Forecasts of Canadian gas supply declines are being exaggerated by an industry faction following an oil agenda, say opponents of a plan to convert part of the TransCanada PipeLines system to oil service.
The proposal, known as the Keystone project, spells potentially a “huge negative impact,” says an appeal for the National Energy Board (NEB) to stop it filed by a group including Coral Energy, Devon Canada, EnCana Corp., Nexen Inc. and Shell Canada.
Keystone calls for conversion of one of six pipelines in TransCanada’s mainline right-of-way to oil, resulting in a forecast loss of 500 MMcf/d or about 7% of the system’s current 7 Bcf/d capacity.
For C$664 million (US$600 million) in renovations to the converted gas line, plus about US$1.5 billion in new construction in the United States, TransCanada expects to open a new oil export line immediately capable of carrying 435,000 bbl/d. Low-cost expansions to 590,000 bbl/d are promised, by adding pumps as needed.
Overcapacity on the TransCanada system has run at up to 1.5 Bcf/d since rival Alliance Pipeline opened its direct route from northern Alberta and British Columbia to Chicago seven years ago. TransCanada forecasts the excess will only grow worse as aging western gas fields decline while domestic industrial demand grows in Alberta, especially for oilsands plant fuel.
But gas production capacity in the Western Canadian Sedimentary Basin has rebounded to an all-time peak of about 17 Bcf/d first hit in 2002, says a study done for the group resisting the Keystone project by GLJ Petroleum Consultants in Calgary.
Sustained output at the regained peak — and even additional growth — is a “plausible scenario,” the study says. GLJ credits the supply revival to intense conventional drilling plus the still fledgling Canadian coalbed methane production sector. The revival is forecast to continue over at least the next five years or so, despite a widely reported pause in coalbed methane and shallow conventional drilling activity due to current off-season demand and price lows.
The Keystone proposal also relies on a misleading interpretation of low initial coalbed methane well productivity rates, GLJ says. TransCanada data neglect to mention that coal seam productivity, once established, does not decline like rapidly exhausted conventional shallow gas wells, the geological and engineering consultants say.
The Keystone opponents offer to continue to pay tolls to cover reserving for gas use the 530 miles of line that TransCanada proposes to convert to oil.
The proposal puts a value of C$65 million (US$59 million) on the aged, fully depreciated line slated for conversion. The project, if approved, is forecast to cut TransCanada’s annual revenue requirement by C$113 million (US$102 million) and reduce mainline gas tolls by about one cent per gigajoule.
But the Keystone savings are trivial compared to potential costs in foregone sales and price-cutting rivalry if a gas glut develops, the project opponents say. Keystone forecasts potentially overstate Alberta gas consumption by oilsands projects at the same time they understate potential supplies, TransCanada’s critics say.
The study by GLJ notes a wide range of uncertainty in forecasts of oilsands gas consumption by about 2020, between 1.1 Bcf and 1.9 Bcf/d. The oilsands development pace is highly uncertain due to construction cost inflation, labor shortages and unreliable oil prices, the NEB is told.
But Keystone supporters ConocoPhillips Canada, Suncor Energy and Canadian Natural Resources suggest that stopping the TransCanada plan is a recipe for making the low end of the oilsands forecasts come true.
Space is already being rationed on full Canadian oil pipelines, the Keystone supporters point out. Keystone, with its potential to achieve 435,000 bbl/d of deliveries in short order, stands out as the quickest and cheapest way to clear away a developing oilsands shipping bottleneck, TransCanada’s allies say.
Without Keystone, Suncor says it would be forced to reconsider a C$7 billion (US$6.3 billion) oilsands plant expansion, known as Voyageur, now only one regulatory approval away from entering construction.
ConocoPhillips, which has a deal to take up to 50% ownership in the Keystone oil line, says its U.S. parent company would be forced to reconsider a planned US$1 billion upgrade of its Illinois refinery at Wood River to process oilsands crude if Keystone is rejected. The Canadian arm of ConocoPhillips also has a long-range, phased oilsands development under way about 300 miles north of Edmonton near Fort McMurray on a multibillion-barrel spread of bitumen leases.
Only one of the multiple liquefied natural gas terminals proposed along the Canadian and American Atlantic seaboard has to make it to completion to more than replace all the western delivery capacity that would be taken out of service by Keystone, TransCanada’s supporters add.
No date was set for an NEB ruling but it is expected to be quick. The conflict erupted during a preliminary stage of the project, an application by TransCanada to transfer ownership of the line slated for conversion to a corporate entity that it will own in partnership with ConocoPhillips. Canadian industry veterans gave the protesters less than even odds of stopping the project, pointing out that the contest pits certain gains from oil development against hypothetical effects on gas supply forecasts that run counter to most projections, including the current official outlooks of both the Alberta Energy and Utilities Board and the NEB.
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