Foreign tankers may yet beat out pipelines in the race to satisfy North America’s insatiable demand for natural gas.
No fewer than three major international LNG (liquefied natural gas) projects burst from the starting blocks last week.
The projects are bound to send an icy chill through Arctic gas pipeline builders.
All three LNG projects propose to have huge tankers unloading their super-cooled product on the continent’s shores by 2008-09.
That’s at least a year before a molecule of gas is scheduled to flow through the Mackenzie Valley and probably five years before the Alaska Highway pipe dream becomes a reality.
And if the global petroleum industry finds it can deliver foreign gas in tankers cheaper than Canadian Arctic or Alaska gas in pipelines, where’s the financial payoff in building the northern pipelines?
Calgary-based Petro-Canada was first out of the blocks last week, announcing an agreement with Russian-owned OAO Gazprom to investigate a joint $2-billion-plus project to ship Russian LNG to North American markets by 2009.
The memorandum of understanding includes a joint gas-liquefaction plant near St. Petersburg (formerly Leningrad), gas supplies for the plant and a regasification facility, so the gas can be distributed via pipeline in North America.
The most likely spot for the regasification plant is in Cacouna in eastern Quebec, a facility proposed last month by Petrocan and TransCanada Corp.
Petrocan’s move was followed the next day by a report that BP PLC and its partners in the Tangguh LNG project in Indonesia have signed a long-term sales and purchase agreement to supply LNG from Papua, Indonesia, to Sempra Energy LNG for markets in Mexico and the U.S.
It’s the first such long-term supply of Asia Pacific gas to North America.
It’s a sign that gas customers on this continent increasingly see LNG playing an important role in meeting their needs for the clean-burning fuel.
BP and its partners plan to deliver up to 3.7 million tonnes of LNG a year over 20 years, beginning in 2008, to Sempra Energy’s proposed receiving terminal in Baja California, Mexico.
The terminal will have the capacity to process about one billion cubic feet of natural gas per day. That’s almost as much as the total 1.2 billion cu. ft./day that the $7-billion Mackenzie Valley pipeline will transport – and just from one LNG terminal!
Two days after Petrocan’s announcement, a consortium led by Royal Dutch/Shell Group said it had struck a $6-billion US deal to supply LNG from reserves being developed off Russia’s Sakhalin Island.
Sakhalin Energy Investment Ltd., operator of the Sakhalin-2 project, will eventually ship 1.6 million tonnes of LNG per year to the same Baja California terminal that BP and partners will deliver to, starting in 2008.
Shell, which is building the LNG terminal in Baja California with Sempra Energy, will buy the gas.
In contrast to the LNG projects’ momentum, both Arctic gas pipelines still face considerable hurdles, including rising costs, an unpredictable regulatory maze and uncertain support from key aboriginal groups.
‘Grey Ghost’ Haunts Oilsands
The Alberta government needs to get off its hands and implement a long-awaited strategy to protect the province’s threatened woodland caribou.
If the Tories continue to hide in the bureaucratic bush on this issue, potential foreign investment in the oilsands could bolt.
In a warning shot, the Oil Sands Environmental Coalition says it has decided to oppose Devon Energy Corp.’s proposed 35,000- barrels-per-day Jackfish project south of Fort McMurray.
The Alberta environmental groups, which filed an objection with the Alberta Energy and Utilities Board (EUB), say they’re coming out swinging “not because of the project itself, but because government has yet to put in place a comprehensive plan to protect threatened woodland caribou.”
Devon’s project is in an area where caribou herds are already in decline due to intensive industrial development, the groups say.
The company’s environmental assessment included a detailed review of potential effects on the caribou and proposals to reduce these effects.
But Devon’s good efforts are all for naught. That’s because the Ralph Klein government has failed to release and implement a recovery plan for woodland caribou since the reclusive animal called the “grey ghost” was designated as a threatened species some six years ago.
Meanwhile, Sinopec Corp., the giant state-owned Chinese energy firm, is kicking the tires on Alberta’s oilsands and considering buying in.
In fact, the EUB says the Fort McMurray area has hosted more than 20 visits this year from foreign investors from 12 countries, including Russia, China, Peru, Japan, Thailand, India and others.
All it would take is one well-organized international campaign by environmental groups – featuring a rare woodland caribou as the poster mammal – to send those investors scurrying for quieter places to put their money.
Precision Takes Soaking
It’s hard to believe a drilling company can be looking glum with oil at $50 a barrel.
But that’s precisely what officials at Precision Drilling Corp., Canada’s largest oilfield services provider, are likely feeling after the company cut its earnings forecast for the third quarter this year to between 65 to 70 cents a share – lower than analysts’ expectations of 74 cents.
The Calgary-based company, which runs more than 225 rigs or nearly 40 per cent of the country’s fleet, says wet- weather conditions extending through September “have hampered Canadian oilfield activity during the third quarter.”
That included 23 per cent more rainfall in Alberta this year than in 2003. Great for the ducks, but bad for heavy drilling rigs that are difficult and dangerous to move when the ground gets soggy and the roads sloppy.
The Canadian Association of Oilwell Drilling Contractors reports that the 486 rigs in the field in late July had dropped to 349 by early September, with the trend continuing downward.
The slog in the bog means the industry may fall short of breaking last year’s record of more than 21,800 wells.
But an early freeze-up, allowing rigs to move over frozen ground, could quickly turn things around.
Break out the $175-million ‘peace pipe’ that looks like it will end the bitter, eight- year dispute over recovering oilsands bitumen versus natural gas.
That’s how much Alberta Energy Minister Murray Smith estimates it will cost taxpayers to compensate natural gas producers whose gas wells were ordered shut down to protect the integrity of underground reservoirs and safeguard the bitumen for future extraction.
The compensation will be in the form of reduced royalty payments the gas producers are required to pay to the province.
More than 1,000 wells are shut down in the Athabasca oilsands region near Fort McMurray. That’s about 280 billion cubic feet of natural gas, or less than one per cent of Alberta’s remaining gas reserves.
Smith is betting the compensation will enable the gas producers, oilsands companies and the Alberta Energy and Utilities Board, which ordered the wells shut in, to finally bury the hatchet – and not in each other’s heads.
It looks like a safe bet, judging by the soothing noises.
Paramount Energy Trust, the gas producer most affected by the well closures and which led the charge against them, says it’s “very encouraged” by the compensation plan.
Paramount says the royalty adjustment could reduce its payments by as much as $1.4 million or two cents per trust unit monthly.
New Centre Focused on Cleaner Energy
Alberta’s clean energy future has received a $9-million boost.
The Alberta Ingenuity Fund research-granting agency has awarded the funding to establish a major new research centre at the Institute for Sustainable Energy, Environment and Economy based at the University of Calgary.
Called the Alberta Ingenuity Centre for In Situ Energy, the facility will bring together top researchers to develop more energy- efficient, cost-effective and environmentally sustainable methods to recover and upgrade Alberta’s 175 billion barrels of established oilsands reserves.
The research will range from using advanced chemical catalysts to improve upgrading, to developing new processes and technologies to enable industry to do most, if not all, of the recovery and upgrading underground – right in the geological reservoir where the oilsands bitumen is found.
The funding includes a potential of up to $7.5 million over five years, plus $1.5 million to recruit two world-class experts, Pedro Pereira Almao and Steve Larter, to the U of C to lead the centre’s research program.
(Mark Lowey can be reached at email@example.com)