Newfoundland/Labrador gas resources offer significant potential

Newfoundland and Labrador's natural gas resources are capable of supporting significant industrial initiatives.

While the discovered resources in the province are not world scale yet, the undiscovered potential holds significant promise for onshore and offshore Newfoundland.

However, the location and operating environment offshore require stakeholders to make wise, innovative decisions on value-added downstream activity in order for upstream development to succeed. And it means that Newfoundland will have to carefully identify and exploit development opportunities that make economic sense and in areas where the province is competitive.

These are the key conclusions of the first phase of a continuing study of natural gas utilization for Newfoundland and Labrador by the Newfoundland Ocean Industries Association (NOIA), undertaken jointly with the Atlantic Canada Opportunities Agency and funded by the Pan Atlantic Research Initiative.

Among other findings, the scoping study determined a need for more accurate and updated resource estimates, as well as a development policy and a royalty regime specific to natural gas. In addition, the study found, "There is also a critical requirement for a systematic review of each step in the production, processing, and transportation of natural gas and its products in order to identify challenges, opportunities, and appropriate action to enhance development."

It is this latter review that will constitute a second phase of the natural gas utilization study, NOIA said.

Resource estimates The NOIA study estimates the province's gas resource base at 61.9 tcf, which breaks out as 8.2 tcf of discovered resources and 53.7 tcf of undiscovered resources. Of the discovered resources, 4.2 tcf is on the Labrador shelf and 4 tcf is in the Grand Banks' Jeanne d'Arc basin.

The study reckons the discovered resource estimate for the Jeanne d'Arc basin, which offers the best near-term opportunity for development, is probably low and can be boosted to 5.2 tcf "with reasonable confidence."

Industry and the province must place a priority on updating undiscovered resource estimates for the Jeanne d'Arc basin, which it puts at 19 tcf, most of which is likely to be contained in three very large postulated fields.

The Hibernia oil field development on the Grand Banks could play a pivotal role in the development of gas resources within a 50-km radius of the Hibernia platform. A preliminary analysis of this option, based on associated gas from Hibernia and other oil fields nearby, shows potential for positive rates of return. However, a stand-alone gas development in the Jeanne d'Arc basin probably would not show a positive return.

Potential onshore gas developments in the Western Newfoundland basin show very positive economics, the study found. This play is in an early exploratory phase.

Fiscal, market concerns The NOIA study contends that the provincial royalty regimes are unclear for natural gas, onshore and offshore: "Current global trends are to design gas-specific regimes that reflect the particular requirements of gas developments. Newfoundland will have to act accordingly, if gas developments are to be encouraged."

The study also looked at various gas transportation/utilization schemes, opting for pipeline vs. liquefied natural gas and leaving methanol and compressed natural gas to the realm of theory. It notes the hurdles to overcome for a gas pipeline in the Jeanne d'Arc basin, not the least of which is a resource base that is insufficiently defined to support an assumed throughput of 500 MMcfd. Another concern is the threat of iceberg damage.

Any gas developed that is excess to the currently small local needs would have to be exported. And where the royalty take is likely to be low, as on the Grand Banks, economic benefits would be derived mainly through value-added projects downstream within the province.

The study also found that "Some of the innovative process and transportation technologies show promise, and their scale is more in keeping with the discovered resource base, local participation in development, and the ability of the local markets to absorb their deliveries. Of most interest are transportation options that are modular and scalable."

Discovered resources off Labrador are in very high quality reservoirs that represent technical and economic frontiers of development, the study concluded: "A Labrador-specific solution should be sought to achieve the accelerated development of these resources."

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