B.C.’s bet on LNG has brought northeastern B.C. to the forefront of the province’s economic radar.
B.C. produces approximately 3.5 billion cubic feet of natural gas a day, two-thirds of that from Montney and Horn River’s unconventional reservoirs, says Dan Allan, executive vice-president of the Canadian Society for Unconventional Resources (CSUR), a Calgary-based industry association for shale oil and gas operators.
Allan estimates that B.C.’s three big shale plays hold up to 1,000 trillion cubic feet of natural gas, a figure that has creeped upward since 2007.
Natural gas prices plummeted from $14 per thousand cubic feet in 2005 to $3.34 this February, well below the costs associated with drilling, operating, and marketing natural gas, estimated at $5 per thousand cubic feet. But proponents believe that higher prices in Asian markets and the higher liquid potential of B.C. gas, make B.C.’s shale reservoirs an economically feasible opportunity.
Over the past seven to eight years, emergence of technologies that allow access to oil and gas in largely impermeable rock formations, has set off a rush for mineral rights and a spike in exploration in B.C.’s northeast corner.
Horizontal drilling allows producers to drill laterally into hydrocarbon formations 2,000 to 5,000 feet below the ground's surface, inaccessible by conventional techniques that have been the mainstay of the industry for the past sixty years. Pumping high-pressure water and sand into the layer of shale rock renders these formations more permeable, allowing for the extraction of pockets of natural gas trapped in the rock.
While oil and gas producers and the provincial and federal governments may pin big promises on the North’s unconventional hydrocarbons, exploration in the province’s shale reservoirs has already made an impact on the environment and economy of Northern B.C.
Here’s a rundown of B.C.’s three big shale gas plays:
B.C. Shale Plays: Horn River basin in red, Monteny in yellow, Liard in orange. Blue lines are Spectra Energy's pipeline system that delivers gas from Northern B.C. to the Lower Mainland. Red line is the planned Pacific Trail Pipeline. View in a larger map.
The Play: B.C.’s biggest unconventional play with gas reserves estimated at 450 trillion cubic feet. Exploration companies have spent more than $2 billion since 2005 on acquisition rights from the B.C. government; in 2011 alone this region accounted by 89 per cent of B.C.’s mineral rights sales.
The high liquidity of natural gas extracted from Montney makes it well suited for kerosene, jet fuel, propane, and ethane. In addition to heating it’s used in refining processes for plastics.
The Players: Encana, Murphy and Shell are among the top producers, each with more than 120 wells in production. In late 2011, 0.16 trillion cubic-feet of gas was being extracted daily from the Montney Shale.
Petronas’s $5.2-billion takeover of Progress Energy made it the top landholder in the Montney; by some estimates it has the rights to 334,000 hectares. The takeover, worth more than $1 billion, was the highest ever paid for an oil and gas producer, according to Bloomberg.
The Market: Natural gas goes to consumers in B.C. and Alberta. The Spectra T-mainline has capacity for 2.2 billion cubic feet per day, carrying natural gas from the North to the Lower Mainland. By 2016 producers hope to export to South Korea and Japan.
The Play: Nestled in B.C.’s northwest corner, the Horn River Formation’s reserves were pegged at 78 trillion cubic feet by the National Energy Board in 2011, but are now estimated to be between 100 and 600 trillion cubic feet. The region is remote and expensive to operate in, but exploration companies in the area have benefited B.C.’s light net-profit royalty regime, with significantly lower rates compared to similar plays elsewhere in the U.S. and Canada.
The Players: Encana, in partnership with KOGAS (Korea Gas Corp.), has plans for a $400-million gas processing facility adjoining its field operations. Conoco Phillips Canada, ExxonMobil, and Nexen Inc. also operate in the area.
The Market: Natural gas from Horn River currently enters the B.C. mainline and Alberta pipeline system. The shale’s export potential is pinned to the planned Pacific Trail Pipeline, a 463 km. natural gas pipeline that will connect the gas fields with LNG export facilities in Kitimat. A 4.5$ billion facility, owned by Apache Corporation and Chevron Canada, is expected to go start operation in 2016.
The Play: Straddling the triangle where B.C., the Yukon, and the N.W.T. meet, the Liard Basin is due west of Horn River. Apache, the primary player in the area, estimates its reserves at 210 trillion cubic feet, 48 tcf of which can be produced and sold. As one of the most remote natural gas reservoirs in North America, it faces challenges similar to Horn River: a lack of infrastructure, high drilling costs, and distance to market.
The Player: Houston-based Apache has drilled in the area since 2009, but kept its activity secret until June 2012. Apache’s three producing wells feed into an existing pipeline that runs south from the Northwest Territories.
The Market: Apache hopes to export to Asia via Kitimat as early as 2016.