Gordon Hamilton, Vancouver Sun, June 14 2012
One of the energy companies planning a liquefied natural gas terminal at Kitimat announced Thursday “an outstanding” new shale gas discovery, the best in North America, in British Columbia’s remote and largely unexplored Liard Basin.
The find by Apache Corp., one of three partners in the $4.5-billion Kitimat LNG terminal and pipeline proposal, is estimated to contain enough gas in itself to justify doubling the size of the Kitimat terminal. The company is calling it the best and highest quality shale gas reservoir in North America and says its wells are the most prolific in the world, based on the volume of gas three test wells are producing.
Based on the production from those wells, Apache announced it has 48 trillion cubic feet of marketable gas within its Liard Basin properties. By way of comparison, all companies active in the Horn River Basin, one of three other major shale gas basins in B.C., have marketable gas of 78 trillion cubic feet, giving one company alone a natural gas find that is two-thirds the size of the entire Horn Basin.
One well alone produced 21 million cubic feet of gas a day over a 30-day test period.
“This is enormous,” said Gordon Currie, senior oil and gas analyst at Salman Partners. “Those are big, big numbers.”
Based on Apache’s results alone, the Liard should provide B.C. with enough gas to export “for many, many years to come,” Currie said.
Bill Mintz, director of public affairs at Apache, said the Liard discovery provides the company with enough gas to meet the needs of any future expansion at its proposed LNG terminal. Apache and its partners plan a five-million-tonne-a-year LNG plant which, if supply and demand warrant it, could be doubled to 10 million tonnes a year. The Liard alone could provide that additional five million tonnes of LNG.
Mintz said gas from the Liard wells is already being sold through a pipeline connecting them to Fort Nelson. The Liard find is not only large, but the Apache test wells are producing more gas from fewer hydraulic fractures, six per well as opposed to 20 in the nearby Horn River Basin.
One of the Apache wells, D-34-K, “is one of the best shale wells we have seen in any play. Our analysis indicates that the formation characteristics are remarkably consistent across this large basin,” Apache president Steven Farris said in making the announcement at the company’s annual investors day in Houston, Texas.
A slide presentation on the find says the drilling in the Liard is “believed to be the most prolific shale gas resource test in the world.”
The Liard Basin is located in northeastern B.C., west of the Horn River basin. Most drilling activity is taking place in the central part of the basin, 110 kilometres northwest of Fort Nelson.
According to a ministry of energy and mines report on shale gas activity in B.C., it remains a relatively unexplored area covering 1.25 million hectares. Apache, the largest player in the region, has drilling rights to 180,000 hectares.
“The good news is, they’ve discovered lots of natural gas up in northeastern British Columbia and you guys should be exporting that gas for many years to come,” Currie, the Salman Partners analyst, said. “The bad news is that they have identified a lot of gas in northeastern B.C. and elsewhere and it has seriously depressed the price of the commodity.”
Natural gas is now selling at $1.78 US per 1,000 cubic feet at the Alberta hub, which is below the cost of production. U.S. prices are higher, $2.60 US a thousand cubic feet. Apache estimates the cost of production from its high-production Liard wells at $2.57 US a thousand cubic feet, including a 12-per-cent return on investment.
Currie said Apache is likely to do enough drilling in the Liard to maintain its gas rights but because of the low North American natural gas price, will likely not move quickly to fully develop the resource.
Natural gas is selling in the range of $16 US a thousand cubic feet in Asia, which is the impetus for developing an LNG industry on the B.C. coast.
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