in a transformational phase, moving from conventional to unconventional," Slater said. "Typically, it will be painful. It will take time as producers are learning new techniques to be effective."
The ultimate gas potential of the unconventional resources in the WCSB is estimated at around 2,150 Tcf of gas in place, Slater said. He used data supplied by Ziff Energy Group to show where the conventional and unconventional resources are spread. The potential resources extend from the Greater Sierra region, down into the deep basin and across the Mannville and Horseshoe Canyon area. About 275 Tcf of conventional gas is estimated to already have been produced, and another 175 Tcf of conventional gas is estimated to be in place. In addition, Ziff estimates that the region holds 660 Tcf of coalbed methane (CBM), 565 Tcf of tight gas and 600 Tcf of shale gas.
Several producers announced encouraging gas well test results earlier this year from an area around the Horn River Basin and Upper Montney, two regions that extend across northeastern British Columbia, with parts crossing into Alberta. Initial production (IP) rates for wells jointly developed in the Ootla area by Apache Corp. and EnCana Corp. in February were estimated at 3 MMcf/d; the two producers then said there was around 3-6 Tcf potential from their Horn River holdings (see NGI, Feb. 11). In April Apache upped its estimate, reporting an IP rate from Horn River tests of 5.3-8.8 MMcf/d using 18 fractures (see NGI, May 5). Apache revised its potential reserves to 9-16 Tcf, and EnCana later confirmed the results (see NGI, Aug. 4).
EOG Resources Inc. has reported IP rates of 3.5-5 MMcf/d and a potential of 6 Tcf from its northeastern BC holdings (see NGI, March 3). Likewise, Devon Energy Corp. in March reported an IP rate from a Horn River well of 2 MMcf/d; Devon estimated unproved reserves were 5 Bcf/well (see NGI, May 19). And Nexen said in April that its IP rate was 2.1 MMcf/d with two fractures on wells in the basin. Nexen estimated then that its Horn River holdings held an estimated 3-6 Tcf (see NGI, July 21).
Producers may think there's a huge resource ready to be tapped, but the region won't be easy to develop and bring to market, said Slater. In addition to the credit crunch and the U.S. gas surge, other problems exist.
Costs "are always an issue, and that's going to have to be contained," said Slater. There's also a lack of infrastructure to take out any substantial gas supplies. Even though the gas potential is estimable, the more remote areas of the WCSB are "likely to be one of the first" to be cut if producers reduce their capital budgets in response to the tighter financial markets.
"Western producers have challenges when a company has multiple opportunities in front of them," said Slater. "They have to put the money where the costs are lower and the returns are higher...and production is always sensitive to current economics."
The WCSB was on a "steep growth curve two or three years ago," Slater noted. "Where we are today...there is a potential trough in front of us. How quickly will the unconventional resources come on-line, and at what rate, speed? Is there a small dip or a material dip in front of us?" regarding the global financial crisis.
The cost challenges for new gas are "really significant" for the WCSB right now. "We were in a very robust price environment in the first part of this year, but that has changed recently," he said. "The other notable thing is how quickly those costs have increased" for steel, and labor -- both big factors.
Producing unconventional gas from the WCSB faces varying cost pressures depending on where drilling is undertaken, he noted. "It's radically different when you move around to different jobs. There's different infrastructure in place, and that contributes to how much it costs to produce the gas."
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