Alaska Gas First in Line for U.S. Markets

Not all senior natural gas producers are staking out northern exploration positions in the belief that the Canadian Arctic's turn has come for development. Talisman Energy Inc. --- formerly an affiliate to one of Alaska's top gas owners as BP Canada until the British parent company sold it on Canadian stock exchanges in the 1990s --- is staying out of the Far North gas revival.

Talisman's president, Jim Buckee told its annual shareholders' meeting that it decided to stay away from prospects on the gas-rich Mackenzie Delta after a thorough review of production opportunities. Buckee said the decision resulted from the company's focus on targets with the best chances for rapid development. The strategy underlies Talisman's growth as an independent into a consistent performer among the top 10 Canadian gas producers, rubbing shoulders with BP Amoco and Anderson Exploration Ltd. Talisman's review concluded that among northern supply sources competing to serve growing demand in the United States, Alaskan gas stands first in line.

Buckee predicted "American gas will go to American markets." Alaska's Prudhoe Bay region already has a production system associated with its giant oilfield, he pointed out.

In Talisman's view, Buckee said, the Mackenzie Delta's turn to start producing gas on a large scale will take until the end of this decade to come, if not longer. Rather than take on long-range northern prospects for increasing gas production, Buckee said Talisman intends to concentrate on west-central Alberta properties that it acquired along the gas-rich eastern slopes of the Rocky Mountains with a C$806-million (US$535-million) takeover of Petromet Resources Ltd. last month. Talisan has set a target of becoming the first Canadian company to produce mammoth volumes of oil and natural gas equivalent to more than 500,000 barrels daily before the end of this year, by expanding domestic gas output as well as its oil projects in Sudan, the North Sea and Indonesia. In Canada, Talisman plans 700 wells this year for C$780 million (US$520 million), with the bulk of the activity focused on gas to hit production targets of 850 MMcf/d this year and 975 million in 2002.

But the Northwest Territories is not about to abandon hopes for Canadian Arctic gas development despite this demonstration of continuing production growth in established areas and expectations that Alaska will win the pipeline race. Territorial Resources Minister Joseph Handley emerged from a private Calgary meeting with the Industrial Gas Users Association of Alberta suggesting that U.S. demand is not necessarily the only driver for Delta production development and a Mackenzie Valley pipeline project.

Handley said the north is getting a message that Canadian consumers, bruised by a year of tight North American markets and price spikes, are just as interested in new supplies as their U.S. counterparts. A territorial energy issues briefing document observes, "Like the American market, the demand is expected to grow in Canada. Ontario, for example, currently receives just under one trillion cubic feet annually from Alberta. Significant growth is expected in this market as Ontario Hydro decommissions nuclear plants and replaces them with cogeneration facilities fueled by natural gas. In addition, the government of Ontario is under increasing pressure from neighbouring American states to reduce the sulphur emissions associated with its coal-burning power generation."

Alberta likewise ranks at the top of Canadian gas-consuming jurisdictions. Growth in its power, petrochemical, oilsands and heavy-oil operations is creating a steady increase in demand, the territorial assessment points out. The need for lower-cost gas supplies reaches into the heart of the Canadian oil community. High costs for gas used in processing were a key culprit behind disappointments in 2000 at Canada's biggest oil production site, the Syncrude oilsands mining and synthetic-oil manufacturing complex at Fort McMurray in northeastern Alberta. Production costs at the 260,000-barrel-per-day operation jumped 42% to C$17.42 per barrel (US$11.60).

In an interview, Handley said government agencies responsible for the north realize that they have to make sure they make the regulatory environment competitive with the U.S. Alaskan pipeline proposals, calling for deliveries of up to four Bcf/d, are so big that, if built first, they would likely delay projects to tap Canadian Arctic gas by causing prices to go down, Handley said. "Our main priority is let's get Canadian Mackenzie Delta gas to market." The minister said aboriginal, territorial and federal authorities are working together to make sure a 1.5 Bcf/d Mackenzie Valley pipeline could be built in as little as four years, although he added that five years remains a more realistic estimate.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.