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Canada Entering the Shale Age

The budding Canadian branch of shale gas production shows signs of growing up fast, reports the country's chief transporter. The expanding Nova pipeline grid in Alberta and British Columbia (BC) has received requests for 2.5 Bcf/d of capacity additions by 2014 for output from the new supply source, reports TransCanada Corp. Vice President Max Feldman.

The first two development targets -- the Horn River geological formation in BC, and the Montney in BC and Alberta -- stack up well among the emerging shale fields across North America, Feldman told a Calgary industry conference held by the Canadian Energy Research Institute.

TransCanada is proceeding on schedule with two extensions of the Nova system, for C$550 million (US$517 million), from Alberta into northern BC to satisfy producer demand for shale production delivery service (see related story). Approval by the National Energy Board (NEB) is imminent for the first addition, the Groundbirch Pipeline for Montney output from the Dawson Creek region where the Alaska Highway starts in east-central BC.

A construction application was filed last week for the second project, the Horn River Pipeline, to serve its namesake shale deposit near BC's boundary with the Yukon and Northwest Territories. Groundbirch is scheduled for completion as early as late this year, while the target date for putting the Horn River route into service is 2012.

As in the United States, shale zone reserves estimates are moving targets with a tendency to grow as producers gain experience at using evolving horizontal drilling and hydraulic fracturing methods in each deposit. The only sure bet is that the new supply sources are big.

The Horn River formation alone contains an estimated 490 Tcf of gas, counting only the richest parts embedded with a minimum of 146 Bcf per square mile, TransCanada has told the NEB in its new northern BC pipeline application. Estimates for how much of the resource endowment will be commercially recovered have about doubled in three years of production trials to 104 Tcf, or 20%.

The more widespread, complicated Montney shale layers are viewed as potentially even bigger supply sources, but their sizes are subject to more guesswork partly because the exploitation rate will depend on political decisions. Alberta will rapidly add about 1 Bcf/d of new production if the provincial "competitiveness review" currently nearing completion generates a counterpart to BC's pro-development net profit royalty program for shale gas, Feldman estimates.

A report on the review is tentatively scheduled for release in March, with decisions expected to follow quickly. The industry is making big bets at auctions of government-owned mineral rights that Alberta will join the shale age by creating development incentives. A long list of acreage-for-sale postings requested by industry bidders for March auctions foreshadow up to C$1 billion (US$940 million) in sales, predicts Macquarie Securities analyst Chris Theal.

The forthcoming drilling target auctions are expected to repeat a December sale of 1,470 square kilometers (588 square miles) of a widespread Alberta formation known as the Duvernay for C$365 million (US$343 million). The shale wave is still small in Alberta and so consists only of largely confidential drilling trials. But the Alberta Geological Survey has published a multi-volume shale treasure map of the chief gas-producing province, and specialists suggest that the resource endowment is vast.

"There is huge potential in Alberta for two or three Horn River-type drilling plays," says Mike Dawson, president of the Canadian Society of Unconventional Gas. A distinctly Albertan form of the new production technology is evolving to suit differences in the geological formations, he added. Vertical versions of the horizontal, multiple-fracture wells used elsewhere are emerging for "commingling" several types of production from thick Alberta deposits of varying geological layers, Dawson said.

But all the activity does not add up to a lasting gas glut and severe price depression, Feldman says. TransCanada forecasts that prices will recover gradually to an annual average in the area of a "real," inflation-discounted US$7/MMBtu by 2018. Even aggressive shale development in both Canada and the United States will only help make up for annual average declines of 20% or 14 Bcf/d from current production sources, he says.

TransCanada continues to maintain that new nonshale supply development -- notably including pipeline projects south from Alaska and the Northwest Territories -- will be required. This will be "a critical year" in both cases, with open-season sales of proposed pipeline capacity under way in Alaska and final hearings on the Mackenzie Gas Project by the NEB coming this spring, Feldman predicts.

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