Alberta’s energy regulator will reopen the natural gas wells it has ordered closed to protect oilsands extraction as soon as new technology can produce the gas – while still protecting the far more valuable bitumen resource, says the head of the Energy and Utilities Board (EUB).
But EUB chairman Neil McCrank said that based on gas- and bitumen-production technologies now available, the EUB had no choice but to order the shut-in of about 280 billion cubic feet, or 0.7 per cent of Alberta’s remaining natural gas reserves, to ensure the bitumen can be extracted in the future.
“We just haven’t been confident at this point that we’re prepared to risk the bitumen, given that no technology has been proven to date,” McCrank told Business Edge after announcing the EUB’s decision last week. “It may be that new technology will be advanced to the point where we believe the gas can be extracted and the bitumen, in which case we’ll be the first ones to be ordering the release of those (shut-in) wells,” he said.
The EUB has ordered the shutdown as of July 1 of about 280 billion cubic feet of gas production in the Wabiskaw-McMurray geological formations near Fort McMurray.
The regulator is concerned that ongoing production from gas pools that cap or overlie bitumen reserves will lower pressures in the underground formations, and make extracting the bitumen impossible using steam-assisted gravity drainage (SAGD) technology.
SAGD requires high pressure levels to inject steam into the formations to melt the tarry bitumen so it can be pumped to the surface.
But Paramount Energy Trust, which says it will now have to shut in about 19.1 million cubic feet per day of its gas production, said the EUB’s decision is based on a theoretical risk that has never occurred.
“The issue that they’re worried about, which is the breakthrough of a steam chamber into a depleted gas cap, has never happened in the history of a SAGD project,” said Sue Riddell Rose, Paramount’s president and chief operating officer.
“There’s no basis for this, except from modelling,” she added in an interview.
A board panel that held a hearing on the issue earlier this year disregarded technical arguments by gas producers and oilsands firms that much of the gas isn’t in contact with the bitumen so “it isn’t going to impact recovery, even in this theoretical way,” Riddell Rose said.
“The tenacity of the EUB in pursuing its intended course of action on this matter and its lack of consideration for the technical input from industry over the past 12 months threatens to jeopardize Alberta’s role in North American natural gas markets,” Paramount noted in a release.
But McCrank pointed out that the shut-in gas amounts to 123 million cubic feet per day, or only about three weeks of gas production in Alberta.
In comparison, shutting in the gas will protect for future extraction some 25.5 billion barrels of “some of the highest-value bitumen in Alberta,” representing about 14.6 per cent of Alberta’s remaining bitumen reserves or about 70 years of production, McCrank added.
McCrank said the EUB has a legal obligation to conserve the province’s energy resources to ensure Albertans obtain the maximum value from their energy wealth.
The regulator made its latest decision on the controversial issue, which has been debated for about seven years, after completing a detailed geological study with industry to confirm which gas pools in the Wabiskaw-McMurray formation were in direct contact with the bitumen reserves.
“The oil and gas industry really came to the table and assisted us with the regional geological study,” McCrank said. “We think that there’s a pretty good definitiveness to this issue at this point.”
Riddell Rose, however, said the study was an EUB-driven process that involved mostly junior board staff in work that had little technical input from industry.
“The way it was designed, it was very much driven by the board and they were going to get the answers that they wanted,” she said.
The EUB is also ignoring technology now in use, such as low-pressure pumps that could allow production of both the gas and the bitumen, Riddell Rose said.
Other gas producers affected by the decision include Canadian Natural Resources Ltd., BP Canada Energy Co. and Devon Canada Corp..
The EUB’s decision increases the number of gas wells affected by the shut-in to 1,021, compared with the original 938 wells the board initially ordered closed last summer.
However, the total amount of gas to be shut in will drop to 0.7 per cent of Alberta’s remaining natural gas reserves, compared with about two per cent originally ordered shut in last year.
Of the 1,021 affected wells, 300 are to be completely shut in while a portion of the gas production from another 505 wells will be closed down where parts of those wells are in direct contact with the bitumen reserves. The remaining 186 gas wells are abandoned or permanently shut in already.
The EUB will allow full gas production to continue in the Wabiskaw-McMurray formation from 552 wells, as well as partial production from an additional 233 wells.
Gas producers and oilsands firms that are unhappy with the decision can still argue their case at a final EUB hearing that’s likely to be held this fall.
The Alberta government is currently compensating gas producers 60 cents per thousand cubic feet of gas for their loss of production. A final compensation package isn’t expected until the EUB holds a final hearing, if required.
Riddell Rose said Paramount Energy wants full compensation equal to current market prices for natural gas – or 10 times greater than the province’s current payments.
The government would prefer to compensate producers through a program that offers flexibility on paying provincial royalties on gas, which Paramount would accept, she said.
She added her company will press ahead with an appeal of the EUB’s actions in the Alberta Court of Appeal, and hasn’t decided yet whether it will participate in another EUB hearing. “We’re hoping to be before the courts before that hearing.”
