Gas demand in Alberta's oil sands operations decreases dramatically

Sep 11, 2007 02:00 AM

In a rare piece of good news for US utilities and consumers counting on Canadian natural gas imports, gas consumption in Alberta's massive oil sands operations has been dramatically smaller than predicted, and future technological advancements may continue the trend and leave more gas available for export south, a Canadian industry official said.
As long predicted, overall Canadian gas imports into the lower 48 states will likely continue to decline as production from western Canada fades and Canadian consumption grows, cautioned David Slater, managing director of marketing for Nexen Marketing USA, in a speech at the LDC Forum Mid-Continent conference.

But one major slice of growing Canadian consumption -- the oil sands -- has not drained nearly as much Canadian gas as expected, Slater told an audience of US gas utility, production and marketing officials. Whereas many predictions had oil sands operators consuming 1.3 bn cf of natural gas this year -- much of it to generate steam that is shot below ground to loosen the region's heavy oil -- instead they are on track to use about half that, 700 mm cf, for a variety of reasons, he said.
Moreover, Slater said that producers may be able to squeeze more gas from western Canadian basins than anticipated if the current push into coalbed methane production shows good results.

Coalbed methane is "certainly a priority for our company, and for a lot of other companies [drilling in Canada]," Slater said, adding that Canadian companies have watched drillers in the US West expand successful coalbed drilling operations at breakneck speed.
Slater said coalbed methane production will never replace conventional gas production from western Canada, but could provide "some assistance" in offsetting production declines from conventional basins. He estimated that coalbed methane will account for 15 % of gas produced from western Canada by 2015.

Slater's comments came at the opening day of a meeting stocked with energy industry officials from the central and Midwestern United States -- regions that have long consumed large volumes of gas piped from western Canada. For that reason, information about Canadian production, infrastructure and export potential are watched carefully here, and were important topics at opening sessions of the conference.
Slater said oil sands consumption has dropped off in large part because several large expansion projects have been shelved or delayed as companies struggle to deal with sharply escalated prices for labour, steel and other materials. In recent months, several oil sands operators have suspended mine expansion or upgrading projects, nearly unanimously citing cost concerns.

However, there are also more positive reasons for reduced gas demand in the oil sands, said Slater, including greater efficiencies companies are finding in using gas to create electricity and steam needed to power operations in the remote region. Slater said some oil sands producers, including Nexen, are learning how to better "burn whatwe produce," or to skim off oil sands crude to produce more crude, rather than importing gas to produce crude.
Still farther in the future, oil sands operators are getting more serious about using geothermal power or nuclear reactors to power the oil sands, suggesting that the surprisingly low 2007 gas consumption in the oil sands may not be a mere one-time snapshot.
"All of this may have the impact of the demand [from the oil sands] maybe not being as significant we thought it would be over time," Slater said.

Another big topic was the increasingly competitive global market for liquefied natural gas (LNG), on which the United States has increasingly relied to offset declines not only of Canadian imports but also from US-based production. Although the United States has built several new LNG terminals to increase supply and ease tight domestic natural gas markets, LNG markets have also been maturing in heavy consuming regions like Asia and Europe. Now, US LNG buyers for the first time face a truly global fight for supply, said James Duncan, director of market research for ConocoPhillips Gas & Power.
As an example, he pointed to natural gas price movements in the United States this summer when an earthquake shut down a massive Japanese nuclear plant, forcing Japanese generators to purchase more natural gas than usual to make up the lost nuclear plant output.

In determining US LNG prices, for the first time "whether or not Japan has an earthquake is going to be important, whether or not Europe has a cold winter is going to be important," Duncan said.
"Competition for these molecules of LNG is going to be brisk, people," he summarized.

Source: The Energy Daily
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