Encana Corp.’s long awaited Deep Panuke project, 155 miles southeast of Halifax on the Nova Scotian Shelf, will begin shipping its first natural gas by the end of March, officials said last week.

The East Coast offshore gas development’s production field center was towed out for installation at the end of July, Encana Canadian operations chief Mike Graham said during a conference call last Thursday. The facility is scheduled to begin flowing by the end of March at a rate of more than 200 MMcf/d.

“The subsea hookup program is under way and is expected to be completed by early November,” Graham said. “We now expect first gas from Deep Panuke by the end of the first quarter of 2012.”

First gas had been slated to ramp up by the end of this year (see Daily GPI, July 22). However, Encana had to negotiate a new timeline with Single Buoy Moorings, which was hired to build and operate the platform. The offshore facility, still in the harbor in Nova Scotia, would process gas from four wells offshore and then transport it via a subsea pipeline to Goldsboro, NS, for further transport to market via Maritimes & Northeast Pipeline.

“The facility is going to be designed for about 300 MMcf/d,” said Graham. “We do have firm service, like we said, on Maritime & Northeast of 200 MMcf/d, but it does look like there may be more capacity available there. So we plan to bring it on at about 200…but it will have the capability to flow up to about 300. So we’re kind of looking at what the optimum flow rate to produce that is.”

Deep Panuke has been under way in some form or fashion for more than five years. After a series of stops and starts by Encana, Canadian regulators in 2007 approved the design and engineering plan and the company gave the final green light shortly thereafter (see Daily GPI, Oct. 26, 2007; Oct. 4, 2007).

Marketing the gas is not an issue. Spain’s Repsol YPF SA in early 2009 clinched an agreement to buy all of the Deep Panuke gas over the 18-year life of the project for delivery to markets in Eastern Canada and the northeastern United States (see Daily GPI, Feb. 18, 2009).

However, the project’s construction costs now have reached nearly C$1 billion, well above original budget estimates. And Deep Panuke is something of an outlier for Encana, whose exploration and development activities today are concentrated almost entirely in North America’s onshore. The project long has been considered a primary candidate for sale, but in late 2009 CEO Randy Eresman reaffirmed the company’s commitment to the offshore project (see Daily GPI, Nov. 16, 2009).

Graham was asked last week if Deep Panuke again might be up for sale because Encana is selling its onshore midstream properties to focus more on shale exploration. Graham never provided a direct answer. He said instead the company wanted to determine the strength of the reservoir before making any comments.

“Right now we have nothing active on the sale of Deep Panuke,” he said. “We’re going to bring it on [and] in six months, we’ll have a pretty good idea of how big the reservoir is. we’ve got 500 Bcf to 1.5 Tcf of possibility of production out of it. So we’ll kind of have a good idea after six months…” Even at current gas prices the project is expected to have a quick payout, he said, generating C$200-300 million a year in cash flow.

For Nova Scotia, the project continues to be a positive, according to BMO Capital Markets Economics. In a report this month the investment firm noted that economic growth in the province was downshifting to 1.7% this year after a 2.1% growth rate in 2010.

“Continuing construction activity at Encana’s Deep Panuke natural gas project remains great news for Nova Scotia,” said BMO’s Laura Charlton, vice president of the Nova Scotia District. “With the first gas expected to flow next year, we look forward to exports rising and contributing to growth.”

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