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Quicksilver boosts Canada’s nascent LNG industry

Export plans to speed Horn River development; all three planned LNG export projects are viable

THE US’ Quicksilver Resources boosted the prospect for Canadian liquefied natural gas (LNG) exports to Asia as one of several outlets for steadily building production from British Columbia’s (BC) shale-gas deposits.

Should one, or all of the three proposals to establish LNG export terminals on the BC coast come to fruition, Texas-based unconventional gas player Quicksilver will “be an important part of the marketing picture for the Horn River play”, said company chairman Toby Darden.

Quicksilver said the three projects are “likely to benefit all producers by [opening] additional markets for the massive resource potential” of the Horn River basin.

The most advanced of the three is Kitimat LNG, a partnership of Apache (operator), EOG Resources and Encana. The 0.7bn cubic feet a day (cf/d) plant would come on line in 2015, assuming it has firm sales commitments by the end of this year.

Meanwhile, Haisla First Nation and Houston-based LNG Partners have just unveiled plans for a 250m cf/d terminal to start operations in 2014 and Shell Canada is seeking partners for a 1bn cf/d liquefaction plant.

Peter Howard, president of the Canadian Energy Research Institute, and Ed Kallio, director of gas consulting at Ziff Energy, agree there could be room for all three. Howard notes that Horn River production could reach 2bn cf/d by 2014-15, which could encourage producers to opt for LNG exports if the gas price at Henry Hub remains soft – North American benchmark prices were at around $4.24/’000 cf at the time of writing.

Kallio said Ziff’s forecast demand for LNG in Asia would more than double to 42bn cf/d by 2020 – and that was before Japan’s earthquake and tsunami raised expectations of an even greater need for gas-fired power generation.

He also said producers in the remote Horn River basin may be motivated to accelerate drilling by the prospect of lucrative LNG exports. A round-trip for tankers from northern BC to Asia takes about 23 days, compared with around 60 days from the US Gulf Coast.

But Quicksilver is not limiting itself to Asia as it steps up plans to develop its 130,000 net acre base in Horn River. Darden said there was potential to sell gas as fuel for thermal-recovery operations in Alberta’s oil sands and to eastern Canadian and US markets though TransCanada’s pipeline network, as well as shipping gas to the west on Spectra Energy pipelines.

The company estimates it has access to shale-gas resources of 10 trillion cf in Horn River’s Muskwa and Klua shale formations, reporting that results reinforce its confidence in a “big gas supply”.

It expects a 20-mile feeder pipeline will be operational in Horn River next month as the first step towards a separate midstream business that will copy its early development strategy in the Fort Worth Basin of Texas. Darden says the “midstream entity will provide our lowest-cost solution for gathering, treating and transporting gas to multiple sales points”.

The initial midstream phase will have capacity to deliver 125m cf/d to TransCanada’s pipeline network and is scheduled to start operations by mid-2014. It is designed to expand in increments of 125m cf/d.

Darden says the midstream entity will eventually have its own capital structure and be separately financed, along the lines of the company’s Quicksilver Gas Services, which was created in 2007, sold in 2010 and now functions as Crestwood Midstream.

An agreement was signed this month with TransCanada unit Nova Gas Transmission to initiate the second phase of Quicksilver’s plan to create the midstream business, which will include a treatment facility to remove carbon dioxide from the gas stream.

Capital attraction

In addition to drilling six horizontal wells in two Horn River formations, Quicksilver has drilled a vertical well to a depth of 4,350 feet to test the Exshaw formation for oil. Chris Theal, chief executive of Kootenay Capital Management, said that if the oil plays yield commercial rates they will “attract capital”.

Quicksilver has booked reserves of 16bn cf equivalent (cfe) on its Horn River holdings, has budgeted spending of $110m for Canada this year, up by about $20m from 2010. But it has not disclosed which regions or projects will receive the money beyond indicating that $120m will be split between Horn River and Colorado’s Greater Green River basin.

For the final quarter of the year, Quicksilver produced 69.2m cf/d in Canada, up by 2.3m cf/d from the year-earlier period, dominated by its coal-bed methane (CBM) holdings in Alberta, where it has been producing since 1999 and which account for the bulk of its reserves of 250bn cfe in the province.

It continues to drill the Horseshoe Canyon CBM formation in Alberta, completing 14 gross wells in 2010 and connecting 54 wells to sales lines, while paying $22m to add 47,000 gross acres with 23bn cf of proved gas reserves.

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