With prices still at record highs by Canadian standards,interest is heating up among producers in accelerating natural gasdevelopment in the East Coast offshore, including remote prospectson the Grand Banks of Newfoundland.
The enthusiasm showed in an asset acquisition offshore of NovaScotia and disclosures of a second proposal for a pipeline toconnect gas finds made as a byproduct of oil exploration offshoreof Newfoundland.
In the transaction, buyers stepped forward for a provincialCrown corporation that its government founders repeatedly triedunsuccessfully to sell during its 20-year history. Pengrowth EnergyTrust, PanCanadian Petroleum Ltd. and Emera Inc. made a deal to buythe assets of Nova Scotia Resources Ltd. for a total of C$420million (US$290 million). The package includes an 8.4% interest inthe Sable Offshore Energy Project, with Pengrowth buying the gasreserves while Emera purchases production facilities, andPanCanadian picks up other assets in the nearby Cohasset-Panukefield.
The deal was structured to leave the Nova Scotia government withC$799 million (US$550 million) in debts owed by the provincialresource corporation. Founded in 1981, the enterprise had no equityand wound up borrowing to pay for all acquisitions and industrialventures. It was left out on a limb by 1980s collapses in energyprices and offshore industry activity. Now a bidding contest ispossible. Closure of the sale has been put off until April becauseSOEP’s senior partners, Mobil Canada and Shell Canada, have a rightof first refusal on the provincial company’s interests and arereviewing the matter. Pengrowth president James Kinnear describedSOEP as “one of the most exciting energy plays in the world,” withpotential to expand in two or three years well beyond its currentproduction of 450 MMcf/d.
Offshore of Newfoundland, Husky Energy is no less enthusiasticabout gas prospects on the Grand Banks – but more patient, bynecessity. At a conference in St. John’s, Husky CEO James Blairdisclosed that it has developed a pipeline concept with help fromspecialists in the field. It is a different variation on a themeunveiled about four years ago by the Tatham Offshore organization,which continues to work on plans for a subsea network reaching fromNew England to Newfoundland. Husky’s scheme is an 875-milepipeline that would start at its White Rose oil and gas discovery.
The route, selected to stay in water deeper than the scouringbottoms of icebergs that annually drift through the region, runs inan S-shape. It follows the curved northern edge of the Grand Banks,crosses the island of Newfoundland at its narrowest point, thenveers south and west across the Gulf of St. Lawrence to thestarting point of Maritimes & Northeast Pipeline in NovaScotia at Country Harbor.
The idea calls for initial deliveries of 900 MMcf/d from WhiteRose, with pipe capable of operating at pressures of up to 3,375pounds per square inch because it has to have thick walls in deepwater.The result is a “dense phase system” that the engineers say”minimizes potential operating problems.” Costs are estimated atC$3.5 billion (US$2.3 billion).
Blair described the idea as “a substantial, but technicallyviable project.” At the same time, he pointed out that thefledgling industry offshore of Newfoundland — which only beganproducing oil in late 1997 — still has a long way to go to moveinto gas. The Husky studies concluded the project would take fiveyears to build after a decision to go ahead, and that commitment inturn still depends on whether enough gas is found. The costestimate “leads us to conclude that reserves in the range of7-to-10 Tcf need to be proven before such a project can beconsidered.” While Husky geologists and engineers calculate thatthe Grand Banks region harbors a gas endowment of 26 Tcf,four-fifths of it remains a projection of “undiscovered potential.”Discoveries to date add up to 4.8 Tcf.
Husky maintains that it has at least proved Newfoundland can bein the running for frontier gas development. “Based on thissubstantial potential resource and the significant volumesdiscovered to date, we conclude that the Grand Banks region has thepotential to be competitive with other frontier regions such as theSable-Abenaki region (offshore Nova Scotia) and the MackenzieDelta-Beaufort Sea region.” Blair added that “while this is a verypromising statement, it is also a reality check: Resources have tobe competitive with other frontier regions if they are going to getto market.”
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