North American natural gas markets stand warned that western Canadian supplies either have or soon will reach a turning point where they peak then start to run down, and the nation’s top transporter is crafting import projects.

As National Energy Board chairman Ken Vollman delivered the warning, TransCanada PipeLines disclosed it is working on breaking into the global trade in liquefied natural gas for customers in the eastern United States and central Canada.

The new view of the Canadian supply outlook surfaced at conferences held by the Ontario Energy Association, the Canadian Society for Unconventional Gas, Petroleum Technology Alliance Canada, and Ziff Energy Group.

Vollman said “ever since deregulation” in the mid-1980s “we’ve been taking the Western Canada Sedimentary Basin for granted, assuming it will be able to meet our growing demands for natural gas . . . we need to think twice about that assumption.”

Vollman’s warning was triggered by a review of deliverability or production capacity that the NEB plans to complete by the end of the year. Preliminary results indicate aggressive drilling may be able to keep western Canadian output at current levels in the 18 Bcf/d range until later this decade, but that once conventional production starts declining it will drop 60% to 7.5 Bcf by 2025.

Vollman pointed out that the fate of western Canadian production is a matter of continental interest. It represents about one-fourth of total North American supply of 71.5 Bcf. The NEB chairman said the new scenario shows it is conceivable that arctic gas and coalbed methane could make up for more than half of the decline starting in 2007, but that both sources remain far from sure bets. Other, no more certain prospective replacements for aging western wells include deep drilling offshore of Nova Scotia and remote discoveries on the Grand Banks of Newfoundland. For the first time, NEB projections contemplate Canada eventually starting to import LNG.

TransCanada sees a use for tanker imports from overseas sooner rather than later as it canvasses potential supply sources. “We are casting about everywhere,” TransCanada president Hal Kvisle said. Within the company a small corporate unit of long-range planners is investigating possibilities around the continent.

Kvisle said TransCanada does not want to own ships or foreign production facilities and loading docks, but does see a potential role in providing coastal terminals and pipelines for an expanding LNG trade. The new operations would serve markets and encourage supply development along the Atlantic seaboard north of Washington, DC. While describing such plans as still in speculative stages, Kvisle said a Canadian-owned East Coast tanker terminal could make a head start on new delivery service that will be required for growing gas production offshore of Nova Scotia.

TransCanada estimates that a new LNG terminal would support construction of East Coast pipeline facilities on the scale of two Bcf daily, or about three times the current capacity of Maritimes and Northeast Pipeline’s route to Boston from Nova Scotia. At the senior partner in M&NP, Duke Energy Gas Transmission Canada, president Bob Reid he can foresee multiple pipes being laid in the right-of-way but that he doubts his organization will be interested in LNG investments any time soon.

Kvisle said the tanker imports contemplated by TransCanada would be replaced by new Canadian production as it becomes available offshore of Nova Scotia, Kvisle said. He described an LNG installation as a “really good way to get higher-volume infrastructure.” He also rated the East Coast as “emphatically not western Canada.” TransCanada calculates the greatest production likely to come from Atlantic waters as in the range of two to three Bcf daily.

A wide range of potential LNG terminal sites is under investigation along the St. Lawrence River and in the Quebec City region, as well as beside the big Atlantic seaboard gas markets in the Boston and New York areas. Kvisle said an answer is available to popular concerns over environmental and safety aspects of LNG: building the terminals out at sea, by adapting the technology of offshore production platforms then installing pipelines to markets on land.

TransCanada’s vice-president for gas strategy, Steve Becker, added that while the investigation of LNG opportunities remains in early stages, the company expects some to mature over the next five to seven years. Talks are under way with Nova Scotia gas producers. The possibilities include reversing an export route, Portland Natural Gas Transmission between Quebec and Maine, to send supplies landed by tankers on the U.S. east coast northwest into central Canada, Becker said. He added that offshore gas could also be carried inland by reversing the Trans Quebec & Maritimes Pipeline between Quebec City and Montreal.

TransCanada calculates that LNG projects work at gas prices in the range of US$3.50-$3.75 per Mcf — or the same level required for development on the Mackenzie Delta and at Prudhoe Bay. Barring surprise reversals of market projections by industry and government authorities alike, the pipeline believes offshore and northern supplies may both be needed.

The trend lines all show flat to falling conventional gas supplies despite record numbers of gas wells since the mid-1990s — a reversal of previous decades when drilling surges reliably yielded rising reserves and production.

Kvisle observed that heavy exploitation of western Canadian gas deposits has reached the “challenging” point where the industry must annually add daily production of 3.5 Bcf/d just to sustain current output. The U.S. mainstay, the Gulf of Mexico region, is struggling to add up to five Bcf. North American consumption, led by reliance on gas-fired generating plants for electricity, is on its way to 89 Bcf /d by 2011 — a total increase of up to 18 Bcf. Prudhoe Bay and the Mackenzie Delta combined would yield 6-8 Bcf.

The global potential for LNG is unlimited in theory, with untapped gas deposits dwarfing North American reserves awaiting development in the Middle East, West Africa and the Caribbean. TransCanada is not alone in anticipating growth in gas tanker traffic and reaching for a role in it.

El Paso Corp.’s LNG chief, Kyle Sawyer, told Canadians that North American reserves can “absolutely not” satisfy the continent’s gas demand by 2015.

El Paso predicts that global LNG traffic, now equivalent to about 14 Bcf daily, will grow by about 7% per year. Sawyer, like Kvisle, rated the field as attractive at gas prices of US$3.50-$4 per Mcfh. Expenses are dropping as the sizes of terminals and tankers have increased, at the same time as the cost of the ships has dropped to the US$160-million range from $220 million each. El Paso is promoting a line of LNG import terminals titled Energy Bridge, a design that combines offshore unloading sites and pipelines to take the gas to land.

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