Producers and analysts sent up red flags last week at GasMart/Power 2001 in Tampa, FL, about future gas supply potential north of the border. Currently known resources appear to be inadequate and at the current rate of production would be depleted in little more than a decade, they said. Furthermore, the common belief that new sources of supply will be adequate to replace rapidly depleting reserves may be mistaken, the experts said.

“The known conventional resources from the Western Canadian Sedimentary Basin, from the Mackenzie Delta and the Scotian Shelf will not satisfy Canadian gas requirements for exports and Canadian demand. The [Energy Information Administration’s] perception of what might come out of Canada is inconsistent with our conventional resources,” said Rob Woronuk, senior analyst for the Canadian Gas Potential Committee, a quasi-governmental body assigned with keeping a tally of Canada’s gas resources. If production stays flat at 2000 levels, there will be shortfalls in supply by 2012, he said.

“These are using fairly optimistic numbers… We do believe there are considerable amounts of gas in the parks and rural areas that are inaccessible… But we will have to get access to them if we want to [meet demand]. It would be nice to have a greater amount of resources. I don’t like any of the supply curves [we’ve projected].”

Despite new fields offshore Atlantic Canada and discoveries in the Northwest Territories, the Western Canadian Sedimentary Basin will continue to represent the bulk of available Canadian supply. “When you look at supply from the Mackenzie Delta and the Scotian Shelf, it represents a very small portion of what is going to be required,” said Woronuk. “Conceptual plays [offshore Atlantic Canada and maybe Pacific Canada] and other areas will be required. It can’t be done without these [unknown resources]. We have to get busy finding them. Just remember one thing: we don’t have enough with the [Mackenzie Delta] alone.”

Roland George, a consultant with Purvin and Gertz in Calgary, said technology is “starting to lose the race with Mother Nature.” Furthermore, although many geoscientists say the resource is available, many frontier properties simply are not economic enough to be developed, he added. Many of the frontier areas, such as offshore Newfoundland and Labrador, simply are too far away or not large enough to make them economic. “It’s unlikely that they will ever be developed,” George said.

So where is the United States going to turn to compensate for flat or declining Canadian imports in the long run? There really aren’t too many good answers, according to George. It’s unlikely that the moratoria offshore California, Florida or North Carolina will be lifted. The Gulf Coast will contribute very little incremental supply through 2020, he said. The Rocky Mountain region will grow substantially, but a lot more supply will be needed than what that region can provide. Liquefied Natural Gas supply is going to have to increase dramatically but likely will remain only a niche source. The only large incremental addition will come from Alaska, he said.

The problem is that the prospect of Alaskan gas development has become a political football. Development on the North Slope and a pipeline to the Lower 48 will require more than 1,000 regulatory permits, said Tony Fountain, president of BP North America Gas & Power. “The regulatory super highway will be a fundamental issue [in whether this project succeeds],” he said. And after all is said and done on the political and regulatory fronts, the 4 Bcf/d project still has to remain economic, he noted. If prices fall below $3/MMBtu at the Henry Hub, the project would become questionable.

“The market has to be right for this project to work. The technology has to improve the costs. The major political and regulatory obstacles have to be overcome.”

Some still wonder why the big three producers think they can tap the 100 Tcf of probable reserves in Alaska and pipe them to market today when the project failed just two decades ago.

A lot has changed in the past 20 years, said Fountain. “One is just the market: the scale of the U.S. market. The need, [consumer] appetite and the maturity of the U.S. basins have fundamentally changed,” he noted. “We have a very different set of market economics, which is much more favorable to build a pipeline. The most fundamental change is in the cost structure of the project.” Producer interests also are better aligned, he said. Many of the land issues also have been resolved. “We have issues about which pipeline route we take, but what we don’t have is people not wanting a pipeline,” he said.

Fountain said the producers cannot build a pipeline along both major routes — one that would run south through Alaska and along the Alaska Highway eventually to Alberta and the other running east across the Beaufort Sea and down the Mackenzie River to the gas pipeline grid in Alberta. BP already has run into trouble with the Alaska legislature over pipeline routing issues. Alaska apparently wants the pipeline first to run southwest to Fairbanks and won’t take “no” for an answer. It recently passed legislation that basically blocks building a pipeline across the Beaufort Sea to the Mackenzie Delta, and Gov. Tony Knowles has indicated a willingness to sign the measure.

Fountain expressed doubt that Alaska will succeed in forcing its choice for the eventual pipeline route. “I think at issue is the legality of [the Alaskan legislation],” said Fountain. “Governor Knowles has said, ‘I wouldn’t focus too much on the law, but I think you should focus on the message. Clearly we want to make sure all the options are evaluated in the appropriate manner. At least the politicians are clear on what option they think we should choose.”

There are sources of optimism about future supply from Canada and Alaska, but “we need to be cautious about what we think certain places can deliver in the U.S.,” said Fountain, in conclusion. “We’re optimistic about what’s in Alaska, Canada…, what’s in the Rockies and the Gulf of Mexico deepwater. Many other basins are going to struggle to hold on. The onshore Gulf will struggle to stay flat. The Hugoton will struggle to stay flat. While we believe there are some great sources for optimism, if you are going support the level of demand [expected], we think the only way you can do it is to bring in totally new supplies from Alaska and LNG…”

He noted that there is 100 Tcf of reserves in Trinidad, “the source of the lowest cost production in the world,” and BP is eager to build multiple new LNG terminals, including one in Tampa, FL, and possibly others in Los Angeles or Baja California.

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