The race to move natural gas from the Horn River Basin in Northeast British Columbia is heating up, as EnCana, Spectra Energy, Trans-Canada, and Pacific Trails Pipelines Ltd. have all announced plans to build new pipeline systems to move the gas to market.

Pipeline operating companies are developing plans to build new transportation systems that will move Horn River Shale gas to Canadian, American, and international markets. (Photo courtesy of TransCanada)

The move to build new pipelines and expand existing systems comes as producers and other operators have stepped up their exploration and development activities in the region. Several industry observers have compared the Muskwa Shale gas in the Horn River Basin favorably with the Barnett Shale gas fields currently being developed in Texas and Oklahoma, where production has surged to more than 3 billion cf/d. Companies operating in the Horn River region – including EnCana Corp., EOG Resources Inc., Nexen Inc., and others – have reported finding trillions of cubic feet of gas under their properties, ranking the discoveries among Canada’s largest. Other pipeline firms are also moving to establish a foothold in the region.

Calgary-based EnCana Corp. is one of the leading players in the Horn River Basin. It discovered the natural gas field north of Fort Nelson in 2003 and has since added extensive holdings to become the largest landholder in the area. EnCana recently announced the most precise figure yet on the vast potential of Horn River, saying that it could eventually produce 1 Bcf/d – enough gas to heat 5 million Canadian homes for a year and the equivalent of about 170,000 bbl of oil, bigger than most oil sands mines.

But getting the gas to customers from Horn River, which is adjacent to the southeastern Northwest Territories, requires significant work beyond drilling successful wells.

The area north of Fort Nelson is a remote region, where infrastructure such as roads barely exists; access by vehicle is often restricted only to winters when the muskeg is frozen; and key pieces of the puzzle such as pipelines and gas processing plants need to be built or expanded. “Very fundamental basic infrastructure needs to be put in place,” EnCana Chief Executive Officer Randy Eresman recently told reporters at an industry investment conference. “That’s going to control the pace of that development.”

The province is currently working with companies to determine how best to build in the region, while trying to control costs, protect the environment, and deal with concerns of aboriginals. “What usually happens in a hot play is everybody’s going in their own direction,” said British Columbia Energy Minister Richard Neufeld.

“Invariably, a lot of things happen that don’t have to happen if there’s some planning.” EnCana has not said when it could reach its production goal at Horn River, but competitor EOG Resources Inc. of Houston has said it could take three years before major gas production commences in the area.

Nevertheless, EnCana is moving forward its plans for development in the region. In 2007, it formed a joint venture with Apache Corp., and together they have drilled nine production wells in what has become the largest shale gas field in Canada. Now, at a cost of about US $340 million, EnCana said it is moving forward with plans to build an approximately 96-mile (154-km), 36-in. pipeline that will move the gas to existing systems, which will then deliver it to the market. The new pipeline will transport sweet natural gas from the basin to a tie-in point on TransCanada’s existing Alberta pipeline system. Subject to regulatory approval, EnCana is planning on a second-quarter 2011 in-service date for the new pipeline system.

Continental markets

But producers and pipeline companies hope to move the gas not only to local residential customers, industrial consumers and utilities, but also to markets far away, across the continent. To do this, still more pipeline infrastructure will be needed. A key issue here is the pipeline capacity to move the gas, and, of course, the related cost to build and expand these pipeline systems. Peters & Co., a Calgary energy brokerage, recently predicted there could be a pipeline “bottleneck” if plays in northeastern British Columbia, including Horn River and another to the south, are fully developed. Alliance Pipeline Inc., which operates at its maximum 1.6 billion cf/d capacity, connects Fort St. John, south of Fort Nelson, with the Chicago area. Alliance President Murray Birch said pipeline companies will adjust as new gas production emerges.

Spectra Energy is another key player in the Horn River region. Back in March, it announced it had received sufficient support from producers to move forward with plans for an expansion of its existing pipeline system that serves the Horn River Shale gas region. The company said seven producers in the gas-rich region near Fort Nelson have committed to ship 760 MMcf/d on a revamped gathering and processing system. Work on the system would begin later this year and wrap up in 2012. This work will include bringing Spectra’s Fort Nelson gas processing plant back to full capacity, adding capacity to its current system and boosting the size of compressors that push gas along the lines. Duane Rae, Spectra’s vice president of field services, said a phased approach to expansion could see the addition of as much as 830 million cf/d of incremental expansion capacity. Dollar values were not disclosed, but the Calgary Herald reported that Rae described the move as a “substantial investment” in infrastructure in the area. The company is in discussion with other producers to further increase the capacity of the facility. “The first order of business is to fill up the Fort Nelson gas plant,” he said. “There is a need for a substantial amount of both processing and transportation capacity.”

TransCanada Corp. has also announced plans for a new pipeline that would move Horn River gas to Edmonton and US markets. The company said it has secured support for firm transportation contracts of 378 MMcf/d to connect new shale gas supply in the Horn River Basin to its Alberta System. The Horn River pipeline will run approximately 96 miles (154 km) with 36-in. pipe, and make use of an existing pipeline in the area to transport sweet natural gas from the Horn River area to a tie-in point on TransCanada’s existing Alberta System. The pipeline is expected to be operational early in the second quarter of 2011, subject to regulatory approvals.

TransCanada said it is also encouraged by strong commercial support it has received for the developing shale gas reserves in the Montney formation of northeast BC, as it has recently concluded a successful binding open season for gas transmission service from the Groundbirch area located west of Dawson Creek. Shippers have committed to firm gas transportation contracts that will reach 1.1 billion cf/d by 2014. The proposed Groundbirch pipeline will be approximately 48 miles (77 km) in length, and it is expected to commence service in fourth quarter 2010, subject to regulatory approvals. The project is expected to cost approximately $250 million. TransCanada expects to seek regulatory approval to build both the Horn River and Groundbirch projects as integrated extensions of the Alberta System.

LNG markets

In addition to these projects, the government of British Columbia has announced that it will work closely with local aboriginal groups to secure a direct interest in the Pacific Trail Pipelines Limited Partnership (PTP). The PTP is developing the proposed Summit Lake to Kitimat project, which calls for construction of a $1.2 billion, 288-mile (463-km) natural gas pipeline. When completed, the pipeline will take shale gas from Horn River for export on liquefied natural gas tankers to markets in Japan, China, South Korea, and elsewhere. Both the terminal and the pipeline have received the required provincial and federal environmental assessment approvals and are now working to finalize commercial arrangements.

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