Judy Maksoud
International Editor
Atlantic Canada leads the industry in CNG research
Gas production could eventually surpass oil production offshore Atlantic Canada. The scales won't tip dramatically for several years, but work is under way to commercialize the nearly 72 tcf of stranded gas the Canada-Newfoundland Offshore Petro-leum Board (CNOPB) believes lies offshore.
Calgary-based Husky Energy is leading the effort to find a solution for stranded gas in the region. Husky operates the White Rose field, which holds an estimated 2.3 tcf of gas. This quantity could reasonably be produced, according to Walt DeBoni, Husky's vice president Canada frontier and international business. There are, however, technical and regulatory challenges that have to be dealt with.
"We expect that to take some time," DeBoni says.
Despite the obvious hurdles that must be overcome, Husky is off and running. In late May, the company asked for expressions of interest to develop White Rose gas. "We are looking for companies that can provide a complete solution," DeBoni says. The response was huge. More than 40 groups submitted proposals. Husky selected nine proposals and planned to narrow that group in September to three or so to do detailed pre-FEED (front-end engineering and design) work. The company expects to make a final decision in October.
According to DeBoni, compressed natural gas (CNG) is the leading technology at present. "CNG seems to the most viable option and seems to be the one there is most interest in from the contractors," DeBoni says.
Nothing has been ruled out, however. "We will look at the whole gamut of options," DeBoni says.
Though technology has a way to go before development issues are resolved, Husky believes gas development is just around the corner. White Rose gas could be produced in the next 8-10 years, DeBoni says.
According to Ed Byrne, minister of natural resources for the province, "Husky's public expression of interest to develop their gas field has accelerated the potential timeline for natural gas development in the province."
With offshore gas development becoming more likely, the province is moving out of its infancy and into a more mature international role. "We've moved into our post-adolescent years as an industry," Byrne says. Gas development could well be the next step in the process.
"Up until eight months ago, our oil and gas industry was concentrated exclusively in the Jeanne d'Arc basin. My view is that we have moved to another plateau of development in our industry," Byrne says.
The basins offshore Newfoundland and Labrador could hold 72 tcf of natural gas.
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Other players
Petro-Canada is also looking at gas production options, according to Gordon Carrick, Petro-Canada's East Coast vice president. Petro-Canada has been examining transportation and development options in the event sufficient threshold reserves are identified, Carrick says. "Clearly, the big issues here are infrastructure and transportation.
"Petro-Canada is in the early stages of developing its perspective on the most economic transportation and development schemes and is identifying the issues with emerging technologies," Carrick says.
The company is looking at a number of pipeline routes, LNG, and CNG. Gas-to-liquids is among the alternatives, as is direct conversion from gas to electrical energy.
Carrick points out that there are a number of technical and operability issues that need to be resolved before CNG is a viable development option. Containment in the vessels, for example, is a reliability issue, Carrick says. Another consideration is the issue of routine transfer of gas from production facility to a transportation vessel, an issue Petro-Canada's team is investigating.
Regardless of the direction gas development takes, the road to success, according to Carrick, is cooperation.
Carrick believes operators in the Grand Banks need to develop an integrated strategy to develop gas. His view is that the work of the next several years is for each operator to clarify the issues before making a decision on what technology to employ for gas development and transportation.
"And that's going to be a pretty big decision," Carrick says. "That will set the stage for development. The good news is that once people have made that decision, I think there will be more focus on gas exploration here."
Unarguably, reaching a common integrated solution is a big challenge, but the potential profitability of the unrecovered gas reserves will be a strong impetus toward reaching a common goal.
"Our perspective is that there will be gas produced from the Grand Banks sometime in the next decade," Carrick says.
Gas royalty regime
Regulations need to be in place before gas can be developed. The province is working on concluding a natural gas royalty regime and defining the rules companies will have to abide by to develop the province's offshore resources, according to Minister Byrne.
All of this presents opportunity and challenges, Byrne says. The goal is to get a regime in place that will encourage additional international investment that will benefit the province.
"We need to determine if it meets the litmus test today," Byrne says. "The industry is waiting for it. We have one chance to do it right."
According to Paul Barnes, manager of Atlantic Canada for the Canadian Association of Petroleum Producers, "Companies don't know how much they would have to pay the government in the form of royalty to produce natural gas." The number is a key piece of the economic puzzle for operators determining the viability of gas development offshore.
Regulatory challenges
The role of recommending changes to the regulatory regime has been delegated to the Atlantic Energy Roundtable.
In 2002, federal and provincial representatives teamed with industry to form the Roundtable, which is chaired by the federal minister of natural resources for Canada. The group had two objectives: to improve the regulatory environment and to find ways to enhance industrial opportunities from oil and gas development.
The federal government established the Roundtable, and a large number of stakeholders, including representative from regulators, governments, industry, and business are involved in the process. Newfoundland and Labrador's CNOPB represents the regulatory process in the province.
According to Fred Way, vice chairman of the CNOPB, the Roundtable is addressing the regulatory issues, including the review process. The group has worked to make the Canadian environmental assessment agency process and the CNOPB process parallel and concurrent.
Way believes the process is becoming considerably streamlined. A large project like White Rose or Terra Nova could now get through the process in about 11 months, Way says. "I think it's going to be a good report card."
According to Dave Hawkins, director of the petroleum resource development division of the ministry of natural resources for Newfoundland and Labrador, the Roundtable is making progress.
"Things are really coming forward. We're streamlining regulatory processes to become internationally competitive," Hawkins says. Decisions that will improve the present process will likely come before year-end.
The changes mean Atlantic Canada will be much more competitive, Hawkins says. "All of the work we're doing demonstrates that we can be within international benchmarks."
Centre for marine CNG
Government, academia, and industry have taken the challenge of CNG seriously. In April 2004, representatives from these groups formed the Centre for Marine Compressed Natural Gas (CMCNG), a registered non-profit corporation housed at the St. John's campus of Memorial University of Newfoundland (MUN).
Key CMCNG objectives include providing a forum for developing international standards for marine transportation of CNG, establishing a large-scale, dynamic testing facility for research and development, and looking into regulations that will govern CNG production, transportation, and offloading.
According to Dr. James Wright, director of major research partnerships at MUN and interim managing director of the CMCNG, the group has made noteworthy progress. An invitation-only workshop forum held at MUN June 22-24 focused on CNG issues.
"The goals of the forum were to put the proponents, certification societies, and regulators in the same room to talk about the process that will lead to regulations that will allow CNG delivery in Canada and the US," Wright says.
Companies including Enersea Transport LLC, TransCanada Corp., Knudsen Ship-chandlers, and a number of shipping companies represented the transportation group. Regulators included the US Coast Guard, Canadian Coast Guard, and the Canadian department of the ministry of transport, among others. All four international classification societies also participated.
According to Wright, Lloyds Register Group, American Bureau of Shipping, and Det Norske Veritas have certified CNG concept vessels, but there are no regulations governing how such a vessel would transport CNG.
Wright believes Canada will wait for the US Coast Guard to get regulations in place because the USCG is the definitive regulator in US waters. "We'll evaluate what parts of the US code will be the same for Canada and which will be different," he says.
Wright thinks CNG operations in Atlantic Canada are only a matter of time and financial incentive. The utilities will drive "or pull" CNG development, Wright says.
Additional challenges
Dr. Axel Meisen, president and vice chancellor of the MUN, is optimistic about the CNCMG. "We are committed here to becoming an international center of expertise in all matters related to marine transportation of CNG and see ourselves as a center where people can come in order to either get answers or to get help with finding answers."
But Meisen does not confine research to regulatory and shipping challenges associated with CNG. That only one element in the supply chain, Meisen says, it is necessary to look at all of the elements of the chain and ensure that there are no showstoppers. The CMCNG will look at the supply chain in its entirety, he says.
Some supply chain issues, according to Meisen, include how the gas field will be managed when a vessel is not available for loading gas. Transferring gas from the reservoir to the vessel is another concern. And there are issues associated with the gas itself, including gas treatment. Offloading gas from the vessel at the destination is also important.
"When there is no large pipeline system into which the gas can be discharged, a buffer or storage facility is needed. Little attention has thus far been focused on this matter," Meisen says.
There are many issues that need to be considered, but Meisen is optimistic that solutions will be found. "If we can solve the problems, CNG is a viable option to commercialize stranded gas in Eastern Canada and elsewhere in the world," Meisen says.
As Newfoundland and Labrador pursues CNG development, Nova Scotia is banking on LNG.
Irving Oil's Halifax Shipyard is looking ahead to doing LNG carrier upgrades and repairs. "Though we won't be building new carriers, our yard is capable of carrying out upgrades and repairs to the vessels that will deliver LNG to the receiving terminals that will be built nearby," Donald Kerr of Halifax Shipyard says.
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In early August, Irving Oil became the first company to receive regulatory approval for an LNG project proposed for Canada's East Coast. The Irving facility will be built at the company's existing deepwater marine terminal, Irving Canaport, in Saint John, New Brunswick, 65 mi from the US border. Plans call for three 160,000 cu m LNG tanks and a throughput capacity of 1 bcf/d of gas.
Access Northeast Energy Inc. received approval several days later for an LNG processing plant to be built in Cape Breton in northern Nova Scotia. This was the first regulatory approval secured in the process of building and operating an LNG terminal at Bear Head on the Strait of Canso, which separates mainland Nova Scotia from Cape Breton Island.
There are no LNG receiving terminals in Canada yet, but with the tremendous demand for gas, particularly in the US, more terminals could follow.
The SeaRose FPSO is being built specifically to develop the White Rose field. The vessel has an ice strengthened hull and a detachable mooring system to ensure safe operations in the harsh environment of the Grand Banks. The double-hulled design provides storage capacity of 940,000 bbl of oil, which is about 10 days of production capacity. Peak production from White Rose is expected to reach 92,000 b/d.
According to Walt DeBoni, Husky's vice president Canada frontier and international business, the FPSO is also processing a considerable amount of gas per day. Some gas is used to generate electricity onboard, but a lot of excess gas is being produced along with the oil. Most of that gas is injected into a reservoir at the northern edge of the field.
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The 2.3 tcf of White Rose gas is spread throughout the field, but in the northern part of the field, there is an oil rim around the gas accumulation, DeBoni says. The reservoir is not connected with the oil being produced. At present, associated gas is being injected into the reservoir, but Husky is working to commercialize the gas.
Compressors being installed onboard the SeaRose have the capacity to inject gas at 3,600 psi, which is the top range for CNG, DeBoni says. The present FPSO configuration would probably be adequate to produce gas once the oil field is in its maturity because one of the compression trains would be free for gas processing. With the present timeline for gas development at 8-10 yr, the timing would be right for easing into gas production at a time when extra compression became unnecessary.
"We might be able to get to 300 MMcf/d of gas production from the FPSO, but this is the part of the project we need to study," DeBoni says.
