Cuts dealt to estimates of natural gas reserves offshore Nova Scotia this winter were only temporary setbacks to growth that still has potential to surprise even optimists, the National Energy Board has been assured. The region harbours up to 89 Tcf of gas or about twice as much as Alberta’s remaining established reserves, Maritimes & Northeast Pipeline said.

M&NP drew the huge number from a study it commissioned from the Calgary energy consulting house of Gilbert Laustsen Jung Associates. The documentation supports an application for a C$190.8 million (US$120 million) project to raise the pipeline’s capacity for exports to the northeastern United States by 400 MMcf/d or about 75%.

The findings counter gloomy impressions created by corporate annual reports for 2001 of participants in two-year-old production by the Sable Offshore Energy Project (SOEP). Shell Canada cut its reserves bookings for its share in SOEP by 27% to 800 Bcf from 1.1 Tcf. Pengrowth downgraded its share by 14%. ExxonMobil Corp., senior partner in SOEP, trimmed its estimate of the project’s total reserves by 26% to 2.6 Tcf from the initial estimate of 3.5 Tcf.

The M&NP expansion application stresses that the plan only accommodates the first exploration success and new production in the still very young industry offshore of Nova Scotia, PanCanadian Energy’s Deep Panuke discovery. M&NP suggests that the new reserves prediction, while among the highest yet for the area, is conservative. The new study covered only relatively accessible drilling targets beneath waters less than 3,000 meters deep, a 40,530-square-mile region about 8% of the size of the Western Canada Sedimentary Basin. The survey excluded about 23,500 square miles of drilling prospects in deeper water.

The new findings go beyond the most optimistic predictions a year ago by Calgary-based Ziff Energy Group, in a study that described the area offshore of Nova Scotia as “an emerging major North American gas supply region.” The Ziff study maintained that “given discoveries to date and industry expectations, the current resource estimate of 18 Tcf for the Scotian Shelf is conservative. An ultimate resource potential on the order of 50 Tcf or more for the Scotian shelf might not be unreasonable.”

M&NP said its report acknowledged that offshore gas-reserves projections to date have relied on limited knowledge from scant drilling into only a handful of multiple exploration target available offshore of Nova Scotia. Even PanCanadian’s Deep Panuke find only represented the first confirmation that a geological zone called the Abenaki reef trend is a “viable but immature exploration play.” Only 0.9 Tcf of a potential 15.8 Tcf in this zone alone has been found so far, M&NP told the NEB.

The Maritimes pipeline acknowledged that much of the grand expectations for the area offshore of Nova Scotia remain in the speculative realm known as “conceptual plays” among petroleum geologists. M&NP also acknowledged, “The forecasting of the pace of gas discoveries, development and gas-supply potential of the basin involves even greater uncertainty than the resource potential estimate.”

But the pipeline said projections that employ conservative yardsticks – a combination of current exploration plans and historical discovery rates – suggest that the industry will about double its current reserves offshore of Nova Scotia in the near future.

“It is estimated that approximately 2.5 Tcf of marketable resources will be discovered in the next five years as a result of drilling on existing exploration licenses,” M&NP told the NEB. “Given the number of untested opportunities in this basin, it is considered reasonable that this pace of discovery could be maintained over the next 25 years. This exploration activity level would require capital expenditures approximately equal to the minimum commitment associated with current exploration licenses – approximately C$1.6 billion (US$1 billion) over the next five years – to be maintained over the next 25 years for total exploration expenditures of approximately C$8 billion (US$5 billion).”

A second study done for M&NP, by the Massachusetts economics firm of Navigant Consulting Inc., points out that an abundance of export sales opportunities awaits all the gas that can be found offshore of Nova Scotia. The region served by the Maritimes pipeline – the heavily populated seaboard between Boston and New York City, as well as New England – has a population of 50 million and currently consumes 9 Bcf/d or about as much as all of Canada even though it is a relatively new market for natural gas. Demand is forecast to grow, requiring further additions to pipeline capacity.

The promised benefits of expanding Nova Scotia’s toehold in U.S. gas markets include savings for producers to be reaped by spreading costs of the two-year-old pipeline thinner over rising volumes of output and deliveries, M&NP said. It predicted the expansion for PanCanadian will generate an overall 29% cut in tolls on the Canadian half of the line to C$0.51 (US$0.32) per MMBtu from C$0.72 (US$0.46).

At Duke Energy, the Canadian East Coast’s prospects stand out as a driver for its US$8-billion acquisition of Westcoast Energy, the operating partner in M&NP with a 37.5% interest. The takeover doubled Duke’s interest in the system to 75%. At Westcoast’s Vancouver head office to close the deal formally March 14, Duke Energy Gas Transmission President Robert Evans described Canadian East Coast development to date as a modest start on large, long-range prospects at both ends of M&NP, the Nova Scotia gas fields and northeastern U.S. markets. He predicted that Atlantic Canada, while a much smaller community than its neighbour to the south, will also become a growth market for gas. For Duke, Evans said the acquisition represents a platform for growth in trading as well as transportation.

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