NORTH MONTNEY & SHALE GAS GROWTH RESOURCE & INFRASTRUCTURE ANALYSIS November 2013 APEGA Permit 10349 APEGA Permit P08121
COPYRIGHT NOTICE Reprint only with express written permission from HSB Solomon Associates Canada Ltd. (Solomon) and Gas Processing Management Inc. (GPMi). All ownership rights, title and other property rights to all text, image and other materials contained or displayed in this Solomon and Gas Processing Management Inc. document, specifically North Montney and Shale Gas Growth Resource & Infrastructure Analysis belong to Solomon and Gas Processing Management Inc. and constitutes valuable intellectual property. No material from any part of this document is authorized or intended by Solomon and Gas Processing Management Inc. to be assigned or licensed to any party and may not be downloaded, transmitted, broadcast, reproduced or in any other way used or otherwise disseminated in any form, in whole or in part to any person or entity. All unauthorized duplication or any other use of this document including, but not limited to publishing in whole or in part, excerpting portions for presentations, shall constitute intentional infringement(s) of Solomon and Gas Processing Management Inc. intellectual property and shall further constitute a violation of our trademarks, copyrights, and other rights, including, but not limited to, rights of privacy. Without further notice we will prosecute to the fullest extent allowed by law. CONFIDENTIALITY AND NON-DISCLOSURE NOTICE This Study has been prepared by Solomon and Gas Processing Management Inc. and constitutes Solomon's and Gas Processing Management Inc. s Confidential Information. The Study is provided to the Client strictly for its' internal company use on the basis that the Company and its employees, officers, contractors, and any other party receiving this Study by the Company maintain its confidentiality. The Company shall be responsible in all cases for the enforcement of this Confidentiality requirement and shall bear all liability for any violations of this provision by its subsidiaries, affiliates, joint ventures, consultants, agents, third party contractors and related persons or entities that are controlled by or under common ownership and control of the Company. Should a subsidiary, affiliate, joint venture, consultant, agent, third party contractor and related persons or entities that are controlled by or under common ownership and control of the Company desire to review this study, they can, though only at the Company s premise and under the Company s supervision. No part of the study, in whole or part, and no copies, subsets, notes, or presentations can be provided. WARRANTY The data contained in this Study, although believed to be accurate, is not warranted or represented by Solomon or Gas Processing Management Inc. to be so. Solomon and Gas Processing Management Inc. expressly disclaims all responsibility for, and liability in respect of all loss and/or damage howsoever caused, including consequential, economic, direct or indirect loss, to any party who relies on the information contained in the Study.
NORTH MONTNEY AND SHALE GAS GROWTH RESOURCE & INFRASTRUCTURE ANALYSIS TABLE OF CONTENTS Section Page I. INTRODUCTION... 1 Study Background... 1 Independent Assessment... 1 Data Sources... 2 Objectives... 2 The North Montney and Shale Gas Growth Prize... 3 Study Area... 4 Executive Summary... 5 Western Canada... 5 Study Area Production to 2024... 5 Area Infrastructure... 5 Processing Facilities... 6 Commercial and Regulatory... 6 Sub Region Strategies... 6 Additional Considerations... 7 Overview of the Study Team... 8 II. WESTERN CANADA... 9 Western Canada Gas Demand Outlook to 2024... 9 Western Canada Gas Supply Outlook to 2024... 10 Gas Supply by Type... 10 Gas Supply by Region to 2024... 11 Prices and Costs of Gas... 12 AECO Gas Price Outlook to 2024... 12 Ethane Price... 13 Propane, Butane, and Oil Price... 14 Impact of Liquids Content on Value and Industry Activity... 15 Costs... 16 Operating Costs... 16 Full Cycle Cost of Gas Challenges Continue!... 17 Western Canada Full Cycle Cost of Gas... 18 Assumptions and Limitations of the Data... 18 III. PRODUCTION TO 2024... 19 Oil and Gas Potential... 19 Geological Overview... 19 Montney Play... 21 Horn River and Liard Plays... 22
Gas and Liquids Production Forecast Methodology... 23 New Wells on Production to End of 2024... 24 Top Drilling Operators... 25 New Initial Well Productivity to 2024... 26 Raw Gas Production to 2024 by Sub Region... 27 Total Gas Production... 29 Estimated Ultimate Recovery per Well... 30 Raw Gas Produced from 2008 to the End of 2024... 31 Ethane Production to the End of 2024... 31 NGL (C 3 + ) Production to 2024... 33 Total C 3 + NGL Production... 35 Composition... 36 H 2 S Gas Concentrations... 36 CO 2 Concentrations... 38 NGL Concentrations... 40 IV. GAS INFRASTRUCTURE... 43 Impact of Changing Gas Supply on Processing Infrastructure... 43 Production & Plant Capacities... 43 Typical Gas Treating (H 2 S and CO 2 ) Considerations... 46 Typical Natural Gas Liquids (NGL) Recovery Considerations... 48 Economics... 48 Other Considerations... 49 Operating Expenses... 50 Plant Operating Cost Influences... 50 Plant Operating Costs... 51 Facility Utilization... 52 Facility Turnarounds... 53 Maintenance Capital... 54 Facility Reliability... 54 Infrastructure Capital Costs... 55 Take Away Infrastructure Natural Gas... 59 Spectra... 59 Alliance... 59 TransCanada... 60 Gas Storage... 60 Aitken Creek Gas Storage... 60 Take Away Infrastructure Natural Gas Liquids (NGL)... 62 Impact of Gas Growth on Product Take Away Capacity Requirements... 63 Gas... 63 Natural Gas Liquids... 63 V. PROCESSING FACILITIES... 65 Sub Region 1... 65 Cabin D-76 Enbridge... 66 Fort Nelson B-84 Spectra Energy... 67 Fort Nelson North A-30 Westcoast Energy... 68
Fortune Creek A-66 Quicksilver... 69 Sierra A-26 Endurance... 70 Sub Region 2... 71 Peggo D-83 Spectra Midstream... 72 Wildboy D-75 Penn West... 73 Sub Region 3... 74 Bistcho Lake 11-32 Strategic O & G... 75 Bivouac 06-05 Husky... 76 Rainbow 10-10 Husky... 77 Rainbow 10-10 Husky... 78 Rainbow Lake 12-24 AltaGas... 79 Zama 13-12 Apache Canada... 80 Sub Region 4... 81 Caribou C-4 Keyera Energy... 82 Jedney 1 B-88 Spectra Midstream... 83 Jedney 2 B-88 Spectra Midstream... 84 Lily A-29 Progress... 85 Sikanni B-41 Spectra Midstream... 86 Sub Region 5... 87 Chinchaga C-32 TAQA... 88 Martin Creek B-2 Nuvista... 89 Ring Border C-81 ConocoPhillips... 90 Sub Region 6... 91 Chinchaga 1-24 CNRL... 92 Chinchaga North 05-32 Keyera Energy... 93 Hamburg 12-29 CNRL... 94 Hamburg N 11-14 Devon... 95 Pedigree 02-28 Nuvista... 96 Sub Region 7... 97 Altares B-24 Canbriam Energy... 98 Altares C-65 Progress... 99 Aitken Creek D-44 Spectra... 100 Blair D-58 AltaGas... 101 Cypress B-99 CNRL... 102 Farrell B-88 Talisman... 103 Highway B-36 Spectra... 104 VI. COMMERCIAL AND REGULATORY... 105 Commercial Considerations... 106 Scenarios... 106 Challenges... 107 Infrastructure Access... 107 Government Regulation Existing and Developing... 108 British Columbia... 108 Alberta... 109 The Way Forward... 110 Area Activity Coordination... 110
Value Sharing a Broad Approach to Utilise Existing Infrastructure... 110 Current Principles... 111 Challenges... 111 Fee Negotiation... 111 Value Sharing Performance Upside... 112 Commercial and Performance Parameters... 113 CO&O Agreements... 114 Plant Repositioning... 115 Commercial Approaches... 115 Plant Remediation and Restoration... 117 VII. SUB REGION STRATEGIES... 119 Strategic Analysis Assumptions... 119 Evaluation Assumptions... 119 Liard Shale Gas... 119 Horn River Shale Gas... 120 Montney Tight Gas... 120 Base Case Facility Development... 121 NGLs... 121 Opportunity Overview... 122 Area Gathering Systems... 124 Sub Region 1 Aggressive Shale Gas Growth... 126 Infrastructure Development and Repositioning Opportunities... 128 Sub Region 2 Slow Growth... 136 Development and Repositioning Opportunities... 138 Sub Region 3 Harvest... 140 Development and Repositioning Opportunities... 142 Sub Region 4 Aggressive Growth... 145 Infrastructure Development and Repositioning Opportunities... 147 Sub Region 5 Harvest... 151 Infrastructure Development and Repositioning Opportunities... 153 Sub Region 6 Harvest... 155 Infrastructure Development and Repositioning Opportunities... 157 Sub Region 7 Aggressive Growth... 161 Infrastructure Development and Repositioning Opportunities... 163 VIII. OTHER CONSIDERATIONS... 171 Environmental Development Considerations... 171 Provincial Parks, Protected Areas, and Wildland Areas... 171 Roads, Communities, and First Nation Lands... 173 Historic Drilling Activity... 174 Abandonment Liability... 175 Greenhouse Gases and Applicable Regulations... 176 CO 2... 176 Flaring and Venting... 177 The Role of Government... 177 Plant Proliferation... 177
GCA (Gas Cost Allowance) and Royalties... 178 Revenue Enhancements... 179 Implementation... 181 Intangibles... 183 Why is a Study Required?... 183 Other Considerations... 185 APPENDIX A: WELL ANALYSIS... 187 APPENDIX B: DETAILED MAPS... 199 FEEDBACK... 201 LIST OF FIGURES Figure 1.1 North Montney and Shale Gas Area... 4 Figure 2.1 Gas Demand in Western Canada... 9 Figure 2.2 Western Canada Dry Gas Supply Outlook to 2024... 10 Figure 2.3 Regional Non-Associated Dry Gas Supply Outlook to 2024, Bcf/d... 11 Figure 2.4 AECO Gas Price Outlook... 12 Figure 2.5 Intra-Alberta Ethane Price Outlook... 13 Figure 2.6 Propane, Butane, and Oil Prices... 14 Figure 2.7 Equivalent Gas Price Impact of Liquids... 15 Figure 2.8 Western Canada Natural Gas Operating Costs... 16 Figure 2.9 Western Canada Full Cycle Gas Cost... 17 Figure 2.10 New Gas Full Cycle Costs... 18 Figure 3.1 Oil and Gas Production by Formation... 20 Figure 3.2 Montney Potential and Wells... 21 Figure 3.3 Oil and Gas Potential of the Horn River, Liard, and Cordova... 22 Figure 3.4 Production Forecast Methodology... 23 Figure 3.5 Gas Wells on Production to End of 2024, Wells/year... 24 Figure 3.6 Top Operators by Sub Region... 25 Figure 3.7 Regional New Gas Well Productivity, MMcf/d... 26 Figure 3.8 Total Regional Raw Gas Production to 2024, Bcf/d... 27 Figure 3.9 Regional Sweet Raw Gas, Bcf/d... 28 Figure 3.10 Regional Sour Raw Gas, Bcf/d... 28 Figure 3.11 Total Regional Raw Gas Production, Bcf/d... 29 Figure 3.12 Estimated Ultimate Recovery per New Well, Bcf... 30 Figure 3.13 Raw Gas Resource Produced from 2008 to the End of 2024, Tcf... 31 Figure 3.14 Ethane Liquid Production Outlook to the End of 2024, MBbl/d... 32 Figure 3.15 Total NGL (C 3 + ) Produced to the End of 2024, MBbl/d... 33 Figure 3.16 NGL Yields (C 3 + ), Bbl/MMcf... 34 Figure 3.17 Regional NGL (C 3 + ) Production, MBbl/d... 35 Figure 3.18 H 2 S Concentrations by Sub Region (Typical 1.04%)... 36 Figure 3.19 CO 2 Concentrations by Sub Region (Typical 3.86%)... 38
Figure 3.20 C 3 + Concentrations by Sub Region (Typical 3.4%)... 40 Figure 4.1 Area Raw Gas Production vs. Facility Capacity... 43 Figure 4.2 Unit Operating Costs vs. Complexity Factor... 51 Figure 4.3 Utilization Cost Factor vs. Facility Utilization... 52 Figure 4.4 Area Natural Gas Takeaway Infrastructure Map... 61 Figure 4.5 NGL Takeaway Pipeline System... 62 Figure 5.1 Sub Region 1 Gathering System Schematic... 65 Figure 5.2 Cabin D-76 Throughput & Capacity... 66 Figure 5.3 Fort Nelson B-84 Throughput & Capacity... 67 Figure 5.4 Fort Nelson North A-30 Throughput & Capacity... 68 Figure 5.5 Fortune Creek A-66 Throughput & Capacity... 69 Figure 5.6 Sierra A-26 Throughput & Capacity... 70 Figure 5.7 Sub Region 2 Gathering System Schematic... 71 Figure 5.8 Peggo D-83 Throughput & Capacity... 72 Figure 5.9 Wildboy D-75 Throughput & Capacity... 73 Figure 5.10 Sub Region 3 Gathering System Schematic... 74 Figure 5.11 Bistcho Lake 11-32 Throughput & Capacity... 75 Figure 5.12 Bivouac 06-05 Throughput & Capacity... 76 Figure 5.13 Rainbow 10-10 Throughput & Capacity... 77 Figure 5.14 Rainbow 10-10 Throughput & Capacity... 78 Figure 5.15 Rainbow Lake 12-24 Throughput & Capacity... 79 Figure 5.16 Zama 13-12 Throughput & Capacity... 80 Figure 5.17 Sub Region 4 Gathering System Schematic... 81 Figure 5.18 Caribou C-4 Throughput & Capacity... 82 Figure 5.19 Jedney 1 B-88 Throughput & Capacity... 83 Figure 5.20 Jedney 2 B-88 Throughput & Capacity... 84 Figure 5.21 Lily A-29 Throughput & Capacity... 85 Figure 5.22 Sikanni B-41 Throughput & Capacity... 86 Figure 5.23 Sub Region 5 Gathering System Schematic... 87 Figure 5.24 Chinchaga C-32 Throughput & Capacity... 88 Figure 5.25 Martin Creek B-2 Throughput & Capacity... 89 Figure 5.26 Ring Border C-81 Throughput & Capacity... 90 Figure 5.27 Sub Region 6 Gathering System Schematic... 91 Figure 5.28 Chinchaga 1-24 Throughput & Capacity... 92 Figure 5.29 Chinchaga North 05-32 Throughput & Capacity... 93 Figure 5.30 Hamburg 12-29 Throughput & Capacity... 94 Figure 5.31 Hamburg N 11-14 Throughput & Capacity... 95 Figure 5.32 Pedigree 02-28 Throughput & Capacity... 96 Figure 5.33 Sub Region 7 Gathering System Schematic... 97 Figure 5.34 Altares B-24 Throughput & Capacity... 98 Figure 5.35 Altares C-65 Throughput & Capacity... 99 Figure 5.36 Aitken Creek D-44 Throughput & Capacity... 100 Figure 5.37 Blair D-58 Throughput & Capacity... 101 Figure 5.38 Cypress B-99 Throughput & Capacity... 102 Figure 5.39 Farrell B-88 Throughput & Capacity... 103 Figure 5.40 Highway B-36 Throughput & Capacity... 104
Figure 7.1 Infrastructure Opportunity Schematic... 122 Figure 7.2 Gas Gathering Systems by Facility... 124 Figure 7.3 Gathering Systems by Gas Type... 125 Figure 7.4 Sub Region 1 Production Forecast... 128 Figure 7.5 Sub Region 2 Production Forecast... 138 Figure 7.6 Sub Region 3 Production Forecast... 142 Figure 7.7 Sub Region 4 Production Forecast... 147 Figure 7.8 Sub Region 5 Production Forecast... 153 Figure 7.9 Sub Region 6 Production Forecast... 157 Figure 7.10 Sub Region 7 Production Forecast... 163 Figure 8.1 Provincial Parks, Protected Areas, and Wildland Areas... 171 Figure 8.2 Rivers and Lakes... 172 Figure 8.3 Roads, Communities, and First Nation Lands... 173 Figure 8.4 Historic Drilling Activity... 174 Figure 8.5 Simple Facility Description for Gas Cost Allowance... 182 Figure A.1 Oil and Gas Trends Pine Point, Keg River, and Nahanni Wells... 187 Figure A.2 Oil and Gas Trends Slave Point Wells... 188 Figure A.3 Gas Trends Jean-Marie Gas Wells... 189 Figure A.4 Oil and Gas Trends Pekisko Wells... 190 Figure A.5 Oil and Gas Trends Elkton-Debolt Wells... 191 Figure A.6 Oil and Gas Trends Baldonnel Wells... 192 Figure A.7 Oil and Gas Trends Charlie Lake Wells... 193 Figure A.8 Oil and Gas Trends Doig Wells... 194 Figure A.9 Oil and Gas Trends Halfway Wells... 195 Figure A.10 Oil and Gas Trends Bluesky - Triassic Wells... 196 Figure A.11 Oil and Gas Trends Notikewin Gas Wells... 197 LIST OF TABLES Table 3.1 Gas Potential of North Montney and Shale Gas Regions... 19 Table 3.2 H 2 S Concentrations by Geological Formation (Typical 1.04%)... 37 Table 3.3 CO 2 Concentrations Geological Formation (Typical 3.86%)... 39 Table 3.4 C 3 + Concentrations by Sub Region (Typical 3.4%)... 41 Table 4.1 Typical Sour Gas Processes... 47 Table 4.2 Sulphur Recovery or Injection Processes... 47 Table 4.3 Typical Liquid Recovery Processes... 50 Table 4.4 Typical Area Operating Costs, $/Mcf... 53 Table 4.5 Turnaround and Maintenance Capital Expenses... 54 Table 4.6 Estimated Facility Reliability, %... 55 Table 4.7 Estimated Time for Approval and Construction... 57 Table 4.8 Comparative Capital Installation Factors... 58 Table 5.1 Cabin D-76 Facility Details... 66 Table 5.2 Fort Nelson B-84 Facility Details... 67 Table 5.3 Fort Nelson North A-30 Facility Details... 68
Table 5.4 Fortune Creek A-66 Facility Details... 69 Table 5.5 Sierra A-26 Facility Details... 70 Table 5.6 Peggo D-83 Facility Details... 72 Table 5.7 Wildboy D-75 Facility Details... 73 Table 5.8 Bistcho Lake 11-32 Facility Details... 75 Table 5.9 Bivouac 06-05 Facility Details... 76 Table 5.10 Rainbow 10-10 Facility Details... 77 Table 5.11 Rainbow 10-10 Facility Details... 78 Table 5.12 Rainbow Lake 12-24 Facility Details... 79 Table 5.13 Zama 13-12 Facility Details... 80 Table 5.14 Caribou C-4 Facility Details... 82 Table 5.15 Jedney 1 B-88 Facility Details... 83 Table 5.16 Jedney 2 B-88 Facility Details... 84 Table 5.17 Lily A-29 Facility Details... 85 Table 5.18 Sikanni B-41 Facility Details... 86 Table 5.19 Chinchaga C-32 Facility Details... 88 Table 5.20 Martin Creek B-2 Facility Details... 89 Table 5.21 Ring Border C-81 Facility Details... 90 Table 5.22 Chinchaga 1-24 Facility Details... 92 Table 5.23 Chinchaga North 05-32 Facility Details... 93 Table 5.24 Hamburg 12-29 Facility Details... 94 Table 5.25 Hamburg N 11-14 Facility Details... 95 Table 5.26 Pedigree 02-28 Facility Details... 96 Table 5.27 Altares B-24 Facility Details... 98 Table 5.28 Altares C-65 Facility Details... 99 Table 5.29 Aitken Creek D-44 Facility Details... 100 Table 5.30 Blair D-58 Facility Details... 101 Table 5.31 Cypress B-99 Facility Details... 102 Table 5.32 Farrell B-88 Facility Details... 103 Table 5.33 Highway B-36 Facility Details... 104 Table 7.1 Opportunity Value Summary... 123 Table 7.2 Sub Region 1 Overview... 126 Table 7.3 Sub Region 1 Gas Processing Facilities... 127 Table 7.4 Opportunity Horn River Shale Gas Use Existing Capacity... 129 Table 7.5 Opportunity Horn River Shale Gas Expand Fortune Creek A-66... 130 Table 7.6 Opportunity Horn River Shale Gas Expand Enbridge Cabin D-76... 131 Table 7.7 Opportunity Horn River Shale Gas - Expand Area Facilities... 132 Table 7.8 Opportunity Liard Shale Gas - Utilize Existing Sour Processing Capacity... 133 Table 7.9 Opportunity Liard Shale Gas - Develop an Area Processing Facility... 134 Table 7.10 Opportunity Liard Shale Gas - Expand the Area Processing Facility... 135 Table 7.11 Sub Region 2 Overview... 136 Table 7.12 Sub Region 2 Gas Processing Facilities... 137 Table 7.13 Opportunity Cordova Shale Gas - Expand Wildboy D-75... 139 Table 7.14 Opportunity Consolidate Non-Study Plants... 139 Table 7.15 Sub Region 3 Overview... 140 Table 7.16 Sub Region 3 Gas Processing Facilities... 141
Table 7.17 Opportunity Consolidate Zama 13-12... 143 Table 7.18 Opportunity Consolidate Non-Study Plants... 144 Table 7.19 Sub Region 4 Overview... 145 Table 7.20 Sub Region 4 Gas Processing Facilities... 146 Table 7.21 Opportunity North Montney Use Existing Capacity... 148 Table 7.22 Opportunity North Montney - Expand Progress Lily A-29... 149 Table 7.23 Opportunity North Montney - Expand the Area Processing Facilities... 150 Table 7.24 Sub Region 5 Overview... 151 Table 7.25 Sub Region 5 Gas Processing Facilities... 152 Table 7.26 Opportunity Consolidate Chinchaga C-32 to Hamburg North 11-14... 154 Table 7.27 Sub Region 6 Overview... 155 Table 7.28 Sub Region 6 Gas Processing Facilities... 156 Table 7.29 Opportunity Consolidate Hamburg 12-29... 158 Table 7.30 Opportunity - Consolidate Pedigree 02-28... 159 Table 7.31 Opportunity - Consolidate Non-Study Plants... 160 Table 7.32 Sub Region 7 Overview... 161 Table 7.33 Sub Region 7 Gas Processing Facilities... 162 Table 7.34 Opportunity North Montney Gas - Use Existing Capacity... 164 Table 7.35 Opportunity North Montney Gas - Expand Highway B-36... 165 Table 7.36 Opportunity North Montney Gas - Construct a Plant in 94-B-9... 166 Table 7.37 Opportunity North Montney Gas - Expand Progress Altares C-65... 167 Table 7.38 Opportunity North Montney Gas - Expand Talisman Farrell Creek B-88... 168 Table 7.39 Opportunity North Montney Gas - Develop Additional Capacity... 169 Table 7.40 Opportunity - Consolidate Cypress B-99 into Highway B-36... 170 Table 8.1 Integrated Development B.C. GCA and Royalty Impacts... 179 Table 8.2 Integrated Development Alberta GCA and Royalty Impacts... 180 Table 8.3 Integrated Development Cumulative B.C. GCA and Royalty Impacts... 180 Table 8.4 Integrated Development Alberta Cumulative GCA and Royalty Impacts... 181
North Montney and Shale Gas Growth Resource & Infrastructure Analysis 1 I. INTRODUCTION Study Background With the growth of North Montney Tight Gas and Shale Gas, new gas opportunities in the north-eastern region of British Columbia and the north-western region of Alberta are changing the dynamics of the infrastructure systems that are gathering, processing, and transporting products in the area. Conventional natural gas production in most areas of Western Canada has steadily declined over the past decade; growth of new Tight Gas and Shale Gas opportunities contributes to the arrest of the overall decline with real supply growth in response to growing LNG demand. Potential exists to re-evaluate how existing and additional infrastructure in this area is developed, managed, and operated; substantial industry effort will be required to utilize the existing infrastructure for the new gas production, construct additional processing capacity in concert with the existing gathering and processing facilities and only construct new Greenfield Facilities when it is the only option. Some of the new production is expected to contain significant volumes of natural gas liquids; the area contains limited NGL Take Away Infrastructure. Industry can work co-operatively to develop new infrastructure and to use the area s existing infrastructure for the benefit of both the developing and current resource base. The study s assessment of the existing and required infrastructure quantifies opportunities to decrease capital investment, optimize development cycle times, improve processing efficiencies and decrease per unit operating expenses for both new and existing production. Independent Assessment Solomon and Gas Processing Management Inc., two independent gas consulting groups 1, jointly analyzed and developed the strategic alternatives for production owners, infrastructure operators, investors, and government to consider. We believe that a structured approach to develop a common gas gathering and processing strategy in gas growth regions, along with a repositioning analysis in maturing regions, will improve utilization and effectiveness of the infrastructure, extend overall gas field production, and ultimately result in the development and recovery of more resource. This 4 th of a series of 7 independent assessments is the first step towards these goals in this study area. 1 background on key individuals from both firms working on this study is at the end of this chapter
2 North Montney and Shale Gas Growth Resource & Infrastructure Analysis Data Sources The analysis is based on publically available data sources 2 ; data was not requested from clients. Due to the developing nature of the area infrastructure, Gas Processing Management conducted interviews with operators of existing and developing facilities to ensure that the study uses the most currently available infrastructure data. Objectives The study examines growth opportunities and existing gas production within the defined region and develops an independent assessment of the area s production potential through to 2024. With this outlook, the required gathering, processing, and transportation infrastructure was assessed to build a logical case for industry to change how the infrastructure is operated and managed. The Study forecasts the production by Sub Region, lays out a blue print to cooperatively use the existing gas gathering and processing infrastructure, and develops new area infrastructure to effectively and efficiently process growing gas production. Where infrastructure is forecast not to be directly impacted by developing the resource, the study analyzes and recommends repositioning scenarios that will increase processing effectiveness for existing conventional production. The primary drivers for change in this region are the rapidly developing resources in the Shale Gas (Liard, Horn River, and Cordova Basins) and North Montney Tight Gas plays, and declining production from the existing gas reserves. The study provides a detailed outlook of gas and liquid production to 2024 and the impact forecasted production will have on area infrastructure. Growing Shale and Tight Gas production, when coupled with declining existing resource base, will require constructing new infrastructure and utilizing, retooling, and expanding existing facilities. Within the analysis region there are four different production development focuses that are integrated into an overall area strategy: 1. the developing North Montney Play including the western area that was previously analyzed in the Montney Growth Study (#1 of the series) 2. the developing Horn River and Cordova Shale Gas Basins 3. the newly emerging Liard Shale Gas Basin 4. mature and declining gas production in the existing conventional gas areas such as Sierra, Zama, Chinchaga, and Ring Border. Where existing infrastructure presents an economically viable alternative to gather and process the developing gas or new infrastructure is required, the study emphasizes a coordinated industry approach to reduce capital employed and operating expenses. Where existing facilities are not forecast to play a role in the growing resource picture, the study presents alternatives to efficiently harvest reserves through infrastructure consolidation. The study forecasts theoretical ethane, natural gas liquids (NGLs C 3 + ), and condensate production and identifies those Sub Regions where take away capacity is a concern. 2 Alberta Energy Resources Conservation Board (ERCB), British Columbia Department of Mines - Oil and Gas Division and Oil and Gas Commission, Company Websites, GeoSCOUT, and GeoVista
North Montney and Shale Gas Growth Resource & Infrastructure Analysis 3 It focuses on: new facilities where required and the use of existing infrastructure where practical existing facilities with sufficient processing and gathering capacity to provide alternatives for handling growing production gas processing facilities and their associated gas gathering systems that have sulphur recovery, acid gas injection, and acid gas flaring capabilities with licensed raw gas design capacities greater than 35 MMcf/d sweet gas processing facilities with design capacities greater than 50 MMcf/d. Where smaller facilities can play a role or impact development, they were considered on an exception basis; the opportunity to more fully include smaller facilities to further optimize the developing and mature gas could be assessed in future work within the defined area framework. The challenges related to developing or repositioning an area for a step change in performance are much more than technical; any analysis must address business factors that will ultimately determine if solutions can be implemented. Finally, it is recognized that a step change in infrastructure performance will affect royalties and the Gas Cost Allowance programs for the benefit of the Provinces of Alberta and British Columbia. The North Montney and Shale Gas Growth Prize The developing North Montney and Shale Gas resources present a unique opportunity to integrate and utilize the area infrastructure for the benefit of both current and developing resources; currently: 1. the study infrastructure has a total existing processing capacity of 5.1 Bcf/d with expansions planned to 5.7 Bcf/d; surplus unused capacity is upwards of 3 Bcf/d 2. 2.2 Bcf/d of gas currently is processed in the study infrastructure (2013) 3. operating expenses could be reduced by integrating the new or expanded infrastructure on an industry basis, processing production through available existing capacity, developing additional Brownfield capacity when required and repositioning the remaining underused facilities as appropriate 4. capital investment can be reduced by integrating and coordinating development of additional capacity on an area and industry basis 5. reduced capital investment and decreased operating expenses will generate additional revenue for the Governments of Alberta and British Columbia through the acceleration of royalties and the reduction in Gas Cost Allowance.
4 North Montney and Shale Gas Growth Resource & Infrastructure Analysis Study Area The North Montney and Shale Gas Study includes: sulphur recovery, acid gas flaring, injection and venting, sweet facilities, and facilities under construction within the Area. To ensure the study carries adequate detail, the overall region has been subdivided into 7 Sub Regions. This allows gas and liquid production forecasts to be developed more accurately, while concurrently simplifying the analysis of technical and commercial infrastructure options. The rationale of the Sub Regions includes: provincial boundaries, natural geographic boundaries, H 2 S, CO 2, and NGL compositional differences, gas gathering system reach, known field boundaries, and our professional judgment. Figure 1.1 illustrates the entire North Montney and Shale Gas study area and labels three sizes of triangles that represent each facility that is included in the study. Figure 1.1 North Montney and Shale Gas Area 60 126 Liard River Cooridor Provincial Park & Protected Area 124 Maxhamish Lake Provincial Park & Protected Area 1 2 3 Quicksilver A-66 122 Fort Nelson North A-30 Thinahtea South Protected Area Wildboy D-75 120 10W6 5W6 W6 Bistcho Lake Bistcho Lake 11-32 35 T125 T120 59 Muncho Lake Provincial Park 97 97 Cabin D-76 Fort Nelson Peggo D-83 Zama 13-12 Hay Zama Lakes Hay River Wildland Hay River 35 T115 58 57 Dune Za Keyih Provincial Park & Protected Area Finlay Russel Provincial Park & Protected Area Kwadacha Wilderness Provincial Park Kwadacha River Northern Rocky Mountains Provincial Park Kluachesi Creek Ospika River Prophet River Redfern Kelly Provincial Park Fort Nelson B-84 4 Caribou C-4 Sikanni B-41 Klua Lakes Protected Area Jedney 2 B-88 Jedney 1 B-88 Sierra A-26 Fontas River Highway B-36 Blair D-58 Aitken 126 124 Cypress B-99 Creek 120 D-44 97 Lily A-29 Bivouac 06-05 Ring Border C-81 (1) Chinchaga C-32 Martin Creek B-2 Rainbow Lake 12-24 Rainbow Rainbow 10-10 Hay River 10-10 Pedigree 02-28 Chinchaga North 05-32 Hamburg N 11-14 Hamburg 12-29 Chinchaga 1-24 Chinchaga Wildland 5 6 10W6 Peace River 5W6 W6 High Level 35 T110 T105 T100 T95 T90 Cities, Towns, Highways & First Nations Lands 7 Altares C-65 Altares D-24 Farrell B-088 122 McMahon 15-25 Fort St. John Study Gas Plant, Raw Gas (MMcf/d): > 300 100 300 40 100 Gas Storage Study Facility Types: NGL/Liquids Extraction Sulphur Recovery Acid Gas Flaring/Injection Sweet Facilities New Facility / Under Constr.
8 North Montney and Shale Gas Growth Resource & Infrastructure Analysis Overview of the Study Team Bill Armstrong, P.Eng. Principal, GPMi, 44 years of experience in oil and gas production, operations, management, asset evaluation, process engineering, and design for a large integrated energy company. Bill has worked in Canada and the US and has led teams responsible for the management of oil and gas development and operations including large sour gas and oil fields. Bill headed a team that separated midstream and liquids marketing functions from producing functions and set up, managed, and divested the midstream business. Bill is currently providing consulting services including asset evaluations, determining strategy for management of midstream assets, and front end evaluation of feasibility and options for development of facilities. R. N. (Bob) Child, P.Eng. Principal, GPMi, 38 years of exploration, production, and midstream/gas infrastructure experience including a decade of hands on field oil and gas (sweet and sour) engineering and operational supervision; drilling, completions, land acquisition and reservoir optimization and management, project and operations engineering; the executive accountable for Gas Finding and Development for the Canadian Operations of a multinational oil and gas producer; President and CEO of a major Canadian midstream business and President of a Canadian midstream business for a U.S. based oil and gas producer. W. P. (Bill) Gwozd, P.Eng. Senior Vice President, Gas Services, Ziff Energy A Division of Solomon Associates, has three dozen years of experience in gas contractual purchases and gas storage strategies, directing gas control functions for transportation contractual arrangements, and preparing written regulatory applications. Experience includes transportation planning of natural gas liquids pipelines and storage facilities, pipeline acquisitions, gas supply and demand forecasts, gas storage development, and transportation alternatives. He oversees assessments, semi-annual client debriefings, and leads our expert witness testimony service offerings. Focus is on long-term gas price outlooks for LNG, LDC, Pipeline, and power clients. He is a guest contributor to TV stations, radio, newspapers, and magazines. Zuzana Jurickova Intermediate Gas Analyst, Ziff Energy A Division of Solomon Associates, for the past 8 years, has assisted with projects in the areas of gas supply and demand research and forecasting analysis. Over this period she has worked on the Western Canada Reserve Replacement (F&D) Cost Study, a study on North American Cost Inflation for a major producer, and a study of North American pipeline expansions for a major steel producer. She is currently working on North American Gas Supply costs for 20 basins (and LNG). Prior to joining Ziff, Ms. Jurickova worked in corporate credit and finance. Ms. Jurickova obtained her five-year Degree in Economics from University of Economics in Bratislava, Slovakia. Simon Mauger, P.Geol. Director, Gas Supply and Economics, Ziff Energy A Division of Solomon Associates, has 35 years of experience in the upstream oil and gas industry as an exploration and development geologist in Western Canadian and other locations. Mr. Mauger planned, evaluated, and economically modeled gas resources for a leading international exploration and production company; prepared and optimized long term gas supply plans for growing gas markets, and developed the regional exploration component of the North American integrated natural gas strategy. He develops a gas supply outlook for each North American gas producing region, authors technical research reports on supply, demand, and transport, issues, and assesses gas costs of North American gas basins. Lev Virine, P.Eng., Ph.D. Manager, Gas Consulting, Ziff Energy A Division of Solomon Associates, has over 2 decades of technical experience, economic evaluation of oil and gas reserves, decision and risk analysis, portfolio management, and oil and gas reserves management. He assisted leading national and international exploration and production companies in establishing reserves evaluation and decision analysis processes. Dr. Virine is the author of more than 40 scientific papers and articles, 7 patents, and two books. His current focus is gas production outlooks, gas supply decline analysis, and full cycle cost assessment. He has spoken at conferences and symposiums around the world. Dr. Virine received his doctoral degree in engineering and computer science from Moscow State University of Railway Engineering.