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A Natural Gas Crisis Coming?

By Dave Russum
July 18, 2007

This resource triangle illustrates that conventional resources (the apex of the triangle) represent a relatively small volume of the total hydrocarbons in an area or basin. Unconventional hydrocarbons depicted by the lower part of the triangle tend to occur in substantially higher volumes. Early exploration and production is focussed on the apex of the triangle. Industry only pursues opportunities lower in the triangle when the opportunities at the top of the triangle are inadequate to meet demand and consumers are prepared to pay to make the opportunities economic. The oval illustrates that the Alberta oil and gas industry has moved significantly down the triangle in pursuing both oil (heavy oil, tar sands) and gas (coalbed methane, tight gas).

The final years of the 20th century saw a rapid escalation in natural gas drilling in Western Canada. For the first time, however, the rate of production growth began to falter.

In early 2000, as Murphy Oil, Apache and Beau Canada announced their discovery of the Ladyfern Slave Point gas field in a remote area of Northeastern British Columbia, their achievement seemed to herald a new era of successful wildcat exploration. As word of a major discovery leaked out, many of the significant players in the industry jumped on the bandwagon. A frenzy of land purchases, drilling and pipeline construction followed. In little more than a year, production from the new fields rose to more than 700 million cubic feet per day - and this from an area only accessible during the cold winter months. Production from this region helped raise Canada's gas production to a new peak (in late 2001) of 17.4 billion cubic feet of sales gas per day.

Rather than representing a new era of large discoveries, Ladyfern appears to have been just another increasingly-rare large gas find. During boom periods in the 1950s, for example, gas exploration yielded large new gas fields almost every year, and many discoveries waited for years to be tied into the pipeline network. As the industry matured, such discoveries became unusual. Prior to Ladyfern, the last large gas discovery had been at Caroline, more than ten years earlier.

Unconventional gas: In any given area, free-flowing, buoyancy-driven conventional gas represents a very small fraction of the natural gas resources present. Unconventional gas represents possibly hundreds of times more natural gas resource than there is for conventional gas. It comes from five major sources:

1.One is shallow, biogenically-derived gas in mixed sand and shale sequences. Shallow biogenic gas is considered to be an unconventional gas resource since it is not generated in the same temperature and pressure systems found in conventional hydrocarbon generation. The Milk River and Medicine Hat sands of southeastern Alberta and southwestern Saskatchewan are classic examples of this type of unconventional gas. This is the area where gas was first produced in western Canada, and it is still a major producing region. This continuously gas-producing area is the largest in the Western Canadian Sedimentary Basin.

2. Coalbed methane is natural gas within the structure of coal. Special production techniques to remove this gas from its coal seam reservoir include lowering reservoir pressures rather than keeping them high. Coalbed methane knowledge has advanced rapidly. So has the development of water-free natural gas from coal in the Horseshoe Canyon Formation in Central Alberta. First commercial production only occurred in 2002, but current production is already more than 500 million cubic feet per day.

3. Tight gas is gas in low-permeability rock. Reservoirs require artificial fracturing to enable the gas to flow. Canadian Hunter Exploration in the 1970s identified a huge gas resource in the Deep Basin of western Alberta. In this area, much of the sedimentary section is charged with natural gas. The rock can have extremely low permeability but production is not hampered by the presence of water. Similar gas-charged areas have been found in many parts of the world; a common term for this kind of reservoir is "basin-centred gas".

4. Shale gas is held in shale reservoirs. This is also a low-permeability, highly-challenging resource. Large volumes of gas molecules are trapped in shales which represent one of the commonest rock types in any sedimentary sequence. Shale gas production has been pursued in the United States since the early days of the natural gas industry, and in recent years the Barnett Shale in west Texas has been a tremendous success. Many companies are experimenting with shale gas production in Saskatchewan, Alberta and northeastern British Columbia, but a commercially viable project has yet to be announced.

5. Gas hydrates consist of natural gas trapped in ice crystals in areas of permafrost and on the ocean floor.

In 1985, unconventional gas production received a boost when the United States introduced incentives to encourage the development of energy alternative. This incentive advanced the technical understanding of the resources themselves and of ways to develop them. Canada has benefited from this, learning new ways to exploit her own unconventional resources.

Complacency: The existence of these resources has led to complacency among consumers, who still assume they will always be supplied with gas at "reasonable" rates. Developing these resources can have substantial impacts on the environment through closer well spacing, more intensive infrastructure, additional noise from compression, the challenges of water disposal, NIMBY issues, and other factors. More to the point, most people do not understand that little unconventional gas is extractable in large volumes at lower prices.

Consider this matter in the context that natural gas producers generally buy mineral rights from the Crown but must negotiate surface access and other land rights with their neighbours. In this environment, the chances are high that some projects will face delays as a result of public hearings - for example, as Shell and the other contenders did at the Caroline hearing. After all, those with an interest in a single land use decision could include petroleum producers, Aboriginals, landowners, farmers, ranchers, loggers, trappers, campers, sports and environmental groups, and others. Many conflicting interests need to be resolved.

Forecasters now commonly suggest that western Canada's conventional gas production has peaked and will continue to decline. Gaps between traditional supply and growing demand are already being filled with gas from such diverse sources as tight sands; coalbed methane; and since January 2000, frontier gas and liquids from Nova Scotia's Sable Offshore Energy Project. Other possible future sources include Mackenzie delta gas and liquefied natural gas from abroad. This suggests higher future costs and risks, and that suggests higher-priced future energy.

Note to readers: This article first appeared as part of a series in Wikipedia. To read it in context, click here. Then scroll down until you find the "resource triangle" graphic.

By Dave Russum
July 18, 2007

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