Huge gas project set for 2011

Dina O'Meara
Canwest News Service;
Calgary Herald
January 11, 2009

B.C.'s Horn River play estimated to hold as much as 13 trillion cubic feet

Last November, natural-gas giant EnCana Corp. quietly filed a multi-billion dollar natural-gas plant proposal with provincial regulators in B.C.

The massive Cabin Gas Plant would process natural gas from shale plays in the Horn River basin for eight companies, led by the Calgary-based producer. Estimated to cost $400 million for the first phase, the plant's initial capacity was slated at 400 million cubic feet per day, twice as much as the province's largest natural-gas processing plant.

Plans call for the plant to launch in 2011 and call for up to six expansion phases, depending on future production. Key here is "future."

Although the Horn River play in the tip of B.C.'s northeastern corner has attracted billions of dollars in investments from companies across North America, shale-gas production in 2008 was small enough to be considered not commercial.

Yet some say last year was when the face of natural-gas development in North America changed forever.

In the second month of the year, word of a potentially huge resource play in northeastern B.C. was unveiled at a conference in Houston. The Horn River (Muskwa) play could hold up to six trillion cubic feet of natural gas, according to U.S. company EOG Resources.

By the end of 2008 -- and several billion dollars in land sales later -- the amount had doubled to an estimated 13 tcf of recoverable resources.
Just south of the Horn River formation lies the 50 tcf Montney play.

That formation produced about 500 million cubic feet of natural gas last year. And that's just the beginning. (One billion cubic feet of gas a day is enough to heat five million Canadian homes for a year and the equivalent of about 170,000 barrels of oil.)

Across North America, nine unconventional shale-gas plays make up a 260 tcf reserve potential.

"It was a game changer," Mark Leggett, with BMO Capital Markets said.

Not only has the lure of shale shifted billions of dollars into B.C., which saw land lease prices in its northeastern corner skyrocket to $300,000 a hectare in 2008 from $300 in 2005, unconventional activity has revitalized a floundering service industry that saw conventional drilling fall some 11 per cent last year.

"Shale will have a very big impact because our basin is a conventional basin," Leggett said. "There is a need to replace declining conventional production and these will play a huge role in maintaining that growth profile and satisfy natural-gas demand in the oilsands years down the road. It gives industry visible natural-gas supply."

Shale rock is pretty common around the world and estimates of shale gas within the Western Canada Sedimentary Basin resource vary from 86 tcf to more than 1,000 tcf.

The huge potential could see half of Canada's natural-gas production stem from unconventional sources by 2025, according to the Canadian Society of Unconventional Gas.

However, unconventional shale gas is as variable as the weather in Calgary
-- it can be packed in a space as wide as a molecule, or spread across wide swatches of complex layers of rock, shallow or deep, prolific in spots, sparse in others.

Until recently, unconventional reserves were "tighter than cement" but a combination of horizontal drilling and multi-staged fractioning unlocked the rock.

"The technology enhancements on the shale gas are allowing a $7 per thousand cubic feet to be profitable because of the size of the prizes,"
Bruce Edgelow, with ATB Financial, said. "These pools in certain basins are significant as to the new technology being able to produce them -- it's quite amazing, it's a quantum leap as to what we're doing on the conventional size. You can make reasonable money as long as you have a good acreage play, and you have followup locations."

Build up, build out is the credo for companies pursuing unconventional resources, such as Talisman Energy, Nexen Inc., Devon Canada and ARC Energy Trust, one that natural-gas giant EnCana Corp. followed as it quietly acquired the largest land bases in the Montney play in B.C., which could hold up to 700 tcf of gas in place, and the Horn River.

Yet EnCana has yet to call the monstrous B.C. play commercial, saying it needs more concrete numbers on recovery factors and production rates. The region is remote, lacks infrastructure and hasn't provided the economy of scale the company seeks. EnCana wants to see well costs fall a third from current costs around $10 million before deeming the play economic.

Ever a canny oilpatch player, EnCana doesn't disclose much data but acknowledges the potential prize makes continuing investments in the region worthwhile.

Unconventional gas in the U.S. represents about 11 per cent of projected demand in 2008, about 6.8 billion cubic feet per day.

Canadian shale production is in its infancy, at about 600 million cubic feet per day. The volume is expected to rise to 5.3 bcf per day within a decade, but still won't offset conventional declines during that period.

"Shale is everything," David Johnson, president of ProEx Energy Ltd. said.
"I've been in this business since 1975, and unconventional has revitalized me as an engineer since the technology is quite exciting. I think it will take us beyond where we were on the conventional assets which are solely a harvest situation. Companies involved in unconventional resource plays will have repeatability because gas is continuous, and that's the difference between the conventional."