CERI: Arctic gas, LNG, hydrates key to gas supply gap

March 21, 2005
Huge capital investments will be required by the industry if LNG imports and Arctic gas are to fill a projected US natural gas supply shortfall, according to a senior analyst for BP North America Gas & Power.

Huge capital investments will be required by the industry if LNG imports and Arctic gas are to fill a projected US natural gas supply shortfall, according to a senior analyst for BP North America Gas & Power.

Dawn Constantin told a Canadian Energy Research Institute (CERI) conference a 2003 National Petroleum Council study estimated $1.27 trillion in 2002 dollars will be required for exploration and production development and $81 billion in pipeline, storage, and other infrastructure.

The BP executive said gas reserves in Canada’s Mackenzie Delta and Alaska’s North Slope are the last remaining major proven reserves that are unconnected to markets. She noted that Alaska’s Prudhoe Bay has 35 tcf of proven gas reserves, and the Mackenzie Delta-Beaufort Sea areas have 9 tcf.

Constantin said existing North American basins are “tired” with decline rates of 30% in the US and 23% in Canada. She said many analysts forecast that North American gas production will remain flat at best, despite some forecast growth in the Rocky Mountains, the deepwater Gulf of Mexico, and Western Canada.

Plans for pipelines to connect both Delta and North Slope gas to southern markets are under way, but they will face many economic, regulatory, and environmental risks, the BP analyst said. She emphasized that new supply sources are needed, and all parties must participate in development. Cost of the Alaska pipeline is estimated at $20 billion.

Constantin said for pipeline development to proceed, long-term contractual commitments from stakeholders will be needed, and regulators must provide a long-term, stable regulatory climate.

If all goes as planned, 1.2 bcfd of gas from the Delta could reach downstream markets by the end of this decade and 4 bcfd of Alaska gas in the next decade.

LNG requirements

The BP analyst said development of LNG import projects on both the East and West coasts of North America also is required to help plug the supply gap.

Jose Alberto Lima, president and CEO of Shell US Gas & Power LLC, said Shell scenarios call for extraordinary global growth in natural gas consumption, with gas superseding oil as the dominant fuel during 2015-25. He predicted increasing and more-intense global trading in LNG and tremendous growth in global LNG development to meet the demand.

Lima said Asia and Europe would play an important role in LNG demand. Supply will be plentiful, which will keep prices competitive, he said, but LNG development will take time and money, and near-term shortages must be managed. He said the industry must deal with number of issues.

These include public “Not In My Backyard” opposition to LNG developments and the need for public education about the industry; interchangeable standards must be updated; a review of existing codes is needed along with adoption of best practice standards for design, construction, and operating procedures. A legal and fiscal framework also is needed on greenfield projects.

Lima noted there are more than 50 proposed LNG projects in the US, but not all will go forward.

The Shell executive said LNG will be attractive to producers with remote reserves and to consumers because of lower costs.

Natural gas hydrates

Kirk Osadetz of Natural Resources Canada (NRC) told the conference that natural gas hydrates also will provide a potentially large source of gas supplies within 15 years.

Hydrates, formed by gas trapped within a crystalline cage of water molecules, have an energy content comparable to heavy oil bitumen-at least five times greater than energy from both CBM and tight gas. Hydrates are found in many parts of the world, including Alaska and offshore US, and the total in situ amount of methane in Canadian gas hydrates is estimated to be 1,553-28,593 tcf, Osadetz said.

The NRC researcher said gas hydrates represent a future assurance of North American natural gas supply, if they are economically recoverable. The problems related to hydrates are similar to any frontier gas source.

NRC and other members of an international research consortium, including Japan National Oil Corp., participated in the Mallik three-well project in 2002 in the Mackenzie Delta. Osadetz said the drilling program profoundly enhanced understanding of gas hydrate reservoirs and constrained initial reservoir performance models.

Marine investigations for hydrates are under way on the Pacific and Atlantic margins of Canada, Osadetz said, including a drilling and geophysical expedition off Vancouver Island this August, and it is hoped that will be followed by a terrestrial Arctic production experiment in the International Polar Year, 2007-08.

Osadetz said the use of existing technology can largely solve most operating issues related to hydrates, but research should continue into other methods as well.

NRC hopes to have a full-scale production test on hydrates within 5 years.