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www.csug.ca
Unconventional Gas in Canada: Past, Present, Future
Kin Chow, CDX Canada, Co.Chairman, Canadian Society for Unconventional Gas
(CSUG)Canada Think Day
March 9, 2006
www.csug.ca
Canadian Society for Unconventional Gas
Mission Statement• To facilitate the factual and collaborative
exchange of unconventional gas knowledge and challenges among government, regulators, industry and public stakeholders for the exploration and production of the resource in an environmentally sensitive and economical manner.
www.csug.ca
What is Unconventional Gas?• Natural gas contained in “difficult-to-produce”
rock formations which require special drilling, completion, stimulation, and/or production techniques to achieve economic production
• Examples:Natural Gas from Coal (NGC) or coalbed methane (CBM) found in coal seamsTight Gas, found in sandstone and limestonesShale gas, found in shaleGas Hydrates, ice-like substance on the ocean floor
• Common trait – big resource, long life
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Unconventional Gas is a Growth Industry
Conventional Gas has “peaked”
32% of Current US Gas Production
~ 17 Bcf/D
Unconventional Gas* is the future In North
America
*Coalbed Methane, Tight Gas Sands, Gas Shales in Canada and the US
Graphics from Western Gas Resources
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Canadian Unconventional Gas Potential is Huge
• Resource estimates are over 2,000 trillion cubic feet (Tcf), excluding gas hydrates
Current Canadian production of natural gas (both conventional and unconventional) is ~ 6 Tcf/yr, about the same as unconventional gas production in the USCanada uses about 3 Tcf/yr, domesticallyHow do we turn this resource into reserves?
• US analogy leads to estimates of >100 Tcfrecoverable
• Conventional Canadian reserves are ~ 58 Tcf
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U.S. Unconventional Gas Production History and Forecast
0
5,000
10,000
15,000
20,000
25,000
30,000
1949 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009 2015
Ann
ual N
atur
al G
as P
rodu
ctio
n (B
cf)
Total Natural GasConventional GasUnconventional Gas
Tax Credits
DOE GRI
EIA (1949 – 1990) and NPC (1991 – 2015)
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Relevance to Canada
• Canadian NGC industry is just getting started
• Canadian industry is benefiting from technologies and experience over last 30 years in U.S.
• Alberta has advantage of a regulatory regime that will not allow some of the negative U.S. experiences to occur
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NGC is “Unconventional” Gas
• “Oil sands” of gas
• Much of gas is “sorbed” on the coal
• Water initially produced typically to “dewater” or “depressure” coal
• Permeability comes from “cleats”
• Low gas rates
Stage 1Stage 1 Stage 2Stage 2 Stage 3Stage 3Stage 3Stage 3
(enlarged)(enlarged)Sandstone
Coal
Limestone
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“Typical” NGC Well Production ProfileDewatering
Stage
StableProduction
Stage
Decline
Stage
Prod
uctio
n R
ate
Gas
Water
Time
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What Is Natural Gas from Coal?
• Sweet gas, generally greater than 90% methane (CH4), with small amounts of other substances such as carbon dioxide (CO2) and nitrogen
• NGC is the cleanest burning fossil fuel• Historically, some “dewatering” has been
required to produce NGC• Each NGC basin is unique in terms of geology,
topography, water saturation, water chemistry
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14 Different U.S. NGC Resource Basins
Total CBM 727 Tcf - GRI
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Canada has Lots of Coal and Coal Gas
Western Canadian Sedimentary Basin
Powder River
Appalachian
Black Warrior
Raton
San Juan
Uinta
Over 700 Tcf Coal Gas estimated in Canada (500 Tcf in AB; 80 Tcf in BC) Sources: AGS & BC MEMMap courtesy of Gas Technology Institute
(Various colours shown on coal basins indicate age of sediments)
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North American NGC Basins
Colors Denote Age of Coal
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NGC in Canada – Resource Estimates
119
40
60
20
352
115 7
22
0 100 200 300 400 500 600Tcf
British Columbia FoothillsAlberta FoothillsAlberta PlainsEast Coast
MinimumGas-In-Place
MaximumGas-In-Place
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Three types of NGC plays in Alberta
1. “Dry” coals, practically no water production (HSC)• ~91% of existing CBM wells, ~25% of resource• Current production ~ 350 MMcf/D
2. Coals that produce saline water (Mannville)• ~7% of existing wells, ~60% of resource• Commercial development announced in 2005• Brine disposed of in approved underground zones
3. Coals that produce non-saline water (Ardley)• ~2% of existing wells, ~15% of resource• Early evaluation phase
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Much of Canada’s NGC Potential is in Alberta
First commercial NGC well in Alberta in December 2001
Current production is over 350 MMcf/D
Over 3,000 wells drilled in 2005
NGC wells accounted for 15% of all wells drilled in Alberta in 2005
Courtesy of EUB & AGS
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NGC in Canada – WCSB Schematic Cross Section
Drum
helle
rVall
ey(R
ed D
eer R
iver)
HorseshoeCanyon Fm
Edge
of D
eform
ed B
elt
Belly RiverGroup
Mannville GpPaleoz
oicMilk River Fm
Fernie GpKootenay Gp
Lethbridge
Taber
McKay
Pakowki
Upper Mannville
CoalsMannv
illeCoals
Scollard FmArdley C
oal
Lower
BasalDrumh
eller
WeaverCarb
on - Thompso
n
West East
Nikanassin Fm
Colorado Shale
Lea Park
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Alberta NGC Well Locations (Jan 2005)
Edmonton
Calgary
About 15% of AB wells drilled in 2005
2 %Ardley
6%Mannville
92 % HorseshoeCanyon
Courtesy of AGS
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“Dry” Horseshoe Canyon Coals
Photos courtesy of AGS
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Courtesy of CDX Canada
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NGC Comparison with Conventional Natural Gas
Typical Conventional Natural Gas
Typical NGC
Depth 150 m to 3,000 m 150 m to 1,500 m
Water Usually salt waterRates may increase during production life Water is re-injected
Usually no water or salt water in AlbertaRates typically decrease Salt water is re-injected
Compression Less required More required
Well Spacing Initially, one well per section; density often increases
Two to eight wells per section
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Why has Horseshoe Canyon Worked?
• Committed, experienced industry players• Over 50 MM$ invested before significant production
• Recognition of “dry” coal characteristics• Less gas in place and reservoir energy
• Low rates• Reduced capital and operating costs
• Innovation• Nitrogen fracs, air-drilling, multi-zone completions, new
nitrogen sources
• Adaptation• Alberta shallow gas “machine”
• Achieved without significant royalty/tax incentives
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Mannville NGC Activity~ 250 wells tested
Mannville CBM
Mannville 1200m
Calgary
Edmonton
Red Deer
Drumheller
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Mannville Development
• Larger resource but reservoir less permeable than HSC
• Industry turning to horizontal drilling• First commercial development
announced in 2005• Interest growing
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Canadian NGC Business has Changed Over Last 5 Years
• NGC is now a serious play and a big part of Canada’s energy future
• Competition increasing as more players are involved
Leases more costly
• Many Canadian companies are focusing on resource plays like NGC
• The income trusts are getting into NGC as the risk is reduced
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Natural Gas from Coals is Growing
• Resource is ~ 700 Tcf• 1 billion+ $ invested in ~ 3,000+ wells in
Alberta in 2005• Current production 350+ MMcf/D
• ~1.5% of Canadian gas production• HSC Largest “dry” coal play in world• Mannville emerging play
• NEB stated that NGC will offset decline in conventional production
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NGC in Canada – Issues1. Water Production and Disposal• When wells produce salt water, it is re-
injected deep underground, below fresh water aquifers (this is a conventional Alberta oil and gas technique, used for many decades)
• If fresh water was produced, Alberta Environmental Protection would regulate water management
• All wells have surface and production casing
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NGC in Canada –Produced Water Disposal
Source: Nexen/Trident Exploration Corp.
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NGC in Canada – Issues, cont’d
2. Well Density and Surface Disturbance
• Well sites similar to existing conventional gas
• The norm in Alberta and BC is 2 to 8 wells per section
• Surface facilities, including water disposal equipment, are similar to conventional gas
www.csug.ca
NGC in Canada – Issues, cont’d
3. Air Quality • NGC is the cleanest-burning form of
sweet, dry gas• NGC is not sour, and contains no
liquids or foreign contaminants• Requires little or no field processing• Producers are seeking solutions to
reduce flaring
www.csug.ca
Low-Impact “Dry” NGC Well Site
Photo courtesy of MGV Energy
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NGC Compressor Site
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NGC is Only Part of Solution
0
2
4
6
8
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14
16
18
20
2000
20
01
2002
20
03
2004
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05
2006
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11
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2014
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15
2016
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2018
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2020
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2022
20
23
2024
20
25
Year
Avg
Pro
duct
ion,
Bcf
/D
NEB w/o NGC NEB NGC
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Why Should We Care?
• ENERGY and the ENVIRONMENT are intrinsically linked to the ECONOMY and QUALITY OF LIFE in modern Canada
• Canadians are large consumers of energy, but also care about the environment
• 42% of Canadians believe the oil and gas industry is damaging the environment and is not committed to improving its performance
• Since 82% of our energy comes from fossil fuels (including coal)
• Disconnect between the demand for energy and fears related to the production process
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Key Stakeholder Issues in Unconventional Gas
• Many new wells will be required, how will we manage impacts on:• Water• Air• Surface
• Actions currently underway• Multi-Stakeholder Advisory Committee (MAC)
process on NGC in Alberta• Stakeholder engagement in other areas of
prospective growth (BC, SK, …)• Water for Life, Clean Air Strategic Alliance
(CASA)
www.csug.ca
Summary
• Differentiate Canadian NGC on its merits –different from US experience
• Unconventional gas is a vital part of Canada’s energy future and it is being developed responsibly
• Canada has a strong regulatory structure to manage growth
• All stakeholders must engage to ensure that we “do it right”, harvesting the energy while protecting the water, surface, and air
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For more information on unconventional gas and CSUG
• Visit the CSUG website at www.csug.ca (contact information for CSUG board and office)
• Attend CSUG’s 8th Annual Conference on Unconventional Gas November 15-17, 2006 TelusConvention Centre, Calgary
www.csug.ca
The U.S. Industry Today
• 727 Tcf resource, 82 Tcf recoverable* (11% recovery factor)
• 20,000+ wells in over 13 basins• 4.4 Bcf/D and growing, over 200 Mcf/D/well
Still dominated by San Juan Basin (>50%)• Growth is ongoing, with essential emphasis on
managing environmental impact• U.S. experience has led to NGC developments in
Canada, Australia, China, Eastern Europe, …* SPE – Holditch, EIA, NPC
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Key “Learnings” from U.S.
• Complex reservoirsGas contents, desorption isotherms, cleats
• Each basin is uniqueDepth, permeability, number of seams, rank, water quality
• Different technologies were adapted to different areasMulti-seam fracs, cavitation, openholeArtificial lift optionsGas processing challenges
• New environmental challenges
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Research and Fiscal Incentives Catalyzed U.S. Growth in NGC
• Gas Research Institute (GRI) and DOEBillions in basic and applied research
• Massive hydraulic fracturing• Reservoir characterization and modeling• New tools and technologies
• Tax CreditsAttracted investment capitalBeing considered for renewal in U.S.
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Use U.S. Experience to Succeed in Canada
• Build on existing technology base and adapt to unique Canadian coals
• Work with Canadian regulators and stakeholder groups to develop and implement responsible development strategies
AB DOE MAC & BC MEM outreach programs• “Do it Right” the first time in Canada
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Exploration, Pilot and Development Wells
1 mile
Exploration
Pilot
Development
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Canada’s Potential NGC ProductionNEB Estimates 75 Tcf Recoverable
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024Year, Canada
Ave
rage
Pro
duct
ion,
Bcf
/DU.S. NGC Total U.S. NGC w/o San Juan NEB Techno -Vert TCPL
19841982 1986 1988 1990 1992 1994 1996 1998 2000 2002 20041980Year, United States
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Cleats are Essential to Coal Permeability
Drumheller Coal Paintearth Mine, Alberta
Cleat spacing 10-25cm (face)
(Photo by AGS)
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U.S. NGC Production History
0
200
400
600
800
1000
1200
1400
1600
1800
2000
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
E
Year
Ann
ual C
BM
Pro
duct
ion
(BC
F)
0
5000
10000
15000
20000
25000
Prod
ucin
g C
BM
Wel
ls
BCF ProducedWell Count
2002 NGC production represents ~8% of U.S. natural gas production.
Through 2003 almost 20,000 producing NGC wells in 12 states.
Source: GTI Gas Resource Database, GTI-01/0136, EIA, Various Public Records, NSAI Estimates
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BC Coalbed Gas Activity Areas
< 80 wells authorized since 2000
~ 50 drilled
Elk Valley
Crowsnest
Comox
Nanaimo
NE BC Foothills
Hudson’s Hope
Ft Nelson
Ft St John
Cranbrook
Prince George
Klappan
PrincetonMerritt
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National Petroleum Council Study: Unconventional Gas is Increasingly Important
• “Conventional gas production will inevitably decline, and the overall level of indigenous production will be largely dependent on industry’s ability to increase its production of unconventional gas”*
• 80% of gas production in 10 years will be from wells yet to be drilled
• By 2025, unconventional gas will account for about 80% of new drilling and 50% of gas production
• NEB stated that NGC will offset decline in conventional production
* Balancing Natural Gas Policy: Fueling the Demands of a Growing Economy, National Petroleum Council report, 2003
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Coal has Organic Beginnings
Courtesy CDX Gas
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Coalification Process takes TimeDeposition of Plant Matter
BurialPressure
Heat
Volatile Products- Water- Gas
Residual Product- Coal
Microbial Activity
Microbial ActivityCourtesy CDX Gas