canadian society for unconventional gas (csug) hosted by palliser economic partnership
DESCRIPTION
The Canadian Society for Unconventional Gas (CSUG) event hosted by Palliser Economic Partnership explained why there is currently an oversupply of natural gas in North America and the importance for the energy sector in southeast Alberta to diversify and capitalize on the opportunity of new markets and the growth potential that technology provides. For more information on this event go to www.edalliance.ca.TRANSCRIPT
Service Sector Workshop
F M Dawson, President
June 24, 2010
Unconventional Gas in Canada
Opportunities and Challenges
June 24, 2010
Canadian Society for Unconventional Gas
CSUG is a membership-based association, formed in
2002, to support the responsible exploration and
development of unconventional gas in Canada
Mission
“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”
Service Sector
Workshop
June 24, 2010
Service Sector
WorkshopWorkshop Outline
Introduction
Why do we Need Unconventional Gas?
Module 1 (0.5 hour)What is Unconventional Gas?
Module 2 (0.5 hour)Drilling and Completion Technologies
Module 3 ( 0.5 hour)North American Gas Market and its Impact on Western Canada
Module 4 ( 0.5 hour)Opportunities and Challenges
Questions and Discussion
June 24, 2010
Why Do We Need Unconventional Gas?Service Sector
Workshop
Gas Facts
Canada produces approximately 6 Tcf (trillion cubic feet) of gas per year
which roughly 50% is exported to United States
This translates into ~ 16 Bcf (billion cubic feet) of produced gas per day
Alberta accounts for approximately 80% of this volume
Peak production from Western Canada was in 2006 and has been declining at a
rate of nearly 1 Bcf/day per year
New unconventional gas sources such as Montney are filling in some of the
decline gap but conventional production continues to drop
Companies will become more dependent on unconventional gas in order to
offset their company decline rates
Unconventional gas resource plays provide opportunities for companies to
maintain production as well as grow their reserve base
June 24, 2010
Why Do We Need Unconventional Gas?
Canadian Gas
Production
2000-2008
0
100,000
200,000
300,000
400,000
500,000
600,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Year
Da
ily
Ga
s P
rod
uc
tio
n (
10
3m
3/d
ay
)
New Brunswick Production
Ontario Production
NWT/Yukon Production
Nova Scotia Production
Saskatchewan Production
British Columbia Production
Alberta Production
2009
Natural gas supply decline
that must be found from
new sources such as
unconventional gas
From NEB 2008
Peak Production
General decline since 2006
can be attributed to basin
maturity of conventional gas
production and retraction of
activity due to lower natural
gas price
Annual decline rate for
2007-2008 estimated to be 0.9
Bcf/day
18
16
14
12
8
10 Bcf/
day
Service Sector
Workshop
June 24, 2010
Projected Supplies of Natural Gas in United States
modified from EIA, 2009
Net imports
Associated-dissolved
Non-associated offshore
Non-associated conventional
History Projections
TC
F/y
ea
r
0
5
10
15
20
25
30
1990 1995 2000 2005 2010 2015 2020 2025 2030
Unconventional
Alaska
United States conventional production continues to decline from 5 Tcf/yr to < 3 Tcf/yr by 2030
Continued decline of imports from primarily Canada
Projected growth of unconventional gas to fill the gap
Moderate to slow growth of overall natural gas demand until after 2020
Why do we Need Unconventional Gas?Service Sector
Workshop
June 24, 2010
Module 1
What is Unconventional Gas?
June 24, 2010
Service Sector
WorkshopWorkshop Outline – Module 1
What is Unconventional Gas?
Main Types of Unconventional Gas
Differences between Unconventional and Conventional Reservoirs
Trapping Mechanisms for Gas Storage
Exploration and Development Strategies for Unconventional Gas
Risk Profile – What Risks Do Exploration Companies Face
Resources versus Reserves
June 24, 2010
Service Sector
WorkshopWorkshop Outline – Module1
Glossary of Terms
Reservoir The rock that contains potentially economic amounts of natural gas
Porosity The free space within the fine grained rock that can store natural gas
Permeability The ability of the rock to pass fluids or gas through it. The higher
the permeability number, the greater the amount of fluid or gas that
can flow through the rock over a fixed time period
Resources The amount of gas that is thought to lie within a reservoir (lower
degree of confidence) but does not account for how much is actually
recoverable
Reserves The amount of natural gas that is actually proven to be recoverable
from a reservoir (high degree of confidence)
Source Rock The rock material which contains organic material from which the
natural gas is formed. In the case of shale gas and coal, the
reservoir is also the source rock. In tight gas reservoirs, the natural
gas was sourced elsewhere and migrated to the reservoir rock
June 24, 2010
Service Sector
Workshop
Unconventional Gas is very simply Natural Gas from what industry
would call Unconventional Reservoirs
Often these reservoirs are of a lower quality and require enhanced
technology types of completions to yield commercially successful wells
Unconventional gas “plays” are often referred to as Resource “plays”
Resource play types of exploration and development projects are usually
successful through lower cost operational efficiency and economy of
scale type operations
Lateral pervasiveness of reservoir shifts risk from geology to engineering
What is Unconventional Gas ? – CSUG Definition
June 24, 2010
Service Sector
Workshop
Smaller Reservoirs
Easier to Develop
Larger Reservoirs
More Difficult to
Develop
Incre
ased
Co
st
to D
evelo
p
Incre
ased
Tech
no
log
y R
eq
uir
em
en
ts
High
Quality
Medium
Quality
Lower
Quality
Coalbed
Methane
Gas Hydrates
Gas
Shales
Tight
Gas
1000 md
100 md
1 md
0.1 md
0.001 md
0.00001 md
modified from Schmezl, 2009
Natural Gas Resource Triangle
What is Unconventional Gas ?
June 24, 2010
Service Sector
WorkshopTypes of Unconventional Gas Reservoirs
Tight Gas Sands and Carbonates
Natural Gas from Coal (Coalbed Methane)
Shale Gas
Natural gas has migrated into the micro-porosity
of the rock matrix
Commonly found in basin centered gas deposits
Host rock is both source and reservoir for natural
gas
Reservoir rock is highly compressible and
subject to changes in permeability
Very high natural gas resource base per volume
of reservoir rock due to high micro-porosity
Requires extensive fracture stimulation
June 24, 2010
Service Sector
Workshop
Conventional vs Continuous or Unconventional Type Accumulations
from Midnight Oil and Gas, 2009
Types of Unconventional Gas Reservoirs
June 24, 2010
Service Sector
Workshop
Conventional Reservoirs
Storage tank
Gas generated elsewhere (source rock) and then migrates to the
potential reservoir
Need a trap for the gas: structural, stratigraphic
Unconventional Reservoirs (excluding tight gas and carbonates)
Both source and reservoir
Gas generated in situ, (some migration)
Do not necessarily need a trap but generally need a seal
Gas held in reservoir by either pressure or low permeability
Types of Unconventional Gas Reservoirs
June 24, 2010
Service Sector
WorkshopTypes of Unconventional Gas Reservoirs
The shift from conventional to unconventional reservoirs reflects a change in
grain size from higher permeability, coarser grained rocks towards very fine
grained rocks with low permeability
Unconventional Reservoir Continuum
Shale Gas
Coalbed Methane
Reservoirs
Tight Gas
Reservoirs
“Hybrid” Gas
ReservoirsConventional Gas
Reservoirs
Reservoir variability both vertical and geographically can lead to the
development of “sweet spots” of higher permeability in the finer grained
reservoir rocksCore photos courtesy of Canadian Discovery
June 24, 2010
Service Sector
Workshop
Organic-rich Black Shale
High TOC & high adsorbed
gas
Low matrix Sw
High matrix Sg
Gas stored as free & adsorbed
Mature Source Rock
Silt - Laminated Shale or Hybrid
Gas stored in shale and silt
Low to moderate TOC
Higher permeabilities in silty
layers
Highly Fractured Shale
Low TOC & low adsorbed
gas
High matrix Sw
Low matrix Sg
Gas stored in fractures
Shale is the source rock
From Hall, 2008
Types of Unconventional Gas Reservoirs
June 24, 2010
Service Sector
Workshop
Two Major Resource Play Types in Canada
Deep
Horizontal
High costs due to horizontal drilling and
multi-stage fracing
Well costs $6-10 MM
High productivity wells with sharp
decline rates
Well production >2 MMcf/d
High entry costs
“Barnett type” business model
Shallow
Co-Mingled
Lower costs due to coiled tubing drilling and use
of nitrogen with proppant fracing technology
Well costs $250,000 to D&C and Stimulate
Low productivity wells with flatter decline rates
Economic wells due to co-mingled zones
Well production 100-150 mcf/d
Lower entry costs
“Shallow gas – Manufacturing” business model
HIGH RISK
BIG PRIZE
LOWER RISK
SMALLER PRIZE
Key Aspects of Unconventional Gas Development
June 24, 2010
Service Sector
Workshop
Each basin is unique requiring capital intensive exploration
and experimentation to optimize productive sweet spots as well as
stimulation and production methodologies
Creates a two tier approach by industry players:
Early Explorers - large capital expenditures required
- advantage in land acquisition position and cost
- higher risk
- generally associated with resource play development
Early Adopters - apply learnings of the early explorers to optimize capital
costs and completion techniques
- do not have the opportunity to acquire prime land position
other than perhaps by serendipity
- lower risk of technology but higher risk associated with
resource base size
Most shale and tight gas wells have very high decline rates – need to
plan for a large acreage position to allow for continued drilling to
offset declines
Key Aspects of Unconventional Gas Development
June 24, 2010
Service Sector
Workshop
UNCONVENTIONAL GAS STRATEGY
Reservoir
Characterization
Unlocking
the
Resource Play
Completion
Strategy
Wellbore
Architecture
AN INTEGRATED APPROACH TO WELL DESIGN
from E. Schmelzel, 2008
Key Aspects of Unconventional Gas Development
June 24, 2010
Service Sector
Workshop
from E. Schmelzel, 2008
UNCONVENTIONAL GAS STRATEGY
Completion
Strategy
Wellbore
Architecture
Production Rates
Open HoleCased Hole
Frac Design
Vertical Horizontal
Cemented Uncemented
Multiple Targets
Surface Impacts
Geochemistry
Orientation In-SituStress
Multi-laterial / laterial
Flow regime
Zonal Isolation/ Liner Integrity
Wellhead Config
Hole Cleaning
Log analysis / type
Tortuosity
Frac InitiationPressure
Water Production
EnvironmentalImpact
Water Disposal
Casing /Tbg Design
Open Hole / Slotted liner
Casing Exit
CementAssurance
Fluid Invasion
Key Aspects of Unconventional Gas Development
June 24, 2010
Service Sector
Workshop
The Key Questions
THE GOAL
MAXIMIZED
RESERVOIR
EXPOSURE
Reservoir Characterization
Reservoir modeling
Sweet Spot identification
Wellbore placement
Wellbore completion
from E. Schmelzel, 2008
Key Aspects of Unconventional Gas Development
June 24, 2010
Service Sector
WorkshopUnconventional Gas Risk Profiles
Conventional Reservoirs
Engineering
EngineeringGeoscience
Geoscience
Unconventional Reservoirs
Much of the risk is concentrated in
the front end geoscience exploration
and the ability to locate natural gas
reservoirs of economic size
Risk is concentrated in the ability to
produce economic volumes from
laterally pervasive deposits of natural
gas where the risk of finding
hydrocarbons is low
June 24, 2010
Service Sector
WorkshopResources versus Reserves
Primary goals of initial exploration programs for unconventional gas plays are:
Define rock properties of the target zones to determine how much gas may be present
Define reservoir properties to guide in the development of the fracture stimulation
program
Undertake initial stimulation testing of primary zones to quantify initial productivity
Conduct extended reservoir testing to determine decline rates and changes in
reservoir pressure
Exploration Activities
Resources
Reserves
Probability of Success
P10 P50 P90
Initial Drilling
OGIP
Initial
Well Testing
IP
Initial
Well Stimulation
and Testing
Extended
Well
Testing
Multiple Wells
And
Reproducibility
Of Results
June 24, 2010
Module 2
Drilling and Completion Technologies
June 24, 2010
Service Sector
Workshop
Accessing the Reservoir - Why and How
Drilling and Completion Technologies
Coiled Tubing Drilling
Horizontal Drilling
Multi-Lateral Drilling
Completion and Stimulation Techniques
Vertical Fracture Stimulations and Co-Mingling
Multi-Stage Fracture Stimulation Techniques
Micro-Seismic to Determine Effectiveness of Stimulation
Gas Factory Ideology
Optimization of Reservoir Production
Key Aspects of Unconventional Gas Development
Stages of Exploration and Development
Economies of Scale and Economic Benefits
Workshop Outline – Module 2
June 24, 2010
Service Sector
WorkshopWorkshop Outline – Module 2
Glossary of Terms
EUR Estimated Ultimate Recoverable reserves from a well
OGIP Original Gas in Place before production (usually quoted in billions or
trillions of cubic feet)
IP Initial production rate of a gas well – often much higher than the
sustained production rate – usually quoted as millions or thousands
of cubic feet per day (Mmcf/d or mcf/d)
Hydraulic Fracturing Commonly referred to as fracing, this is the process where
the reservoir rock is cracked using pressure and fluids to
create a series of fractures in the rock through which the
natural gas will flow to the wellbore
Multi-Stage Fracturing The process of undertaking multiple fracture stimulations
in the reservoir section where selected parts of the
reservoir are isolated and fractured separately
Microseismic The methods by which fracturing of the reservoir can be
observed by geophysical methods to determine where the
fractures occurred within the reservoir
June 24, 2010
Service Sector
WorkshopAccessing the Reservoir
The fundamental purpose of drilling a natural gas wellbore is to
intersect the wellbore and optimize the productivity from the wellbore
In unconventional reservoirs the ability of the gas to flow to the well is
hindered due to lower permeability
To counter this lower productivity, drilling and stimulation techniques
are used to maximize the amount of the reservoir exposed to the
wellbore
Techniques include:
Vertical well multi-zone stimulation
Horizontal wells
Multistage fracturing
Essentially all unconventional gas reservoirs require some form of
improved access either through drilling or hydraulic fracturing
June 24, 2010
Service Sector
WorkshopDrilling and Completion Technologies
Different types of drilling equipment and methodology are available
dependent on reservoir depth, thickness and expected flow properties
Some choices include: Coiled Tubing Drilling and multi-zone completions
Horizontal Drilling
Multi-Lateral Drilling
June 24, 2010
Service Sector
WorkshopDrilling and Completion Technologies
Drilling Efficiencies and Savings have been
achieved through:
Speed of drilling using new bit technology
(PDC bits achieve penetration rates of up to 80
m/hr)
Multiple drill string assemblies that reduce
tripping time
Geosteering in real time in horizontal and
multilateral wells
Automation of rig floor equipment eliminating
additional manpower
Fit for purpose rigs that can move on site
without teardown
Eg. Range Resources operates two fit for purpose drilling
rigs that can move to the next well location on a common
pad with over 3000 m of drill pipe stacked on the derrick –
rig move reduced from days to hours
From Range Resources, 2010
June 24, 2010
Service Sector
Workshop
Geosteering of horizontal wells
in real time allows optimal reservoir
penetration
Multiple well orientations either vertical
or horizontal from
single surface well pads minimizes
footprint
courtesy Halliburton
Drilling and Completion Technologies
June 24, 2010
Service Sector
Workshop
Zonal isolation packer systems in
horizontal and multi-lateral wells allow
for selective stimulation as well as
production
• Drilling of horizontal wells with the
horizontal legs being up to 2500 m in length
• Multi stage fracture stimulations using
slick water and sand to essentially “create
reservoir” in rock that would not have been
considered reservoir quality previously
courtesy Halliburton
Drilling and Completion Technologies
June 24, 2010
Service Sector
Workshop
The Pinnate Drainage Pattern
Side
Laterals
Main Lateral
Horizontal Drilling/ Multi-Lateral Drilling
Drilling and Completion Technologies
June 24, 2010
Service Sector
Workshop
Fracture stimulations are required for most Unconventional resource
plays due to low permeabilities of the reservoirs
Type of fracture stimulation used is defined by:
Depth and number of reservoirs to be stimulated
Reservoir quality
Type of wellbore (vertical versus horizontal)
Fluid sensitivity
Geomechanical properties of the reservoir
Availability of equipment and materials
Economic assessment of wellbore deliverability
Completion and Stimulation Techniques
June 24, 2010
Service Sector
Workshop
Fracture Stimulation Parameters
From Hall, 2008
The main purpose of fracture stimulation is to create open
pathways for fluid flow within the reservoir either by creation of
fractures or intersection of existing fracture systems
Ideally the reservoir rock should be “brittle” so that it fractures
easily
Mineral content of the shales will determine “fracability” of
reservoir – ideally a silica rich shale is preferred
Open vertical fractures
Sheared and slickensided fractures
Completion and Stimulation Techniques
June 24, 2010
Service Sector
Workshop
Typical coil tubing unit
used for multi-zone
fracture stimulation
Completion and Stimulation Techniques
Courtesy of Halliburton, 2009
June 24, 2010
Service Sector
Workshop
Before After (10,000 psi)
Technology is Key
Light Weight Proppant
High Velocity Nitrogen pumping under pressure
Completion and Stimulation Techniques
Courtesy Stealth Ventures, 2008
June 24, 2010
Service Sector
Workshop
Horizontal Wellbore and Multi-Lateral Wellbore Completions
Commonly multi-stage fracture stimulations are conducted to optimize the
amount of fracture energy entering into the wellbore
The horizontal leg is broken into stages where fracture stimulation for each
stage is isolated from the rest of the wellbore
Fracture design for each stage within the horizontal leg is dependent on
borehole logging indicators of gas concentration as well as natural fracture
density
Completion and Stimulation Techniques
June 24, 2010
Service Sector
Workshop
Comparison of Frac Stages to Iniitial Well Productivity
0
2
4
6
8
10
12
14
16
2 3 4 5 6 7 8 9 10
Number of Frac Stages
Init
ial
Pro
du
cti
on
Rate
(mm
cf/
d)
0
200000
400000
600000
800000
1000000
1200000
Incremental Cost of Frac Stage
Incre
men
tal
Co
st
of
Fra
c
Sta
ge (
$$)
IP low (mmcf/day) IP high (mmcf/day) Frac costs ($,000)
Each additional frac increases
initial well productivity by 0.5 to
1.5 mmcf/d
Each additional frac potentially
increases recoverable reserves
by 0.5 to 1.5 Bcf
Cost of additional frac stages
needs to be balanced against
increase in production and EUR
Application of Multi-Stage Fracing Critical to Unlocking Resource Potential
Completion and Stimulation Techniques
June 24, 2010
Service Sector
WorkshopCompletion and Stimulation Techniques
From Fairborne Energy, 2009
June 24, 2010
Service Sector
WorkshopDrilling and Completion Technologies
Run vertical stimulation video
June 24, 2010
Service Sector
WorkshopDrilling and Completion Technologies
Run horizontal CBM drilling video
June 24, 2010
Service Sector
Workshop
Micro-Seismic to Determine Effectiveness of Stimulation
How Do We Measure Success in Reservoir Stimulation
Measures micro seismic events related to the propagation of fractures
within the reservoir
Requires one or more observation wells to allow proper mapping of
location geographically and vertically of microseismic events
Can be run independently or as permanent seismic arrays in field to be
developed
Provides a 3D image of fracture propagation that can be measured in real
time during the fracture stages
Allows fracture propagation trends to be identified and adjusted for
additional stages so fractures can be contained within zone
Identifies areas of poor fracture generation or geological barriers to
effective stimulation
June 24, 2010
Service Sector
Workshop
Run microseismic video
How Do We Measure Success in Reservoir Stimulation
June 24, 2010
Service Sector
Workshop
Fracture microseismic events relative to orientation of wells in Barnett fairway illustrate:
Complex nature of natural fracture system that exists within reservoir (Figure A)
Areas of limited fracture propagation that may represent areas of infill drilling for optimal
reserve recovery (Figure B)
from Pinnacle TechnologiesFigure A Figure B
How Do We Measure Success in Reservoir Stimulation
June 24, 2010
Service Sector
Workshop
Multi-stage fracture stimulations are labor and equipment
intensive that requires planning for wellsite activities as well as
supply of frac materials (sand and water primarily)
Multi-stage fracture stimulations are costly and should be
undertaken only after reservoir properties have been tested from
vertical wellbores and core data
Completion and Stimulation Techniques
Courtesy Fairborne Energy, 2009 Courtesy Fairborne Energy, 2009
June 24, 2010
Service Sector
Workshop
Optimization of Reservoir Production
Key Aspects of Unconventional Gas Development
Stages of Exploration and Development
Economies of Scale and Economic Benefits
Gas Factory Ideology
June 24, 2010
Service Sector
Workshop
Understanding the Reservoir is Key to
Optimizing Production and Reserve Recovery
This is achieved through continuous improvements and
experimentation in drilling, completion and production techniques
Optimization of Reservoir Production
From Southwestern Energy, 2009
June 24, 2010
Service Sector
WorkshopOptimization of Reservoir Production
Resource play development is a statistical play
Recognition that within the
gas field there are going to
be both high volume and low
volume producers
Rely on statistical average to
achieve project economic
return on investment
Understanding reservoir
properties will decrease the
risk of completing low
volume producing wells
From Southwestern Energy, 2009
June 24, 2010
Service Sector
Workshop
Downspacing of horizontal wells has been instrumental in improving EUR for
individual wells
EUR from infill wells up to 50 % of OGIP as compared to 10-20% from original
spacing
Application of simul-fracs on multiple parallel horizontals wells may further
increase recovery factor
Optimization of Reservoir Production
June 24, 2010
Service Sector
Workshop
Understanding the Play
Reservoir Characterization
Resource Assessment
Formation Properties & Analogs
Address The Resource Play Challenges
Which technologies, services or products are most appropriate
Operational Risk / Cost Assessment
Field Trials / Pilot
Build in Efficiency
Scale of operations is usually large
Remote areas may add significant cost
Bundling of Services, Concurrent / Continuous Operations
Unconventional Gas Strategy is Critical to Success
Key Aspects of Unconventional Gas Development
June 24, 2010
Service Sector
Workshop
Stage 2:
Early Evaluation
Drilling
Stage 3:
Pilot Project Drilling
Stage 4:
Pilot Production
Testing
Stage 5:
Commercial Development
Time (years)
0 1 2 3 4 5
Project
Reclamation
20
Stage 1:
Identification of
UCG Resource
Quebec Lowlands
Horn River Basin
Horn River Basin
Montney
Woodford
Fayetteville
Marcellus
Nova Scotia
New Brunswick
Pace of development is
largely dependent on
technical success and market
conditions
Haynesville
Barnett
Newfoundland
Alberta Plains
Alberta Plains
Stages of Exploration and Development
June 24, 2010
Service Sector
Workshop
Life Cycle of an Unconventional Natural Gas Resource Development
From Shell E&P Technology, 2009
To achieve economic production of unconventional gas you need: high gas prices; preferably
existing infrastructure, new and existing technologies that are available in sufficient quantity; and a
competitive / incented environment in which to work
The slower rate at which the EUR is captured in unconventional reservoirs extends the economic
break- even point, but the long-term ultimate recovery due to the size of the OGIP remains attractive
compared to conventional reservoirs
Stages of Exploration and Development
June 24, 2010
Service Sector
Workshop
Efficiency Controls Costs
Speed of Execution
Materials Management / Recycling
Risk Avoidance Strategies &
Methods
Logistics Costs Demand Innovation
Critical in Remote Areas
Economies of Scale and Economic Benefits
Resource Play Success is achieved
through the adoption of a
“Manufacturing Style” approach to
commercial development
from E. Schmelzel, 2008
June 24, 2010
Service Sector
WorkshopEconomies of Scale and Economic Benefits
Cost savings can be achieved through a vertical integration
business model which is particularly important in a competitive
natural gas market
Companies such as Southwestern Energy and Range Resources
have demonstrated significant savings on field development by
integrating drilling, completion equipment, fracture fluids and
proppants and midstream pipeline operations
Courtesy Southwest Energy, 2009
June 24, 2010
Service Sector
Workshop
Minimize completion time
Mitigate operational risk
Define synergies and economies of scale
Maximize EUR - completion methods which are adaptable to future recompletion capabilities reserves
Minimize Logistics Costs: Re-using water from flowback and production, innovative fluid handling & storage
Minimize Surface Impact & Costs: Pad drilling and completions, multi-lateral capability
Creation of service sector alliances or entities to enable the timely supply of service sector equipment and materials
Key Elements of Manufacturing Ideology
Economies of Scale and Economic Benefits
June 24, 2010
Module 3
North American Gas Market
and its
Impact on Western Canada
June 24, 2010
Service Sector
Workshop
Glossary of Terms
Workshop Outline – Module 3
OGIP Original Gas in Place before production (usually quoted in billions or
trillions of cubic feet)
Marketable The estimated amount of natural gas that can be recovered from the
Resources OGIP values using existing technology
IP Initial production rate of a gas well – often much higher than the
sustained production rate – usually quoted as millions or thousands
of cubic feet per day (Mmcf/d or mcf/d)
F&D Costs The finding and development costs that a company spends to
develop the natural gas well or field
Royalties The amount of $$ that companies pay to the owner of the oil and gas
resources (usually the government)
NYMEX or AECO Natural gas market hubs that establish baseline pricing for
natural gas sold in North America
June 24, 2010
Service Sector
Workshop
Canada‟s Natural Gas Resource Base
North American Unconventional Gas Basins Competition from Developments in United States
North American Pipeline Infrastructure
Competitive Challenges Facing Western Canada
Competitiveness Opportunities
Workshop Outline – Module 3
June 24, 2010
Conventional (remaining) NGC/CBM Tight Gas Shale Gas
801
6921111
1311
Total Gas In Place Resources 3915 Tcf ( 111x 1012 m3 )
Canada‟s Natural Gas Resource Base
Estimates from Petrel Robertson Resource Assessment Study completed for CSUG April 2010
Service Sector
Workshop
June 24, 2010
Canada‟s Natural Gas Resource Base
NWT/Yukon
76
Mackenzie- Beaufort
67
Western Arctic
44
Ontario
5
East Coast Onshore
41
East Coast Offshore81
Labrador Shelf
24
Western CanadaSedimentary Basin
482
Conventional Projected Natural Gas In Place
Total 692 Tcf(TCF – trillions of cubic feet)
Service Sector
Workshop
June 24, 2010
Canada‟s Natural Gas Resource Base
NWT DevonianBesaRiver
NWT Cretaceous
Ontario Paleozoic
Utica181
Maritimes 130
CordovaEmbayment
200
Western CanadaSedimentary Basin
(Colorado Group only)100
Shale Gas Projected Natural Gas In Place
Total 1111 Tcf(TCF – trillions of cubic feet)
Arctic Islands
Horn RiverBasin 500
Service Sector
Workshop
June 24, 2010
500
200100 181
130
1111
170
6814 42 49
343
75 304 7 11
1280
200
400
600
800
1000
1200Marketable Low
Marketable High
Gas In Place No resource estimates
have been made for
Duvernay Fm in Alberta
or the Muskwa equivalent
formations into Yukon or
NWT
Colorado shale estimate is
considered conservative as
limited exploration on deep
Colorado has been
completed to date
Regional Shale Gas Resource Estimates (Tcf)Service Sector
Workshop
June 24, 2010
Canada‟s Natural Gas Resource Base
Albert
Deep Basin430
Jean Marie62
Montney632
Chinkeh
Cambrian
Note: Montney estimate does not
include extension of resource
potential into Alberta
Tight Gas Projected Natural Gas In Place
Total 1311 Tcf(TCF – trillions of cubic feet)
BCDeep Basin
187
Service Sector
Workshop
June 24, 2010
From CSUG Natural Gas Resources Assessment Study, 2010
18762 62 120
450
100
430
1411
6722 23 43
166
33155
509
30 10 11 19 77 15 69
230
0
200
400
600
800
1000
1200
1400
1600
Marketable Gas Low
Marketable Gas High
Original Gas In Place
* Resource estimate for
Alberta Montney is based
upon pers. com.
No tight gas estimates
have been made for
Quebec or Maritimes
Regional Tight Gas Resource Estimates (Tcf) Service Sector
Workshop
June 24, 2010
Canada‟s Natural Gas Resource Base
Western CanadaSedimentary Basin
638
British ColumbiaBasins
84
Maritimes79
Natural Gas from CoalProjected Gas In Place
Total 801 Tcf(TCF – trillions of cubic feet)
Service Sector
Workshop
June 24, 2010
84
636
2 79
801
8117
0.2 3.6129
4 270 3
34
0
100
200
300
400
500
600
700
800
900 Marketable LowMarketable HighGas In Place
Regional NGC Resource Estimates (Tcf)
Note marketable NGC for
British Columbia has been
constrained significantly
due to concerns about
access to resources
Assessment does not
include NGC potential in
Yukon where potential is
limited due to lack of
infrastructure
Marketable resource
potential for Maritimes is
constrained by much of
resource location (offshore)
Service Sector
Workshop
June 24, 2010
Service Sector
Workshop
327 Tcf
52 Tcf
717 Tcf
1500 Tcf
23 Tcf
76 Tcf
160 Tcf
From DOE, April 2009
Prospective Shale Gas Basins in United States
June 24, 2010
Service Sector
WorkshopProspective Tight Gas Basins in United States
June 24, 2010
Major pipeline corridors in United States are being built to eliminate local
bottlenecking in delivery of natural gas to the northeast market
BARNETT
WOODFORDFAYETTEVILLE
HAYNESVILLE
MARCELLUS
ANTRIM
NEW ALBANY
Service Sector
WorkshopPipeline Corridors for North American Gas Distribution
Dail
y P
rod
ucti
on
(B
cf/
d)
0
1
2
3
4
5
6
7
8
9
Jan „04 Jul „04 Jan „05 Jul „05 Jan „06 Jul „06 Jan „07 Jul „07 Jan „08 Jul „08 Jan „09
Antrim Barnett Fayetteville Woodford Haynesville Marcellus From Southwest
Energy, 2009
In the past 3 years, shale gas production has increased by 6 Bcf/day while in 2008/09,
demand destruction due to economic recession has reduced demand by as much as 2
Bcf/day
June 24, 2010
Service Sector
Workshop
North American Gas Market and
its Impact on Western Canada
June 24, 2010
From ARC Energy Charts, 2010
Service Sector
Workshop
North American Gas Market and
its Impact on Western Canada
Canadian Exports will continue to be challenged by lower cost natural gas
produced in United States basins
Industry will react negatively through declining activity due to poor economics
but there will be a lag from when activity declines and actual production declines
Technological development has allowed the projected decline rates to be offset by improved
productivity
Drilling Activity in United States - 2010Horizontal Drilling Activity in United States 2010
June 24, 2010
From ARC Energy Charts, 2010
Service Sector
Workshop
North American Gas Market and
its Impact on Western Canada
Oil Well Completions in Canada -2010
Many E&P companies are shifting their exploration focus to oil resource plays due to low
market price for natural gas
Gas completions continue to stall and much of the shallow gas wells are re-completions
rather than new drills
Abundant gas supply in United States coupled with continued horizontal drilling will continue
to put downward pressure on natural gas prices including hedged contracts
over the next few years (2-5 ?????)
Gas Well Completions in Canada - 2010
June 24, 2010
Higher Demand Cycle
Supply Glut - Lower Demand Cycle
Modified from Government of Nebraska website, 2010
Service Sector
Workshop
North American Gas Market and
its Impact on Western Canada
June 24, 2010
While Western Canada contains vast quantities of largely under-developed
unconventional gas, the industry as a whole faces a number of challenges that
negatively impact the competitiveness of the produced product
Pipeline tariffs to major markets
Distance and current tolls create a $0.50 to >$1.00 burden to producers
CDN $ exchange rate advantage has evaporated due to strength of Canadian $$
Rule of thumb was $0.01 differential between US$$ and CDN $$
translated into $0.06 - $0.07/mcf market price
Finding and Development costs are higher due to weather related constraints
Additional costs to drill during winter months and spring break up
Royalty and Regulatory burdens negatively impact economics
While royalty changes in B.C. and Alberta have helped they still are not as
competitive to some US jurisdictions
Explorer composition and mobility of capital
Many of the major unconventional gas players in Western Canada have a diverse
resource play portfolio that extends across North America allowing movement of
capital to areas of economic advantage
Commitment by industry to one primary consumer market (US)
Service Sector
WorkshopChallenges to Western Canada Natural Gas Production
June 24, 2010
Source: Morgan Stanley September 14, 2009
$0
Dee
p B
oss
ier
Hayn
es
vil
le
Gra
nit
e W
as
h (
Ho
rz.)
Pin
ed
ale
(C
res
t)
Faye
tte
vil
le (
2.6
Bcf)
Ma
rce
llu
s
Ho
rn R
ive
r
Wo
od
ford
(A
nad
ark
o)
Barn
ett
(T
ier
1)
Hu
ron
Sh
ale
Pin
ed
ale
(F
lan
k)
(W.
Te
xa
s O
ve
rth
rus
t)
Mo
ntn
ey (
8 s
tag
e f
rac
)
Pic
ea
nc
e (
Va
lle
y -
Co
re)
No
ra (
CB
M)
Faye
tte
vil
le (
2.2
Bcf)
Uin
ta (
Sh
all
ow
)
Ea
gle
ford
Jo
nah
Po
wd
er
Riv
er
(CB
M)
Alb
ert
a S
ha
llo
w G
as
Ho
rse
sh
oe C
an
yo
n
Rato
n (
CB
M)
Wo
od
ford
(A
rko
ma
)
Mo
ntn
ey (
4 s
tag
e f
rac
)
Wa
tte
nb
erg
(C
ore
)
Alb
ert
a D
ee
p B
as
in
Je
an
Ma
rie
(T
igh
t G
as
)
Barn
ett
(T
ier
2)
Pic
ea
nce (
Hig
hla
nd
s)
Ma
nn
vil
le (
CB
M)
Barn
ett
(T
ier
3)
Required NYMEX Natural Gas Strip for 10% IRR
$2
$4
$6
$8
$10
Service Sector
WorkshopChallenges to Western Canada Natural Gas Production
June 24, 2010
Courtesy of Nexen, 2010
Economic success in remote
locations such as Horn River will
require technological advances as
well as logistical efficiencies
Efficiencies achieved through multiple wells
from single pads allow for centralization of
equipment and stockpiling of materials and
consumables for extended drilling programs
One drill pad may hold as many as 18 wells allowing
development of 3 sections of land
250 to 300 fracture stimulations from a single pad –
equipment on site for 2 to 3 months
Service Sector
WorkshopCompetitiveness of Western Canada Natural Gas
June 24, 2010
Recognition that within the
gas field there are going to
be both high volume and low
volume producers
Rely on statistical average to
achieve project economic
return on investment
Understanding reservoir
properties will decrease the
risk of completing low
volume producing wells
Improved productivity will
allow marginal wells to
achieve economic thresholds
Modified from Southwestern Energy, 2009
Challenge: Improve overall productivity and/or economics for the entire
play – not just the “sweet spot high productivity areas”
- Barnett shale completions
Service Sector
WorkshopCompetitiveness of Western Canada Natural Gas
June 24, 2010
Competitiveness within the natural gas market where there is no current control
over market price and transportation costs can be influenced by 4 major
variables:
Improvement of well performance either through production volumes or
estimated ultimate recovery (EUR)
Well performance can be in the form of IP rates to slower decline rates
Improvement of well costs from cradle to grave
Reduction of development costs through logistical efficiencies and
synergies are critical to economically successful development
Savings achieved through development in areas that have established
infrastructure
Creation and deployment of new technologies that will allow unique
unconventional gas opportunities in Western Canada to be developed
Focus R&D efforts on technologies that will positively impact Western
Canadian unconventional gas deposits
Establish alternative markets outside of North America to realize optimal
value for natural gas produced
Service Sector
WorkshopCompetitiveness of Western Canada Natural Gas
June 24, 2010
Well Cost Evolution ($C)
$MM
Deep Basin – (vertical wells) Montney - Per Interval
$MM/Frac
Horn River – Per Interval
$MM/Frac
NGC – Well costs
$MM
4.74.9
5.96.2
7.5
2006 2007 2008 2009 2010F
0.610.650.79
0.95
1.50
2006 2007 2008 2009 2010F
0.6
1.0
2.0
2008 2009 2010F
0.360.370.40
2008 2009 2010FModified from CAPP, 2010
Horn RiverMMcfe/d
11.7
9.1
4.6
2008 2009 2010F
5.34.7
3.73.9
2.1
2006 2007 2008* 2009 2010F
MontneyMMcfe/d
Production Evolution
Service Sector
WorkshopCompetitiveness of Western Canada Natural Gas
June 24, 2010
5 mtpa export capacity by 2014
Significant potential for increased sales of Western
Canada gas at prices higher than current North
American price structure
Source: Apache Corp, 2010
New emerging markets for Canadian Natural Gas
International Exports
If 5% of heavy vehicles in Canada operated on natural gas
Gas consumption would increase by 53 Bcf or 1.5% of
current domestic gas use
Greenhouse gas emissions from heavy diesel vehicles
would decrease by 795 kilotonnes per year
Fleet Vehicles and Heavy Trucks
Source: CNGVA, 2010
Service Sector
WorkshopCompetitiveness of Western Canada Natural Gas
June 24, 2010
Projected Supplies of Natural Gas in United States
modified from EIA, 2009
Net imports
Associated-dissolved
Non-associated offshore
Non-associated conventional
History Projections
TC
F/y
ea
r
0
5
10
15
20
25
30
1990 1995 2000 2005 2010 2015 2020 2025 2030
Unconventional
Alaska
United States conventional production continues to decline from 5 Tcf/yr to < 3 Tcf/yr by 2030
Continued decline of imports from primarily Canada
Projected growth of unconventional gas to fill the gap
Moderate to slow growth of overall natural gas demand until after 2020
Service Sector
WorkshopCompetitiveness of Western Canada Natural Gas
June 24, 2010
Module 4
Opportunities and Challenges
June 24, 2010
Service Sector
WorkshopOpportunities and Challenges
Glossary of Terms
NGC Natural gas from coal or commonly referred to as coalbed methane
(CBM)
Co-mingling Production of natural gas from multiple vertical zones within a single
borehole
Hybrid well Natural gas production from both coals and other non-coal
reservoirs such as sandstone or shale within a single borehole
Hydraulic Fracturing Commonly referred to as fracing, this is the process where
the reservoir rock is cracked using pressure and fluids to
create a series of fractures in the rock through which the
natural gas will flow to the wellbore
June 24, 2010
Service Sector
Workshop
Natural Gas from Coal
Current Developments
Opportunities for Growth
Shale Gas
Current Development
Opportunities for Growth
Critical Elements for Success
Opportunities and Challenges
June 24, 2010
Natural Gas from Coal
Tight Gas Sands
and Carbonates
Shale Gas
Gas Hydrates
Areas of
Unconventional Gas
Exploration and
Development
in Alberta
Where is Unconventional Gas Located In Alberta?Service Sector
Workshop
June 24, 2010
Service Sector
WorkshopNatural Gas from Coal Opportunities
Source: ERCB ST98-2010
Natural Gas from Coal (NGC) or Coalbed
Methane (CBM) still represent a
significant growth area for central Alberta
Over 14,000 wells are currently producing
natural gas from coal
Continued development of the Horseshoe
Canyon play and possible expansion of
Ardley NGC development to the west as
part of the new co-mingling regulations
will be major contributors
North American gas price will still put
pressure on operators to lower operating
costs to be competitive
June 24, 2010
Source: ERCB ST98-2010
Service Sector
WorkshopNatural Gas from Coal Opportunities
June 24, 2010
Source: ERCB ST98-2010
Service Sector
WorkshopNatural Gas from Coal Opportunities
Total number of NGC well completions for 2009 was 1848
98% of these wells were Horseshoe Canyon Formation vertical
co-mingled production
Of the 1811 Horseshoe Canyon wells, nearly 70% were re-completions
of existing vertical wells
Mannville NGC production accounted for 15% of total natural gas
production but only 3% of new connections
Changes to Alberta royalty system have created a competitive
environment for “hybrid” NGC wells even in a low gas price setting
June 24, 2010
Service Sector
WorkshopNatural Gas from Coal Opportunities
Source: ERCB ST98-2010
June 24, 2010
Service Sector
Workshop
Source: ERCB ST98-2010
Natural Gas from Coal Opportunities
June 24, 2010
Service Sector
WorkshopContinued Improvement to Maintain Competitiveness
Source: Ember Resources, 2010
Horn River Basin
500 Tcf
Cordova Embayment
200 Tcf
Colorado
100 Tcf
Utica and Lorraine Shale Basin
“Quebec Lowlands”
181 Tcf
Colorado Group
Jurassic and Paleozoic
Devonian Shales
Bowser Basin
Maritimes Basin
130 Tcf
June 24, 2010
From CSUG Natural Gas Resource Assessment Study, 2010
Shale Gas Potential of Canada
Original Gas In Place (Tcf)
500
200
130
181
100
Service Sector
Workshop
June 24, 2010
Colorado Group Unconventional Gas PlayService Sector
Workshop
June 24, 2010
Colorado Group Unconventional Gas Play
Gas migrates from the gas charged shales into the silt and sand laminae which allows up to five perforation entry points to be picked over the entire Colorado Group Shales
Hu
nd
red
s o
f fe
et
of
Ga
s C
ha
rge
d S
ha
les
Ga
s M
igra
tio
n
Ga
s M
igra
tion
TURONIAN
U. COLORADO
LEA PARK
PE
RIO
D
EP
OC
H
STAGE
AG
E (
Ma)
FORMATION
CAMPANIAN
SANTONIAN
CONACIAN
CENOMANIAN
ALBIAN
EA
RLY
LA
TE
CR
ETA
CE
OU
S
CO
LO
RA
DO
GR
OU
P
MILK RIVER EQN
1st WHITE SPEC
MEDICINEHAT EQN.
2nd WHITE SPEC
BELLEFOURCHE
FISH SCALE MKR
WESTGATE
VIKING
JOLI FOU
MANNVILLE
84
87
89
93
97-99
basalU COLORADO
Source Stealth Ventures Ltd
Service Sector
Workshop
June 24 , 2010
Colorado Group Unconventional Gas Play
Light Weight Proppant
Before
After (10,000 psi)
High velocity nitrogen fracing
Application of technology to address swelling clays and
fracing issues and will be critical to achieve optimal
production volumes
Source Stealth Ventures Ltd
Service Sector
Workshop
June 24, 2010
Deep Colorado Group has thermogenic potential for
shale gas resources
New data released by AGS on reservoir
characterization will enable target areas to be defined
Maturity increases from east to west possibly
increasing the “brittleness” of the shale formations
Source: Geological Atlas of Western Canada Sedimentary Basin
Service Sector
WorkshopEmerging Opportunities – Shale Gas
June 24, 2010
Service Sector
Workshop
Distribution of major tight gas formations in southern Alberta plains
Emerging Opportunities – Tight Gas
June 24, 2010
Service Sector
WorkshopWestern Canada Natural Gas Challenges
Development of unconventional gas is a technology play. Industry
continues to make advances in technology development and deployment
that allows improvement in productivity and EUR as well as opening up
opportunities in new basins (ie. Deep Bossier)
The impact of application of these new technologies will create an
environment where natural gas will remain an abundant “low cost” energy
supply for the next 2-3 years
Companies will need to look at new market strategies as well as corporate
strategic direction to ensure sustainability and growth in the
re-defined North American natural gas marketplace
June 24, 2010
Service Sector
WorkshopThe Final Comment
So what have we learned this morning?
One thing for sure --- INFORMATION OVERLOAD
But here are some key takeaways:
Canada and Alberta has enough natural gas to supply our needs as well
as our export levels for over 100 years
This abundance of natural gas in North America will continue to keep
prices at the lower level for the near future due to oversupply into the
market
Companies exploring and producing natural gas in Western Canada will
need to become the low cost operator if they are to compete in the North
American market
Economies of scale, manufacturing ideology and partnerships with the
service sector will be critical to achieve this goal
Thank You for Your Attention!
F M Dawson, President
Unconventional Gas in Canada
Critical Elements for Technical and Economic Success