Excess capacity will grow for years to come on Canadian natural gas pipelines even if some of the space is switched to oil shipping, TransCanada PipeLines says in an application to make a prompt start on making a partial conversion of its system.
TransCanada, in a construction filing with the National Energy Board for its Keystone oilsands conversion project (see Daily GPI, June 7), forecasts the gas space surplus — even after the oil switch — will be 1.2 Bcf/d to 3.6 Bcf/d in 2009 and up to 6.3 Bcf/d by 2015.
The projections vary depending on assumptions chiefly about Alberta gas demand for oilsands plant fuel and the infant Canadian coalbed methane industry. But the pattern of rising excess capacity is consistent in all except the scenarios rated least probable.
Alaskan gas, which theoretically could cure the excess capacity headache by refilling Canadian pipelines as routes to the Lower 48 states if decades-old dreams of an Arctic gas megaproject at last came true, is still “too speculative” to factor into realistic industry projections, TransCanada told the NEB.
As the oldest system serving the Western Canadian Sedimentary Basin, facing expiry of long term transportation service contracts, TransCanada’s 7.2 Bcf/d eastbound mainline out of Alberta is projected to lose by far the most traffic. Rival Alliance Pipeline, barely six years old, continues to be fully booked under long term shipping contracts.
The US$2.1 billion Keystone package includes conversion of one of the multiple pipes in the mainline right-of-way across 860 kilometers (530 miles) of Saskatchewan and Manitoba to oil for C$664 million (US$590 million), and 1,650 kilometers (1,070 miles) of new oil line in the United States to Illinois refining and trading centers at Wood River and Patoka.
Gas capacity on the TransCanada mainline is projected to drop by 500 MMcf/d, or 7%. But even after the conversion, TransCanada predicts excess capacity on its mainline will still be 1.1 Bcf/d to 1.9 Bcf/d in 2009, the targeted in-service date for the oil project, then 1.3 Bcf/d to 4 Bcf/d by 2015.
The proposed conversion is forecast to reduce tolls to central Canadian domestic markets and export points by 1 cent per gigajoule or about 1%. But the savings are expected to be largely eaten up on other fronts.
TransCanada predicts its annual total revenue requirement will go down by C$113 million (US$102 million). But annual costs to shippers of gas compressor fuel, paid in kind out of deliveries in the system, are expected to go up by C$98 million (US$88 million), leaving a net savings of only C$15 million (US$14 million).
TransCanada, echoing supply forecasts by the Alberta Energy and Utilities Board and the NEB, predicts Western Canadian conventional gas production will be flat to declining for the next five to 10 years. Fledgling unconventional output, led by coalbed methane but including some “tight” gas from dense rock formations, is expected to multiply 15-fold to 3.1 Bcf/d by 2020, but still fail to offset a looming decline in total western productive capacity.
Oilsands plants are projected to be by far the biggest factor in declining requirements for long-distance gas pipeline capacity out of Western Canada. TransCanada, in projections that vary only in detail from NEB and AEUB forecasts, predicts gas use by oilsands developers will nearly triple to into the range of 2 Bcf/d by the 2015-20 period. The consumption figure matches the consensus forecast of oilsands production growth to three million bbl/d from one million.
In a spring oilsands assessment report, the NEB predicted new technology and efficiency improvements to old methods will gradually reduce gas use in thermal recovery of bitumen and upgrading the tarry material into light synthetic crude oil. But as of 2015, the NEB predicted the industry will still on average use 0.7 Mcf/d of gas for every barrel of oilsands production.
TransCanada’s Keystone plan, a joint venture with bitumen developer ConocoPhillips Canada, is one of about 12 oilsands pipeline projects. While four are regional pipelines tied to particular Alberta production projects, eight are long-distance shipping plans competing for shippers.
But Keystone stands at the head of the line as to date the most successful in obtaining transportation service contracts, TransCanada told the NEB. The new oilsands delivery route would have initial capacity for 435,000 bbl/d, with built-in ability to be expanded for 590,000 bbl/d by adding pumps. TransCanada said confidential shipping contracts have been arranged for 340,000 bbl/d, or 78% of the proposed initial service.
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