TransCanada Corp. has launched the first in a pair of extensions planned for up to C$880 million (US$700 million) to integrate growing British Columbia (BC) natural gas supplies into its NOVA pipeline grid and international trading hub spanning Alberta.

Called the Groundbirch Pipeline, the initial new leg reaches about 80 kilometers (50 miles) into BC from a major gas transportation junction called Gordondale on Alberta’s northwestern edge. For up to C$280 million (US$225 million), the plans call for a jumbo pipe 42 inches in diameter capable of carrying 1 Bcf/d from the 2012 target date for completing construction. The pipe would be big enough for low-cost future additions of compressor power to raise the line’s capacity as BC production grows.

TransCanada kicked off the regulatory approval process by filing with the National Energy Board (NEB) the first formal project description required for the Groundbirch line’s forthcoming environmental review. A construction application will be submitted early in first quarter, TransCanada told the NEB.

Groundbirch runs due west into a rugged and sparsely populated tract of the foothills of the Rocky Mountains south of Dawson Creek, where the Alaska Highway starts its long route north. The line would extend the Alberta grid — including its trading services known as NIT, short for NOVA Inventory Transfer — into the heart of drilling hot spots including Montney, one of two BC unconventional and shale gas development areas.

At the same time as regulatory formalities begin for the Groundbirch route, TransCanada is negotiating binding transportation service contracts with producers for a second and longer NOVA extension called the Horn River Pipeline. The route, priced at up to C$600 million (US$480 million), reaches 153 kilometers (96 miles) into northern BC muskeg swamps from a pipeline junction near the top of the NOVA system known as Ekwan. The route would create a new outlet for accelerating development of an extensive shale gas deposit known as Horn River.

Like Groundbirch, the proposed northern NOVA extension into BC is expected to use jumbo pipe of 42 inches in diameter and would knit northwestern Canada’s newest major gas fields into the NIT trading and transportation network. Preliminary open season capacity auctions for both lines, held this summer, each generated demand for transportation services exceeding 1 Bcf/d. The Alberta-based production industry is spending nearly C$2 billion (US$1.6 billion) at BC mineral rights auctions this year on securing positions for long-range, unconventional and shale gas drilling programs.

“Horn River production is going to grow very rapidly,” EnCana Corp. gas chief Mike Graham predicted during a recent telephone conference call for financial analysts and media. A shale gas partnership between EnCana and Apache Canada alone expects to tap Horn River for more than 100 MMcf/d by the end of 2009.

The partnership expects to spend about C$300 million on 40 northern BC shale gas wells this year. Daily production from the horizontal bores used in the specialty currently runs at about 8 MMcf per well and is improving as experience with the technology increases, Graham reported. Within about four years, he predicted producers will fill up about 400 MMcf/d of spare capacity currently available on the Fort Nelson northern area of BC’s established Westcoast pipeline grid (now owned by Spectra).

While EnCana cut its 2009 budget by about 18% (see related story), the BC unconventional gas drilling program escaped the axe. At about US$7.50-8.00/MMBtu full “supply costs” of developing shale production are 50 cents to $1 less than conventional reserves and liable to come down farther as experience with the Texas-born technology increases, Graham said. To the extent that prices turn out better than currently expected in 2009, shale gas has been identified as a prime target of $500 million in additional spending that EnCana said it is prepared to tack onto its annual budget.

TransCanada’s forthcoming BC construction applications will trigger a transfer of jurisdiction over the NOVA grid to the NEB from the Alberta Utilities Commission. The Alberta government has agreed to the switch, acknowledging that the system needs to be able to cross provincial boundaries in order to keep up with emerging gas production trends in northwestern Canada.

The NOVA grid, developed under a provincial charter enacted by the Alberta legislature in the 1950s, has to date been prohibited from expanding across boundaries. Long-range plans potentially include extensions into the Northwest Territories as well as BC. The NEB is expected to hand down a ruling on how the historic jurisdictional switch will be made early in 2009, following fall hearings that recently concluded in Calgary.

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