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The only way is LNG for BC shales

Asia critical for Horn River and Montney; players call for eastern gas-export route

INVESTMENT in British Columbia’s (BC) Horn River and Montney shale-gas basins faces a critical delay unless an export route is opened to Asian markets, producers, pipeline companies and analysts claim.

The basins’ development has already been hampered by high drilling costs, well fracturing and transport, and now faces twin threats from the boom in US shale-gas production, which could erode some of Canada’s long-time export outlets, and fierce competition for Asian buyers from Australian coal-bed methane to liquefied natural gas (LNG) projects.

Speaking to a Calgary conference, Basim Faraj, Questerre Energy’s international vice-president, said Horn River and Montney are economically doomed. He claimed the basins, which sit at the outer end of pipelines in the Western Canada Sedimentary Basin (WCSB), have no hope of competing with gas produced in the US.

Faraj added the likelihood that the US will be self-sufficient in gas within a few years places extreme pressure on Canada to start developing new overseas markets. Questerre is a Calgary based, independent shale-gas specialist.

The only obvious answer is to hasten the construction of liquefied natural gas (LNG) export plants on the BC coast, Tim Watson, a managing director with Bank of America/Merrill Lynch said. “There is certainly room for one LNG plant, if not two, on the west coast,” he said.

GTL option

Otherwise, the only option is the gas-to-liquids project being studied by the partnership of Talisman Energy and South Africa’s Sasol, although even those two companies are “preserving their option to consider LNG as one way of monetising their [BC] gas”, Watson said.

Adam Bedard, director of the Canadian upstream group with Colorado-based Bentek Energy, said Horn River can work only if the Kitimat LNG export facility – a joint venture between Apache, Encana and EOG Resources – goes ahead. He added production and development at Horn River “will be paced by what happens at Kitimat”.

Paul Ziff, chief executive of Ziff Energy Group, said Canadian shale-gas development faces more obstacles than that in the US for several reasons, including transportation costs, a strong Canadian dollar and the winter-shortened working season, which also adds to Canadian costs. “Horn River certainly ranks as one of the top shale-gas basins in North America,” he said. “Unfortunately, it is far from the rest of North America and has little original infrastructure.”

But, he suggested, the often overlooked use of natural gas for electricity generation could be the largest growth market after LNG.

Betting on BC

For all of the doubts, TransCanada is betting heavily on the future of gas production from northeastern BC, forecasting the region will produce 5bn cubic feet a day (cf/d) by 2020. The company is expanding pipeline networks out of the region, encouraged by its latest contractual commitment from shippers to add 100m cf/d of capacity by 2014, and 300m cf/d by 2020, to an approved pipeline that is scheduled to come on stream in 2014, feeding 634m cf/d from Horn River into its Alberta network

TransCanada said several applications have been filed with Canada’s National Energy Board for further expansions of the Alberta transmission system to handle new gas supplies from BC and Alberta.

The Horn River projects along with the existing Groundbirch pipeline have combined shipping contracts of 1.9bn cf/d by 2014, volumes that TransCanada said are critical to partially offset declining volumes of conventional gas in the WCSB and contribute to lower tariffs on TransCanada’s mainline pipeline system to eastern Canada and the US.

TransCanada chief executive Russ Girling said recent open seasons in BC attracted firm shipping commitments of 2bn cf/d for the company’s Groundbirch and Horn River pipelines, and requests have been made for another 2.3bn cf/d.

It estimates the cost of advancing pipeline development in BC and Alberta will need C$475m ($498.9m) of additions to its Alberta network, on top of the C$310m budgeted for the Horn River pipeline.

Pipelines or LNG?

Although TransCanada is anxious to secure new volumes to offset the continuing decline in conventional gas supply that is available to fill its mainline to eastern Canada and the US, Girling said the company is willing to participate in LNG exports if that is the market’s preference.

“I don’t think those two objectives are necessarily incompatible,” he said. “If the public interest is best served by two different pipelines moving to two different markets, that’s a good thing. But the cost of having that option must be borne by the industries that want it.”

Gary Wellinger, vice-president of strategic development with Spectra Energy, which has 2.4bn cf/d of gas-transmission capacity in BC, stressed the importance of a big breakthrough for plans to export LNG to facilitate accelerated growth in Horn River and Montney.

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