With an expectation that the Western Sedimentary Basin of Canada will continue as a key focus for natural gas exploration and development, Calgary-based EnCana Corp. announced Thursday it will construct a 40 Bcf natural gas storage facility in southeastern Alberta. The Countess development, once completed, is expected to increase EnCana’s Western Canadian gas storage by almost 40%, totaling approximately 135 Bcf.

EnCana, already one of the leading North American independents, also will become one of the largest gas storage owners and operators when Countess is operational. With its completion, EnCana will own and operate a total of nearly 180 Bcf of gas storage capacity across North America, with facilities in Alberta, California and Oklahoma.

Although known as a producer, EnCana is committed to gas storage growth, said CEO Gwyn Morgan. The company is selling off some of its other service businesses, and has cast out wholesale energy trading, but Morgan said EnCana will spend about US$100 million in the next two years to double its California Wild Goose Storage site to 29 Bcf by April 2004. With construction approval in hand from the California Public Utilities Commission, EnCana began an open season last week for the Butte County site. With a successful open season, Wild Goose would have a maximum injection rate of 450,000 Mcf/d, with a maximum withdrawal of 700,000 Mcf/d.

Open season offers on Wild Goose are due by 2 p.m. MST on Oct. 31. Longer-term contracts, for five years or more, are preferred, meeting or exceeding 100% of the rack rate. Wild Goose will negotiate and complete contracts by Nov. 8. To obtain more information, contact Ben Ledene in Calgary at (403) 654-3092, or Chris Price in California at (530) 525-0490.

The Countess storage facility, designed for peak injections of 950 MMcf/d and peak withdrawals of 1,250 MMcf/d, will use two depleted underground natural gas reservoirs located about 85 kilometers east of Calgary. The first 10 Bcf of new storage capacity is scheduled to be available in the second quarter of 2003. The full 40 Bcf of space is expected to be available in April 2005. EnCana’s facility will be operated commercially as part of the AECO Hub, which is comprised of 85 Bcf of capacity at Suffield, in southeast Alberta, and 10 Bcf of storage at Hythe, in northwest Alberta.

“As natural gas markets continue to grow, so does the industry’s anticipated demand for storage,” said Bill Oliver, EnCana’s president for the Midstream & Marketing division. “The addition of this facility should help strengthen EnCana’s position as the largest independent gas storage owner and operator in North America. With daily production of approximately 2.8 Bcf, EnCana is also North America’s largest independent gas producer.”

Oliver said EnCana’s new Countess facility will not only be used to help manage sales and optimize the value of the company’s produced gas, but will also expand the Canadian capacity available to other producers and marketers for managing gas supplies and sales.

Construction is currently under way to double the capacity of EnCana’s Wild Goose storage facility in Northern California to 29 Bcf. With the two expansion projects complete by 2005, total peak withdrawal capacity of EnCana’s North American storage network is expected to grow to approximately 4 Bcf/d.

“The development of this facility exemplifies an ideal business opportunity resulting from the merger of EnCana’s predecessor companies,” said Oliver. “The Countess reservoir first produced gas for PanCanadian Energy Corp. in 1984. Now depleted, it has a second life as a new and vital part of the AECO Hub,” established by Alberta Energy Co. Ltd. in 1998.

Gas storage has been instrumental in helping EnCana post strong earnings in its first year, despite the downturn in Alberta’s natural gas prices over the summer. EnCana was created from predecessors PanCanadian Energy Corp. and Alberta Energy Co. in a C$3.5 billion stock transaction, immediately making it one of the top North American independents, as well as one of the largest nonutility storage operators.

Because of its large storage network, the independent has not had to sell its stored 2.7 Bcf/d of gas output into the Alberta spot market, said CEO Morgan. He said the company only had to sell enough natural gas to fulfill its contract obligations last summer. Excess production was held in storage for this fall and winter. EnCana holds about 22% of all of the North American nonutility-owned gas storage, according to the company. In Western Canada alone, EnCana owns about one-third of total capacity, according to Ziff Energy Group.

Unlike a utility, EnCana and other independent storage operators can generate revenue by charging for stored unsold gas, as well as for injecting and withdrawing volumes from storage for its customers. Because there are few storage operators that are also producers, EnCana manages its own gas sales. Morgan said this was important, and said it gives EnCana a physical hedge.

Over a seven-to-10-year period, Ziff Energy estimates that gas producers that own storage capture the margin on their sales that other producers usually cannot, putting them ahead of others down the road. However, because it’s a hedging risk, Ziff Energy noted that seasonal patterns that are abnormal, such as the April 1994 to March 1995 heating year, winter prices were more than 25% lower than the average spring and summer prices. For an abnormal season, large storage users are the losers, either for storing their gas longer than expected or withdrawing it and selling it cheaper than they wanted.

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