Need Gas? Look to U.S.'s Northern Neighbor

As natural gas demand, spurred by new gas-fired generation, continues to grow within the United States, the country would be wise to look toward Alaska and its northern neighbor Canada for an increased supply from the significant untapped potential that remains along the vast landscape, according to the Canadian Association of Petroleum Producers (CAPP). Supplies from Canada, which currently account for 15% of gas consumption in the United States, have the potential to grow, as long as infrastructure is put in place and regulatory processes are ironed out.

"Canada has consistently been in the top two or three producers of natural gas and a very significant producer of crude oil," said John Richels, CEO of Northstar Energy, at CAPP's conference "Canada's Oil and Natural Gas in the North American Energy Market" held in Washington, D.C. late last week. "Currently we are enjoying record levels of crude oil and natural gas production in Canada," due to a spike in drill rig operation.

Canada produces approximately 6.3 Tcf per year, of which 3.5 Tcf is exported to the United States, the executive said. However, large portions of the country, as well as Alaska are still relatively untapped. CAPP estimates that only a small amount of the estimated reserves located in Alberta and British Columbia have been developed, and the Grand Banks play near St Johns and Scotian Shelf near Halifax on the East Coast are still under development.. On the whole, Alberta is expected to have some 270 Tcf total, while British Columbia is anticipated to hold 50 Tcf. Richels commented that the "North of 60" region, which includes the Mackenzie Delta, Beaufort Sea areas has an estimated 175 Tcf of reserves. Alaskan gas is estimated at 237 Tcf. Due to the rapid growth in demand that is expected to continue, along with favorable economics, Richels said the time is right to develop these resources.

Richels said for the time being Canada is "no longer pipeline constrained," but he added that the country needs "constructive energy strategies" to support the incremental gas infrastructure necessary to bring the additional gas volumes online. For example, inter-jurisdictional cooperation and integrated regulatory policies to facilitate pipeline and infrastructure development.

"While Canadian supply will provide a meaningful contribution to satisfy U.S. demand, it is not the silver bullet to the demand equation," said Richels. "It's obvious that significant growth in the U.S. direction is also necessary. But over time, a properly functioning competitive marketplace will ensure the balance of supply and demand."

BP, ExxonMobil and Shell have been pressing for a new pipeline from the Mackenzie Delta area to existing infrastructure in the South, but they have been experiencing significant resistance, especially from Alaska Gov. Tony Knowles, who is pressing to have the Alaskan Gas Transportation System to transport gas south along the Alaskan Highway (see NGI, April 23).

BP Vice President of Northern Development Michel Scott said at the conference that the companies expect to be pumping 800+ MMcf/d through the new pipe post-2006. Scott added that another consortium --- BP, ExxonMobil and Phillips Petroleum --- is currently working on routing and commercialization plans for Alaska Gas.

"Power generation is expected to drive future demand growth," said Scott. "Northern gas supply from Alaska, the Mackenzie Delta and ultimately, the Beaufort Sea are required to meet growing demand" in North America.

Gerry Protti, senior vice president of PanCanadian Petroleum, despite operating heavily on the West Coast of Canada, spoke on the new development occurring in the Atlantic Basins, which includes the Scotian Shelf and Grand Banks regions. "Our geologists are very excited about these structures" because they are very similar to "what's being developed in the Gulf of Mexico," said Protti.

The difference Protti said, is while the Gulf of Mexico is declining in areas, the Scotian Shelf of Canada is just getting started. He said the Gulf of Mexico has drilled some 44,624 shallow wells, while the Scotian Shelf has drilled only 170 so far, with numerous acres still untouched.

Protti also updated his company's Deep Panuke play, which is situated offshore Nova Scotia at depths of more than 5,000 feet. He said it is still on target to produce up to 400 MMcf/d by 2005. PanCanadian estimates that 1 Tcf of recoverable natural gas may be stored within its Deep Panuke play.

Protti said PanCanadian believes that the "energy stars are currently aligned,' and the Atlantic Basins are the closest to the best market in the world. In the future, he said more wells need to be drilled, and increased infrastructure is necessary to "accelerate and improve economics."

For Atlantic Canada, "we potentially see five development projects operating by 2010 with a capability of 2-3 Bcf/d." But challenges lie ahead, including building momentum while maintaining environmental diligence, developing a competitive infrastructure (more than one pipe south), and creating a seamless and efficient regulatory process, Protti said.

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