Canadian natural gas producers and processors are discovering a way to increase supplies and profits without expensive drilling through increased efficiency.

The Alberta industry is breaking generations-old habits as a notorious fuel-gas guzzler, the province’s Energy Resources Conservation Board (ERCB) says in a report on a the foray into economizing.

The effort described by the document — titled “Alberta Fuel Gas Efficiency in the Upstream Gas and Conventional Oil Industry — starts with recognition of a fact of life in the home of about four-fifths of Canadian supplies. Natural gas producers have customarily used up a substantial part of their own output, foregoing sales revenues while also venting carbon exhaust into the atmosphere.

Compressors, engines and other equipment used by gas production sites, their webs of gathering pipelines and processing plants burn more than 1 Bcf/d or 6.5% of all the “raw” or original output from Alberta wells. That consumption about ties the notoriously high use of the cleanest fossil fuel by thermal oilsands projects. The provincial total also approaches the planned initial deliveries for the C$16.2 billion (US$15 billion) Mackenzie Gas Project.

“The amount of fuel gas used by the upstream oil and gas industry is significant,” the ERCB report says. “A 10% savings ‑ more than 100 MMcf/d — is enough gas to heat more than 300,000 homes.”

Achieving some of the potential for a conservation cleanup has been a marathon crusade for the Canadian Environmental Technology Advancement Corp., a non profit think tank created in 1994 by the federal and provincial environment departments with a Calgary-based Western arm run by Alberta gas industry veterans. After years of technical engineering conferences, a breakthrough start on taking action came in 2006 with the creation of the Fuel Gas Efficiency Committee.

Participants include the Canadian Association of Petroleum Producers, Gas Processing Association Canada, Small Explorers and Producers Association of Canada, the federal and Alberta governments’ energy departments, and leading producers. The committee generated a manual of recommended “best management practices” as a voluntary alternative to conservation regulations.

The ERCB’s report, distributed as educational material for fossil fuel experts, documents the first year of trial runs at using the efficiency code by Alberta’s 15 biggest gas production and processing companies. The top operations are an industry cross-section from home-grown Encana Corp. to Taqa North Ltd., a subsidiary of Abu Dhabi National Oil Co.

The natural gas industry reaches into every corner of the province with hundreds of production firms of all sizes, 102,000 wells and 600 gas plants. But the top 15 participants alone account for 69% of total output and 68% of fuel use. Efficiency varies widely. Fuel consumption varies from 3.6% of gas-field output at industry sites in the foothills of the Rocky Mountains to 9% in central and eastern Alberta.

In 2008 alone, during the inaugural efficiency drive covered by the ERCB’s report, the top producers and processors spent C$22.5 million (US$21 million) on an array of measures such as more disciplined use of equipment and buying new motors with improved efficiency ratings. Fuel consumption was cut by 21.4 MMcf/d.

Conservation investments and results were likely higher, the ERCB indicates. Some of the firms consider such changes to be part of routine operations or maintenance and do not account for them separately.

Even in currently depressed gas markets, the savings from the initial 2008 batch of efficiency measures work out to be about C$86,000 (US$81,000) per day or C$31 million (US$29 million) annually. At the time that the improvements were made, Alberta gas prices and the corresponding conservation gains were twice as high.

Alberta’s provincial treasury has a stake in the efficiency drive. On paper, royalties are a share of production. None are collected on gas burned to pump out that share. The fuel is regarded as a cost of the industry performing a service for the government. Improved efficiency spells reductions in volumes of gas that elude royalty collections.

A long-range environmental policy of cleaning up industrial clutter also comes into play. Alberta has a large and growing surplus of gas-processing plant capacity that the ERCB has been trying to reduce, partly by limiting new construction. The excess facilities are a legacy of an old development pattern.

When gas fields were discovered, plants were built to handle their peak output. Over time, natural depletion of wells has drastically reduced use of large installations.

As the industry’s original, most prolific fields age they are running down at an accelerating rate.

Alberta’s overall gas plant utilization rate has dropped to 37% from 46% since the late 1990s, the ERCB reports. The result is not only a widespread array of disused installations awaiting abandonment, dismantling and reclamation. The decline in the facilities utilization rate has the effect of generating steady increases in industry unit costs of production as output contracts without corresponding reductions in plant capacity or expenses.

The ERCB is encouraging adoption of “plant rationalizations and consolidations” into the emerging efficiency campaign.

The squeeze generated on Canadian producers by the combination of aging output and tepid prices has reached a point where conservation is finding its way into corporate budgets despite the absence of regulatory directives. “The same decision criteria and the same regular scrutiny were used for fuel gas efficiency as for all corporate projects,” the ERCB says.

“The largest number of future motivators were in the area of economics,” such as paring down operating costs, the ERCB reports. “The next largest motivator was in the area of greenhouse gases and included improving access to carbon offsets and legislated emission reductions.”

Simple business behavior favors increased conservation, the ERCB says. “Internal motivators included corporate responsibility, management support, better internal tracking, company performance targets, considering efficiency at initial design [of field facilities], including carbon cost as part of economics, and benchmarking [comparisons to corporate peers].”

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