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Home > Speeches and Presentations > Speeches and Presentations 2007 > Natural Gas Supply - Sourthern Alberta

Natural Gas Supply - Sourthern Alberta

Presented by
Jim Davidson
Gas Supply Specialist
National Energy Board

Medicine Hat Oilmen's Association
Western Sedimentary Basin Conference

29 November 2007

Good morning. I'd like to thank the organizers for their invitation to speak today. From the agenda, I see that I am supposed to be the set-up person and I will try to fill that role.

Acknowledgements

First of all, I need to recognize the assistance I have received in preparing this presentation. Our work on estimating the undiscovered gas resources in Alberta was done jointly with the staff of the Alberta Energy & Utilities Board a few years ago. Fran and Harvey were very helpful in preparing portions of the data to be presented today. I would also like to thank the other members of my Team at the NEB, in particular Ken and Paul in preparing this presentation.

Reference Reports

In my presentation, I will really be presenting information from two key reports: first the joint report on resources and second, a very recent report that the Board put out focusing on natural gas deliverability for the next three years. Finally, I also want to draw your attention to a third report that was released by the NEB two weeks ago. This is our flagship document that looks at the state of energy and demand for Canada in the longer term - our Energy Future report. All of these are available on the NEB web site while some additional supporting material on the first report can be found on the EUB web site. Those web addresses are shown.

Outline

Today, I will describe the general geology of southern Alberta and Saskatchewan, which is my set-up role. Then I will look at the resource estimates for one shallow gas zone in southern Alberta. For our friends from Montana and Saskatchewan, you should be aware that we are now working on an assessment of conventional gas resources in Saskatchewan, being done jointly with Saskatchewan Industry & Resources. We hope to release that report next year. Many of the plays addressed in the Alberta and Saskatchewan assessments do continue into Montana and may provide some exploration ideas. I will finish by describing what the NEB sees in the way of activity for the next few years.

Regional Cross-Section

In the southern part of the basin, the basic architecture of the basin is faulted terrain of the foothills and mountains in the west, with the deepest part of the basin in front of the foothills. Then the gentle more flat lying parts trend eastward until it enters the Williston Basin in southeastern Saskatchewan. The sedimentary section outcrops in central Manitoba, which marks the eastern limit of the basin. Note the Precambrian basement rocks shown in orange and red, are very deep in the west and slope upwards to where they outcrop. Above the Precambrian shown in purple and green are the primarily carbonate rocks of the Devonian and Mississippian. The Mississippian carbonates contain large resources of natural gas in the foothills and in west central Alberta. In southeastern Alberta, these carbonate are less extensively developed. Shown in light blue are the Jurassic and Lower Cretaceous intervals which are more sand rich. Some of these have been extensively developed but still offer future exploration targets. The coals mined in southeastern B.C. are contained in these zones. Finally in the yellow tones are the Upper Cretaceous sediments. They are shalier in nature, but do contain several extensive sands and silts including the Milk River and Medicine Hat formations.

The foothills region had extensive development of the Mississippian carbonate section which occurred in post-Leduc exploration. More recently, some of the more typical shallow gas development zones such as the Belly River and Milk River are being developed in multiple thrust sheet layers at the front edge of the foothills. On the Plains, the geology features more subtle structural and stratigraphic trapping. This includes the very shallow gas sands that started being developed in the 1880s and which are so familiar to the people of Medicine Hat. Those same shallow gas zones extend well into Saskatchewan. Development of deeper zones including Mississippian, Jurassic and Cretaceous zones is quite extensive dating back to the 1950s. Industry is drilling deeper into the section to re-explore Lower Cretaceous zones under the shallow gas package with modern seismic.

Let's turn our attention to one of the shallow gas zones.

Milk River Formation

This is a map of the Milk River Formation as provided in the supporting material for the EUB- NEB report. It shows the geological distribution of the zone in southern Alberta. For scale and orientation, note the Cities of Calgary and Medicine Hat. The redline shows where the zone is present in the province (except for an outcrop area along the US border), but note that the zone is forced over to the foothills to account for the recent developments there. Older maps would not show that. If there is more foothills development in the future, we will have to expand the distribution area. The green, purple and blue areas represent the portions of the distribution where the Boards have recognized the gas potential in the zone. Each of them reflect the different geology and development level for this particular zone. The yellow region notes the areas where we do not believe the zone has any gas or oil potential.

Play area 2 (purple) is where most of the development has occurred, and this is called the main play. Play area 3 (green) is considered to be the northern fringe area, where the zone becomes increasingly difficult to see on well logs and the zone quality decreases. In recent times both edges of this play area are moving to the northeast as development in both the main and northern fringe areas expands. The southern fringe area (blue) again represents poorer quality rock and more sporadic development. The northern border between this play area and the main play area is subject to change as development continues.

Milk River Formation

This second map adds the dry (in black) and gas (in red) wells that penetrate the Milk River zone. You will note the high level of penetration in this shallow zone as generally all wells drilled penetrate the zone even if it was not considered to be a target.

Earlier assessments had established the same play areas but all of them would have been smaller than they are now. Those early assessments always underestimated both the areal extent of the zone and the amount of resources that were attributed to the zone. At this time, we now feel we have a good level of geological understanding of where development will go in the future and how far the zone can go. In truth, we are probably still underestimating the resources. The Milk River and Medicine Hat zones both contain biogenic gas, that is gas that is being produced by bacteria in the zone and not thermogenic gas which develops by heating the organic material in the zone over geological time. Since gas is still being formed, it is very difficult to get a good handle on how much more will be formed and produced in the future.

Shallow Gas Assessmemt

Ultimate potential is a descriptive term used to describe the sum of both the discovered and undiscovered volumes of gas. In the Alberta study, we completed the analysis by looking at the ultimate potential of each individual zone or subset of a zone (we call those geological plays). The term play refers to a combination of geology, hydrocarbon type and trapping mechanism. A geological formation can have a number of different play areas.

In the Alberta study, the discovered volumes included all of the reserves information for known pools that were on the Alberta database plus the known reserves that had not been added to the database due to timing constraints.

The method of determining the volume of undiscovered resources for each play appears to be relatively simple. You gather all of the available reserves information, determine the average values on a play basis, count the number of undrilled sections within the outlines of that play and multiply by some success factor. The success factor was generally agreed to by consensus. For the undiscovered volumes low and high cases were developed to provide a statistical range around the medium estimate of undiscovered resources.

In the main portions of key shallow gas plays, the success factor was assumed to be one. That is every undrilled section was determined to be guaranteed of having resources, unfortunately there were not many undrilled sections. For the areas surrounding the main play areas, the success factor was reduced based on a combination of geology, past results and some expectation of what would happen in the future taking into account new technology, and decreasing well productivity.

Milk River Results

This table gives the discovered, undiscovered and totals for each play area as well as formation totals for the Milk River in both metric and imperial units. You can see that more than 6 Tcf of gas has been discovered, while the undiscovered volume of 250 Bcf is quite small in comparison. Two things to keep in mind: 1, gas already produced needs to be subtracted from ultimate potential to determine the remaining volumes - total Milk River production to end 2004 was 93 billion m3 or 3.3 Tcf, and 2. there will be more drilling for the discovered volumes remaining and for the undiscovered volumes still to be found.

Producing Milk River Gas Wells - Saskatchewan

This map repeats the Alberta portion for the Milk River zone (black lines show the play outline areas) and then shows the preliminary map for the current Saskatchewan assessment project. There are a number of similarities and a few significant differences that occur at the border. In terms of the SIR - NEB assessment, we will likely have a main play area with a 100% chance of success on the Saskatchewan side and then two fringe areas on the north and east sides, with a new play area being developed in the south, we are calling that the Cypress play area. GIP/sections volumes and success rates in those fringe areas still need to be determined.

Note the distribution of the main play area (north edge) as it crosses the border. There is a reduction in size based on the present well distribution (even when we are being quite generous on the Sask side) but we have not determined why that is the case. I could presume that it is an economic phenomenon but that has yet to be determined. It is also important to note that there appears to be two areas (Cypress and eastern edge of southern) where new developments are occurring in the Milk River (and Medicine Hat) formations in the south part of Saskatchewan.

Deep Gas Assessment

In essence, was very similar to the methodology of the shallow zones, However, there were no sections assigned an 100% success factor.

Estimates for all the individual zones were done separately and then added to give a provincial estimate of ultimate potential. Staff from the EUB and NEB meet annually to review the estimate of ultimate potential. As long as the revised estimate is within the range of medium ultimate potential, there should be no need to issue a revised report.

Alberta Results

On an age group basis, the results of the EUB- NEB assessment are shown for Alberta. These are the ultimate potential estimates only. Out of the 223 Tcf noted, 161 Tcf was already discovered leaving 62 Tcf undiscovered at the end of 2004. Since then, another 9 Tcf has been added to the discovered volume, reducing the undiscovered by about the same amount. Produced volumes totaled 122 Tcf at the end of 2004 (over 130 Tcf at end of 2006).

Within the numbers shown, we attribute a significant portion of the undiscovered potential to southern Alberta, some 19 Tcf. Please note, that we attribute the undiscovered volumes to the undrilled sections at the time of assessment. In truth, the undiscovered volumes will be concentrated in certain sections that are successfully drilled. We consider the estimates of undiscovered potential to represent economic volumes based on the conditions at the time of assessment. It is up to industry to decide whether the identified target zones are worth pursuing under the current economic criteria or whether to wait until the economic conditions improve.

Unconventional Gas Resources - Southern Alberta and Saskatachewan

Shale gas consists of gas adsorbed to the organic material within the shale formations which may be capable of production under certain conditions. Due to the generally thick deposits of shale, the amount of adsorbed gas can become quite large on an areal extent. The difficulty becomes in how to free enough gas from the shale to allow it to flow to a well bore at a rate that is enough to warrant economic development. Some zones in southern Alberta and Sask. being considered as possible shale gas reservoirs include the Cretaceous Colorado Group which also contains the numerous shallow gas deposits that have been developed in the past. As well, the Mississippian Exshaw Formation. It is deposited under the Banff and Bakken formations which are conventional targets in the two provinces. There is some work going on in Saskatchewan at the moment, and I believe that it is in the Colorado Group shales.

Tight gas refers to gas that is trapped conventionally within low porosity sandstones or carbonates. In order to develop these zones, there needs to be enough permeability (ability to flow) established through a combination of induced and natural fracturing to allow economic flow. Some people would consider the shallow gas zones in southern Alberta and Saskatchewan to be tight gas zones; however, to date they have been considered by the regulatory agencies to be conventional gas zones, at least in part due to their long development history. Canada is considered, by some, to have large resources of tight gas still awaiting development. Minor amounts could be in southern Alberta especially in the areas just east of the foothills.

You may be more familiar with coalbed methane, where the gas is adsorbed onto the organic material of the coal by a combination of chemistry and pressure. This gas can be loosened by reducing the formation pressure through drilling. The Horseshoe Canyon coals are considered to be dry coals, while the deeper Mannville coals in Alberta need to have salt water pumped off and disposed to allow gas to be produced. For southern Alberta, the Horseshoe Canyon coals do extend into the region and some development has occurred. Additional coals are present in the Belly River Formation and these offer some potential for future development. For southern Sask. there is only limited CBM potential in the Belly River and Mannville coals.

There are only qualitative estimate of resources for unconventional gas in Canada, due to its relatively unknown prospectivity for commercial development and the need for technology improvements. The NEB's Energy Future report suggests that about 60 to 80 Tcf of unconventional gas could be identified by 2030, an increase from less than one of CBM today. By comparison, we still have about 55 Tcf of remaining conventional reserves in western Canada.

Total Canada Delivery Projection

In October 2007, we released a report on short-term Canadian gas deliverability. In that, we projected gas deliverability to the end of 2009 using 3 scenarios to reflect the uncertainty in gas drilling activity.

After several years in an environment where drilling activity was close to the maximum practical capacity of the available rig fleet, a drilling downturn occurred in the WCSB. The downturn became apparent in mid-2006 as rising development costs and declining finding rates caught up with price. With the drop in drilling activity, Canadian gas deliverability is expected to drop.

The three scenarios presented in the report reflect different levels of investment and drilling that may occur: Reference Case - a moderate recovery in drilling investment in 2008 & 2009. Low Case - no recovery in drilling investment from the 2007 level. High Case - a strong recovery in drilling investment in 2008 and 2009 which is driven by higher gas prices

Deliverability decreases by 7 to 15% (1.2 - 2.6 Bcf/d) by 2009 depending on the scenario.

The reference case scenario shown corresponds to 12,000 to 13,000 annual gas-intent wells in the WCSB - down from the level of around 18,000 gas-intent wells reached in 2005.

Costs are starting to come down, but these reductions are thought to be limited since there are continued high costs for service company inputs such as labour, steel, and fuel.

We believe the gas price must rise for a return to high drilling levels.

Since we have released our report, we have observed that drilling rates are trending towards the low case scenario.

SE Alberta and SW Saskatchewan Gas Drilling History and Projection (Reference Case)

This slide shows annual conventional gas-intent wells in Southeast Alberta and Southwest Saskatchewan. All years up to and including 2006 are historical data. 2007 thru 2009 are the projected levels of annual gas-intent wells in each area based on our reference case.

Conventional gas-intent drilling activity peaked around 2003 at just under 7,000 wells in Alberta and just over 2,000 in Saskatchewan. Since 2003, conventional gas drilling activity has dropped to about 5,100 wells in Alberta and 1,200 wells in Saskatchewan. Part of the decrease can be attributed to competition for available shallow rigs, with coalbed methane development drawing off a substantial number of these. However, the maturity of conventional gas development in these areas also is thought to be a key factor behind the decline in drilling activity.

In 2007, our reference case calls for approximately 4,100 gas-intent wells in Alberta and 850 gas-intent wells in Saskatchewan. The levels shown for 2008 and 2009 reflect the scenario of moderate recovery in drilling investment.

Summary

Southern Alberta and by extension southern Sask. have the geology favourable for additional resources of natural gas, both conventional and unconventional.

Finally, due to the relatively low gas prices coupled with high costs for services, activity is expected to slow down in these areas over the next few years.

Discussion

That concludes my presentation and I would welcome any questions. I will be here for the rest of the day as well.

 

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Date Modified:

2011-10-28