Sable Project Creates Wave of New Offshore Investment

Canadian natural-gas producers have opened up their wallets to show they mean to make the Sable Offshore Energy Project (SOEP) live up to its billing as a "seed" development that will sprout a growing new branch of the industry on the east coast.

Mobil Oil Canada, Shell Canada and Imperial Oil anted up C$96.5 million (US$70 million) for 59,280 acres of new drilling prospects surrounding the SOEP production area now entering development, 112 miles offshore of the Nova Scotia capital of Halifax.

The money is not merely an investment in banking resource properties against some future date when they might be used. Under the Canadian drilling-lease system, prospects are obtained by bidding commitments actually to do work.

The new properties will be explored as a joint venture with Mobil and Shell each owning 40% and Imperial with 20%. The trio announced an immediate start on exploration with a C$15 million ($US11 million) echo-sounding seismic survey. The action confirmed a prediction in New Orleans the week before at NGI's annual Gas Mart/Power conference by Mobil's vice-president for Nova Scotia, Paul Bennett. He said "this agreement will serve to enhance opportunities to maximize the infrastructure for the Sable project," which is scheduled to begin producing 500 MMcf/d in November of 1999 primarily for exports to New England via the allied Maritimes &amp North East Pipeline to Boston.

In New Orleans, he portrayed Canada's east coast as just emerging as a "formidable" new entry with "staggering" potential on the North American gas scene. SOEP taps only 3.5 Tcf of reserves out of an estimated 18 Tcf in its immediate vicinity near Sable Island. The Sable region in turn harbors only about 18% of an estimated 102 Tcf of reserves currently estimated offshore of Newfoundland and Nova Scotia. On the Grand Banks, the compact Jeanne d'Arc Basin alone - site of Mobil's seven-month-old Hibernia oil platform - has 14 Tcf of gas. Imperial exploration manager Michael Fitzgerald, confirmed SOEP "has provided the impetus for further exploration and development in the Scotian Basin. Imperial.expects to be an active participant in developing the full potential of this area." Bennett has predicted reserves tapped by SOEP facilities will expand by about 2 Tcf, or 60%, within five or six years and double within 10 years.

New filings with the National Energy Board, meanwhile, point out that the east coast is far from Canada's only candidate for gas production growth on a large scale. The Western Canadian Sedimentary Basin -- chiefly Alberta, but also and increasingly British Columbia, Saskatchewan and the north -- can sustain a 38% increase in production over the next 20 years, according to supporting evidence for TransCanada PipeLines Ltd.'s C$984 million(US$718 million) application to add 275 MMcf/d of new capacity by Nov. 1, 1999.

Sproule Associates, dean of Canadian geological and engineering consulting houses, tells the NEB that the western basin harbors adequate reserves for its production to reach 7.7 Tcf per year. That potential is there even at currently modest Canadian expectations for gas prices, which Sproule's scenarios have taking until 2005 to reach C$2.25 (US1.64) per thousand cubic feet.

The Sproule figures suggest plenty of room is left for yet more export pipeline projects. About 55% of the western basin's output currently goes to the United States. If that rate stays constant, the Sproule calculation -- of room for the basin's total production to rise by 2.1 Tcf annually - implies there is gas available for an increase of nearly 1.2 Tcf in annual Canadian exports to a new high approaching 4.2 Tcf. The current crop of pipeline projects -- TransCanada, Foothills-Northern Border and Alliance -- add about 875 Bcf to Canadian deliveries to the U.S. Sproule adds that its habitually cautious rendering of Canadian gas industry expectations continues only to give token recognition to coalbed methane available in astronomical quantities from seams that carpet much of the western basin. With current technology, no counterpart to U.S. subsidies and price forecasts restricted to C$2 (US$1.40) or less, the industry and the NEB recognize only 8 Tcf or 1.2% of 668 Tcf of coalbed methane estimated by the Geological Survey of Canada to be available in shallow seams under the plains region alone.

Gordon Jaremko, Calgary

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