History of the petroleum industry in Canada (natural gas)
Encyclopedia
Natural gas has been used almost as long as crude oil in Canada
, but its commercial development was not as rapid. This is because of special properties of this energy
commodity
: it is a gas
, and it frequently contains impurities. The technical challenges involved to first process and then pipe it to market
are therefore considerable. Furthermore, the cost
s of pipeline
building make the whole enterprise capital intensive, requiring both money
and engineering
expertise, and large enough markets to make the business
profit
able.
Until it became commercially viable, natural gas
was often a nuisance. Dangerous to handle and hard to get to market, early oilmen despised it as a poor relation to its rich cousin crude oil. Although early processing procedures were able to remove water, in the nineteenth century discoveries were only developed if consumer
s could use the gas just as it came out of the ground. If the gas required further processing or needed to be piped a long distance to market, the producer shut in the well. Flares
got rid of gas coming from oil well
s.
Natural gas processing
changes the commodity in two critical ways. First, it extracts valuable by-products; second, it renders natural gas fit to be transported to a point for commercial sale and consumption. Through the use of evolving technology, the gas processing industry of each era extracts higher percentages of a wider range of hydrocarbons and other commercial by-products than its predecessors. It also removes ever-higher percentages of dangerous and other unwanted impurities. Steady growth has made natural gas a major industry, with 180 cubic kilometres
of gas flowing from Canadian fields to market, every year.
Part of a series on Canada's petroleum
industry
, this entry focuses on the second of these two functions of gas processing - removing impurities from the gas stream - rather than recovering natural gas liquids, described elsewhere
. Of course, most large plants perform both functions, and plants have no other ultimate purpose than to quickly, safely
and profitably turn raw gas into products to be safely shipped
(mostly by pipeline) to market. The discussion covers gas processing as an engineering
feat, critical developments in exploration and development and the fundamentals of the marketplace
.
had already been around for several decades, but the most significant event in the industry's early history was probably the drilling of a well near Medicine Hat
in 1890, in search of coal
for the railway. The well encountered a large flow of natural gas, and this prompted town officials to approach the Canadian Pacific Railway
with a view to drilling deeper for gas. The resulting enterprise led to the development of the Medicine Hat gas field in 1904. The community took advantage of the natural resource
and became the first town or city in western Canada with a gas utility.
Natural gas service began in Calgary somewhat later, when A.W. Dingman formed the Calgary Natural Gas Company. He drilled a successful well in east Calgary, laid pipe to the Calgary Brewing and Malting Company site and began providing gas to the brewery on April 10, 1910. As in Medicine Hat, gas mains soon provided domestic fuel and street lighting.
In a parallel development Eugene Coste, who had been a pioneer in the development of Ontario's natural gas industry, moved west. He drilled the locally famous Old Glory gas well near Bow Island, Alberta, in 1909. In 1912, his Canadian Western Natural Gas Company
built a 280-kilometre pipeline connecting the Bow Island field to Lethbridge and Calgary. It augmented the Dingman enterprise in Calgary, which was unable to supply the growing demands of the city. By 1913, several other towns in southern Alberta boasted natural gas service from the Canadian Western system. Coste's pioneering enterprise provided fuel to nearly 7,000 customers.
, as it is known, in its natural state is laced with hydrogen sulfide
(H2S), which can be lethal if inhaled in even tiny concentrations. (The more general term acid gas
refers to natural gas with any acidic gas in it - carbon dioxide
(CO2), for example.)
The process of taking hydrogen sulfide out of a gas stream is called "sweetening" the gas. The Union Gas Company of Toronto built Canada's first sweetening plant in 1924 at Port Alma, Ontario, to scrub Tillbury gas. Hydrogen sulfide is a dangerous substance which at low concentrations has an obnoxious rotten egg smell. This odour annoyed Union's customers and prompted it to build the Port Alma plant. It removed hydrogen sulfide by exposing the sour gas to dissolved soda ash. Although previously used on coal gas, the application at the Port Alma plant was the first time this process sweetened natural gas.
The second Canadian sweetening plant followed a year later in Turner Valley
, and used the same process. The first gas found at Turner Valley had been sweet but the Royalite #4 discovery of 1924, from a deeper horizon, was sour. Royalite built the Turner Valley sweetening plant in order to sell its gas to Canadian Western Natural Gas for distribution.
The technology of the day did not render the hydrogen sulfide harmless. Instead, the producer disposed of the substance by burning it and dispersing the by-products into the air from two tall stacks. One chemical result of burning hydrogen sulfide emissions was sulfur dioxide
, another toxic gas. Since hydrogen sulfide is heavier than air, it settled to the ground, dispersed enough to be less than lethal.
Hydrogen sulfide was always in the air in small concentrations. Turner Valley had a rotten egg odour on most days.
became an ever-larger oil producer after the Leduc discovery, the Conservation Board
acted to prevent any repetition of the natural gas waste so common in Turner Valley. The board developed a broad conservation policy for natural gas. It prohibited producing natural gas from an oil reservoir
's gas cap before the oil was fully produced, and included provisions aimed at conserving the natural gas often produced along with the oil. For this reason, these plants became known as "gas conservation plants."
The first of these new plants was Imperial
's Leduc facility (sometimes called Imperial Devon or Imperial Leduc). It sweetened the gas with monoethanolamine (MEA), then extracted the liquid hydrocarbons by refrigeration
. Northwestern Utilities Limited bought the gas at $14.12 per thousand cubic metres and distributed it in Edmonton
. Trucks transported the propane
, butane
and "pentanes plus" (the Canadian term for heavier gas liquids) until 1954, when three pipelines began moving the products from Imperial Leduc to Edmonton. When markets could not be found for the propane, the board occasionally granted permission to flare it.
The next important plant built in Canada resulted from the discovery in 1944 of a wet sour gas
find by Shell Oil at Jumping Pound, west of Calgary
. Calgary, Exshaw
(where there was a cement factory) and Banff
were all potential markets for Jumping Pound gas, but the sour gas first required processing and sweetening. The gas plant began operating in 1951.
Built "California-style," with few buildings or other provisions for a cold climate, the original Jumping Pound plant ran into problems. During the first winter, water condensation and other cold weather problems led to one operational failure after another. When the second winter arrived, buildings sheltered most of the facilities. Shell Jumping Pound is sometimes referred to as Canada's "sour gas laboratory," for much of the industry's early understanding of sour gas processing came from experience there. It was the first sulfur plant in the world, its sulfur unit going into production in 1952. For this distinction it narrowly beat out the Madison Natural Gas plant which began extracting sulfur at Turner Valley later the same year.
As the Westcoast and TransCanada natural gas pipelines went into operation in 1957, a new and better day dawned for Canadian gas processing. Most of the gas that travelled those pipelines needed processing to meet the specifications of pipeline companies. Consequently, the late 1950s and early 1960s saw a boom in gas plant construction.
In 1957, a new gas plant at Taylor, near Fort St. John, British Columbia
, began supplying Westcoast Transmission Co. Ltd. This plant's practices differed from those used in Alberta in a number of ways. For example, although it generally required dehydration
, sweetening and processing for liquid hydrocarbons, companies transported the natural gas from northeastern British Columbia
long distances before processing it further. Consequently, while planning the Westcoast pipeline, the field operators agreed to process all the gas at a single facility, rather than have individual gas plants in every major production area. At 10 million cubic metres per day, the Taylor plant had the capacity to process as much natural gas as all eleven of the other gas plants operating in Canada combined. The plant was also by far Canada's most northerly. Heavily insulated buildings protected the processing facilities and allowed them to function at temperatures typical of more southerly climes.
. Growing supplies sometimes created marketing problems.
Companies set out to widen the market with considerable success. Farmers and small communities not served by natural gas adopted it for home heating fuel
. In the early 1960s, markets for liquid petroleum gases grew rapidly.
Companies responded by building "straddle" plants. These facilities straddled gas pipelines to extract additional volumes of gas liquids from the gas stream. Where economic, field processors began "deep cutting" their own gas by installing facilities that culled more LPG from the gas through deep refrigeration. In the early 1970s, companies began extracting the even lighter hydrocarbon ethane
at some field processing and straddle plants. Ethane became a feedstock for Alberta's growing petrochemical
industry, used in the manufacture of ethylene
.
and hydrogen sulfide.
Over the years, sour gas processing technology steadily improved. By 1970, more stringent emission standards were technically feasible. The Alberta government announced new, tougher regulations in 1971. Improvements in sulfur extraction technology and the addition of tail gas clean-up units enabled processors to meet these stricter standards.
The amount of sulfur produced in Alberta increased rapidly, and soon far outstripped demand. By 1963, Alberta's annual sulfur production exceeded one million tonnes, compared with 30,000 tonnes in 1956. In 1973 it peaked at slightly more than 7 million tonnes. Stockpiles grew annually. By 1978, 21 million tonnes of sulfur in large yellow blocks dotted the Alberta countryside. These inventories grew almost every year after 1952, and government and industry became seriously concerned about the surplus. Beginning in 1978, a strong sulfur marketing effort made Canada the largest supplier to international trade. Sales of sulfur generally exceeded production and stockpiles at gas plants began to shrink.
Looking at the large, sophisticated, high-tech enterprise that Canadian gas processing is today, it is hard to imagine the challenges the industry faced as it grew up. Gas processing developed as an adjunct to the construction of the major gas transmission pipeline system, which began operating in the late 1950s.
Crude oil prices dropped throughout the 1980s and natural gas supplies remained abundant, so consumers began taking advantage of the twin surpluses. Individuals, corporations and governments alike window-shopped for the cheapest crude oil and natural gas available, and demand grew.
In the mid-1980s, conservative governments in Washington, D.C.
, Ottawa
and Edmonton
moved their petroleum sectors towards deregulation. Throwing the market open to competition added to the gas surplus and to depressed gas prices. Suppliers across the continent began looking for new customers to make up in volume sales what they were unable to earn from low gas prices. But gas pipelines, built decades before, had little excess capacity.
Debate on a second gas pipeline from Alberta to California served as a good example of changing values during this period. For decades, California consumers opposed rival pipelines for fear of having to pay higher gas prices to cover pipeline construction. Deregulation
made the pipeline companies common carrier
s so that any producer or marketer could buy space on the pipeline to move its gas. Gone were the days when the pipeline company moved the gas and also marketed it.
As deregulation put an end to vertically integrated
gas delivery and marketing, consuming regions began crying for additional pipeline capacity. In Alberta, half a continent away from America's east coast and from the San Francisco Bay, cheap gas awaited. All they needed were pipelines. By the late 1980s and early 1990s, governments generally supported throwing open to all contenders the race to build pipelines. Competition among operators moving the gas to market - not government regulation - was supposed to keep transmission costs reasonable in the new milieu.
As pipeline projects proliferated, natural gas producers sought new markets for their inexpensive and apparently plentiful product. Electrical power generation with gas became a growth industry. As coal
, hydroelectric and nuclear-powered
generation facilities came under attack for environmental reasons, gas stepped in and sold itself as a clean alternative. Businesses arranged for pipelines to transport natural gas for them, found markets for electricity, and even created "cogeneration
plants" to sell the heat created by gas-fired generators to other markets.
As long as natural gas supplies exceeded demand, these facilities remained attractive. They used an inexpensive and environmentally friendly fuel. They met immediate needs at only a fraction of the cost of large nuclear, hydro-electric or coal-powered facilities. Although their share of the market would shrink if gas prices rose, these ingenious projects filled an important market niche during the long period of gas surplus.
's Lodgepole blowouts.
well, which blew wild. Especially because the company had experienced a serious blowout in the same gas field five years earlier, regulatory and public opprobrium was intense. Much of the public outrage occurred because, on some days, the rotten-egg odour of hydrogen sulfide
in the gas could be smelled as far away as Winnipeg
, nearly 1,500 kilometres distant.
In this spectacular event, sour gas flowed at an estimated rate of 150 Mcuft per day. The H2S
content of the gas was 28 per cent, and the well also produced 20 koilbbl/d of sulfur-contaminated, orange-coloured condensate
. The well was out of control for 68 days, during 23 of which the well was not ignited. During that time hydrogen sulfide from the blowout took the lives of two blowout specialists and sent another 16 people to hospital. Today, operators are required to ignite the well quickly in the event of a major sour gas blowout. This eliminates the dangers of highly toxic hydrogen sulfide in the air.
When the crew ignited the well, the fire destroyed the Nabors 14E rig (worth about $8 million) in nine minutes; it also scorched 400 acres (1.6 km²) of forest. Amoco's direct costs to bring the well under control were approximately $20 million. Huge amounts of natural gas, natural gas liquids and sulfur were wasted through the disaster. This meant energy lost to consumers, revenues lost to the company, and royalties and taxes lost to government. According to a report commissioned by Alberta's Energy Resources Conservation Board
, these and other direct costs totalled about $200 million.
The incident spawned a generation of safety regulation
s that require the industry to designate hazardous drilling targets as "critical wells" and to use elaborate safety precautions at the drill site. The new regulations imposed much more stringent drilling procedures at critical wells, required specialized safety features on drilling and other equipment, and forced companies to develop detailed emergency response plans before beginning to drill. Combined, these additional costs can range from $250,000 to $500,000 for a single deep sour gas well. Thus, the indirect costs of the blowout have probably been on the order of $1 billion.
One find from such a program was the Caroline
sour gas discovery in south-central Alberta, in the mid-1980s. This discovery brought the industry into a new era. Because of the costs and dangers involved in developing sour gas, producers in the past had often shut in these discoveries. In the case of Caroline, this was unthinkable.
As the biggest Canadian gas discovery since the 1970s and its richest gas project ever, the Shell-operated Caroline field stood out as a $10 billion resource jewel. Although classified as a gas field
, in the lower-price environment of the day sulfur, liquids and other by-products from the gas promised to exceed the value of the natural gas itself.
However, this discovery proved complicated, environmentally sensitive and economically challenging. The planning and review process took from 1986 to 1990, and set a new standard for community participation and consultation. Two companies, Shell and Husky
, competed for the right to operate the field. The public hearing into the development forced the corporations to compete for the right to develop the resource on new terms.
Farmers, acreage owners and other interested parties quickly made their concerns known. The competing corporations were required to respond to these concerns, so the Caroline experience made public consultation an integral part of planning. Sustainable development theories came under close scrutiny, as did all aspects of the gas processing system. When they recognized that public consultation had become critical to the winning bid, the companies raised community relations to a new level.
Eventually, Shell and its backers won the bid. They constructed a processing plant that recovered almost all the sulfur from Caroline production, and was environmentally advanced in other areas.
By the early 1990s, natural gas processing had come of age. Since its infancy, when operators removed only few of a gas stream's impurities, the gas sector had matured to become an important part of the petroleum industry and of the economy itself. Gas moved around the North American continent in unprecedented volumes. It was and is an environmentally desirable fuel, and gas processing is the handmaiden of natural gas sales.
saw a rapid escalation in natural gas drilling, for the first time the rate of production growth began to falter.
In early 2000, as Murphy Oil
, Apache
and Beau Canada announced their discovery of the Ladyfern Slave Point gas field in a remote area of Northeastern British Columbia, their achievement seemed to herald a new era of successful wildcat exploration. As word of a major discovery leaked out, many of the significant players in the industry jumped on the bandwagon. A frenzy of land purchases, drilling and pipeline construction followed. In little more than a year, production from the new fields rose to more than 700 Mcuft per day - and this from an area only accessible during the cold winter months. Production from this region helped raise Canada's gas production to a new peak (in late 2001) of 17.4 Gcuft of sales gas per day. Then production began to decline slightly.
Rather than representing a new era of large discoveries, Ladyfern appears to have been just another increasingly rare large gas find. During boom periods in the 1950s, for example, gas exploration yielded large new gas fields almost every year, and many discoveries waited for years to be tied into the pipeline network. As the industry matured, such discoveries became unusual. Prior to Ladyfern, the last large gas discovery had been at Caroline, more than ten years earlier.
represents a very small fraction of the natural gas resources present. Unconventional gas represents possibly hundreds of times more natural gas resource than there is for conventional gas. It comes from five major sources:
In 1985, unconventional gas production received a boost when the United States introduced incentives to encourage the development of energy alternatives. This incentive advanced the technical understanding of the resources themselves and of ways to develop them. Canada has benefited from this, learning new ways to exploit her own unconventional resources.
issues, and other factors. In recent years, changes in production technology (notably horizontal drilling and more advanced systems of hydraulic fracturing
or "fraccing") have greatly increased shale gas production. Greater shale gas production in the United States has been an important factor in reduced Canadian exports to that country.
Consider this matter in the context that natural gas producers generally buy mineral rights
from the Crown
but must negotiate surface access and other land rights
with their neighbours. In this environment, the chances are high that some projects will face delays as a result of public hearings - for example, as Shell and the other contenders did at the Caroline hearing. After all, those with an interest in a single land use
decision could include petroleum producers, Aboriginal communities, landowners, farmers, ranchers, loggers, trappers, campers, sports and environmental groups, and others. Many conflicting interests need to be resolved.
Forecasters now commonly suggest that western Canada's conventional gas production has peaked and will continue to decline. Gaps between traditional supply
and growing demand
are already being filled with gas from such diverse sources as tight sands; coalbed methane; and since January 2000, frontier gas and liquids from Nova Scotia's Sable Offshore Energy Project
. Other likely future sources include Mackenzie Delta
gas and liquefied natural gas
from abroad. This suggests higher future cost
s and risk
s, and that suggests higher-price
d future energy
.
One cubic metre of natural gas = 35.49 cubic feet.
One kilopascal = 1% of atmospheric pressure (near sea level).
Canada's oil measure, the cubic metre, is unique in the world. It is metric in the sense that it uses metres, but it is based on volume so that Canadian units can be easily converted into barrels
. In the rest of the metric world, the standard for measuring oil is the metric tonne. The advantage of the latter measure is that it reflects oil quality. In general, lower grade oils are heavier.
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
, but its commercial development was not as rapid. This is because of special properties of this energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
: it is a gas
Gas
Gas is one of the three classical states of matter . Near absolute zero, a substance exists as a solid. As heat is added to this substance it melts into a liquid at its melting point , boils into a gas at its boiling point, and if heated high enough would enter a plasma state in which the electrons...
, and it frequently contains impurities. The technical challenges involved to first process and then pipe it to market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
are therefore considerable. Furthermore, the cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
s of pipeline
Pipeline transport
Pipeline transport is the transportation of goods through a pipe. Most commonly, liquids and gases are sent, but pneumatic tubes that transport solid capsules using compressed air are also used....
building make the whole enterprise capital intensive, requiring both money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
and engineering
Engineering
Engineering is the discipline, art, skill and profession of acquiring and applying scientific, mathematical, economic, social, and practical knowledge, in order to design and build structures, machines, devices, systems, materials and processes that safely realize improvements to the lives of...
expertise, and large enough markets to make the business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
profit
Profit (economics)
In economics, the term profit has two related but distinct meanings. Normal profit represents the total opportunity costs of a venture to an entrepreneur or investor, whilst economic profit In economics, the term profit has two related but distinct meanings. Normal profit represents the total...
able.
Until it became commercially viable, natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
was often a nuisance. Dangerous to handle and hard to get to market, early oilmen despised it as a poor relation to its rich cousin crude oil. Although early processing procedures were able to remove water, in the nineteenth century discoveries were only developed if consumer
Consumer
Consumer is a broad label for any individuals or households that use goods generated within the economy. The concept of a consumer occurs in different contexts, so that the usage and significance of the term may vary.-Economics and marketing:...
s could use the gas just as it came out of the ground. If the gas required further processing or needed to be piped a long distance to market, the producer shut in the well. Flares
Gas flare
A gas flare, alternatively known as a flare stack, is an elevated vertical conveyance found accompanying the presence of oil wells, gas wells, rigs, refineries, chemical plants, natural gas plants, and landfills....
got rid of gas coming from oil well
Oil well
An oil well is a general term for any boring through the earth's surface that is designed to find and acquire petroleum oil hydrocarbons. Usually some natural gas is produced along with the oil. A well that is designed to produce mainly or only gas may be termed a gas well.-History:The earliest...
s.
Natural gas processing
Natural gas processing
Natural-gas processing is a complex industrial process designed to clean raw natural gas by separating impurities and various non-methane hydrocarbons and fluids to produce what is known as pipeline quality dry natural gas.-Background:...
changes the commodity in two critical ways. First, it extracts valuable by-products; second, it renders natural gas fit to be transported to a point for commercial sale and consumption. Through the use of evolving technology, the gas processing industry of each era extracts higher percentages of a wider range of hydrocarbons and other commercial by-products than its predecessors. It also removes ever-higher percentages of dangerous and other unwanted impurities. Steady growth has made natural gas a major industry, with 180 cubic kilometres
Canadian Association of Petroleum Producers
The Canadian Association of Petroleum Producers is the voice of the upstream Canadian oil and natural gas industry. The members of CAPP produce 90% of the petroleum production in Canada.-Background:...
of gas flowing from Canadian fields to market, every year.
Part of a series on Canada's petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
industry
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
, this entry focuses on the second of these two functions of gas processing - removing impurities from the gas stream - rather than recovering natural gas liquids, described elsewhere
History of the petroleum industry in Canada (natural gas liquids)
Canada's natural gas liquids industry dates back to the discovery of wet natural gas at Turner Valley, Alberta in 1914. The gas was less important than the natural gasoline - "skunk gas" it was called, because of its distinctive odour - that early producers extracted from it...
. Of course, most large plants perform both functions, and plants have no other ultimate purpose than to quickly, safely
Safety
Safety is the state of being "safe" , the condition of being protected against physical, social, spiritual, financial, political, emotional, occupational, psychological, educational or other types or consequences of failure, damage, error, accidents, harm or any other event which could be...
and profitably turn raw gas into products to be safely shipped
Shipping
Shipping has multiple meanings. It can be a physical process of transporting commodities and merchandise goods and cargo, by land, air, and sea. It also can describe the movement of objects by ship.Land or "ground" shipping can be by train or by truck...
(mostly by pipeline) to market. The discussion covers gas processing as an engineering
Engineering
Engineering is the discipline, art, skill and profession of acquiring and applying scientific, mathematical, economic, social, and practical knowledge, in order to design and build structures, machines, devices, systems, materials and processes that safely realize improvements to the lives of...
feat, critical developments in exploration and development and the fundamentals of the marketplace
Market fundamentalism
Market fundamentalism is a pejorative term applied to a strong belief in the ability of laissez-faire or free market economic views or policies to solve economic and social problems....
.
Early times
A small natural gas industry in Central CanadaCentral Canada
Central Canada is a region consisting of Canada's two largest and most populous provinces: Ontario and Quebec. Due to their high populations, Ontario and Quebec have traditionally held a significant amount of political power in Canada, leading to some amount of resentment from other regions of the...
had already been around for several decades, but the most significant event in the industry's early history was probably the drilling of a well near Medicine Hat
Medicine Hat, Alberta
Medicine Hat, known to locals as "The Hat", is a city of 61,097 people located in the southeastern part of the province of Alberta, Canada. It is enclaved within Cypress County along with the nearby Town of Redcliff, although neither is part of the county....
in 1890, in search of coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
for the railway. The well encountered a large flow of natural gas, and this prompted town officials to approach the Canadian Pacific Railway
Canadian Pacific Railway
The Canadian Pacific Railway , formerly also known as CP Rail between 1968 and 1996, is a historic Canadian Class I railway founded in 1881 and now operated by Canadian Pacific Railway Limited, which began operations as legal owner in a corporate restructuring in 2001...
with a view to drilling deeper for gas. The resulting enterprise led to the development of the Medicine Hat gas field in 1904. The community took advantage of the natural resource
Natural resource
Natural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
and became the first town or city in western Canada with a gas utility.
Natural gas service began in Calgary somewhat later, when A.W. Dingman formed the Calgary Natural Gas Company. He drilled a successful well in east Calgary, laid pipe to the Calgary Brewing and Malting Company site and began providing gas to the brewery on April 10, 1910. As in Medicine Hat, gas mains soon provided domestic fuel and street lighting.
In a parallel development Eugene Coste, who had been a pioneer in the development of Ontario's natural gas industry, moved west. He drilled the locally famous Old Glory gas well near Bow Island, Alberta, in 1909. In 1912, his Canadian Western Natural Gas Company
ATCO
ATCO Ltd. is an Alberta based corporation with more than 7,000 employees operating across three main business divisions: Power Generation; Utilities and Global Enterprises, with companies active in industrial manufacturing, technology, logistics and energy services.ATCO Ltd...
built a 280-kilometre pipeline connecting the Bow Island field to Lethbridge and Calgary. It augmented the Dingman enterprise in Calgary, which was unable to supply the growing demands of the city. By 1913, several other towns in southern Alberta boasted natural gas service from the Canadian Western system. Coste's pioneering enterprise provided fuel to nearly 7,000 customers.
Canada's first sweetening plant
Sour gasSour gas
Sour gas is natural gas or any other gas containing significant amounts of hydrogen sulfide . Natural gas is usually considered sour if there are more than 5.7 milligrams of H2S per cubic meter of natural gas, which is equivalent to approximately 4 ppm by volume...
, as it is known, in its natural state is laced with hydrogen sulfide
Hydrogen sulfide
Hydrogen sulfide is the chemical compound with the formula . It is a colorless, very poisonous, flammable gas with the characteristic foul odor of expired eggs perceptible at concentrations as low as 0.00047 parts per million...
(H2S), which can be lethal if inhaled in even tiny concentrations. (The more general term acid gas
Acid gas
Acid gas is natural gas or any other gas mixture which contains significant amounts of hydrogen sulfide , carbon dioxide , or similar contaminants. The terms acid gas and sour gas are often incorrectly treated as synonyms...
refers to natural gas with any acidic gas in it - carbon dioxide
Carbon dioxide
Carbon dioxide is a naturally occurring chemical compound composed of two oxygen atoms covalently bonded to a single carbon atom...
(CO2), for example.)
The process of taking hydrogen sulfide out of a gas stream is called "sweetening" the gas. The Union Gas Company of Toronto built Canada's first sweetening plant in 1924 at Port Alma, Ontario, to scrub Tillbury gas. Hydrogen sulfide is a dangerous substance which at low concentrations has an obnoxious rotten egg smell. This odour annoyed Union's customers and prompted it to build the Port Alma plant. It removed hydrogen sulfide by exposing the sour gas to dissolved soda ash. Although previously used on coal gas, the application at the Port Alma plant was the first time this process sweetened natural gas.
The second Canadian sweetening plant followed a year later in Turner Valley
Turner Valley, Alberta
Turner Valley is a town in Alberta, Canada. It is located southwest of Calgary.Situated on Highway 22 , the town was once the centre of an oil and natural gas boom. For 30 years, the Turner Valley Oilfields was a major supplier of oil and gas and the largest producer in the British Empire, but is...
, and used the same process. The first gas found at Turner Valley had been sweet but the Royalite #4 discovery of 1924, from a deeper horizon, was sour. Royalite built the Turner Valley sweetening plant in order to sell its gas to Canadian Western Natural Gas for distribution.
The technology of the day did not render the hydrogen sulfide harmless. Instead, the producer disposed of the substance by burning it and dispersing the by-products into the air from two tall stacks. One chemical result of burning hydrogen sulfide emissions was sulfur dioxide
Sulfur dioxide
Sulfur dioxide is the chemical compound with the formula . It is released by volcanoes and in various industrial processes. Since coal and petroleum often contain sulfur compounds, their combustion generates sulfur dioxide unless the sulfur compounds are removed before burning the fuel...
, another toxic gas. Since hydrogen sulfide is heavier than air, it settled to the ground, dispersed enough to be less than lethal.
Hydrogen sulfide was always in the air in small concentrations. Turner Valley had a rotten egg odour on most days.
Gas conservation after Leduc
As AlbertaAlberta
Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces...
became an ever-larger oil producer after the Leduc discovery, the Conservation Board
Ministry of Energy (Alberta)
The Ministry of Energy is a Cabinet-level agency of the government of the Canadian province of Alberta responsible for coordinating policy relating to the development of mineral and energy resources. It is also responsible for assessing and collecting non-renewable resource royalties, freehold...
acted to prevent any repetition of the natural gas waste so common in Turner Valley. The board developed a broad conservation policy for natural gas. It prohibited producing natural gas from an oil reservoir
Oil reservoir
A petroleum reservoir, or oil and gas reservoir, is a subsurface pool of hydrocarbons contained in porous or fractured rock formations. The naturally occurring hydrocarbons, such as crude oil or natural gas, are trapped by overlying rock formations with lower permeability...
's gas cap before the oil was fully produced, and included provisions aimed at conserving the natural gas often produced along with the oil. For this reason, these plants became known as "gas conservation plants."
The first of these new plants was Imperial
Imperial Oil
Imperial Oil Limited is Canada's largest petroleum company. The company is engaged in the exploration, production and sale of crude oil and natural gas. It is controlled by US based ExxonMobil, which owns 69.6% of its stock...
's Leduc facility (sometimes called Imperial Devon or Imperial Leduc). It sweetened the gas with monoethanolamine (MEA), then extracted the liquid hydrocarbons by refrigeration
Refrigeration
Refrigeration is a process in which work is done to move heat from one location to another. This work is traditionally done by mechanical work, but can also be done by magnetism, laser or other means...
. Northwestern Utilities Limited bought the gas at $14.12 per thousand cubic metres and distributed it in Edmonton
Edmonton
Edmonton is the capital of the Canadian province of Alberta and is the province's second-largest city. Edmonton is located on the North Saskatchewan River and is the centre of the Edmonton Capital Region, which is surrounded by the central region of the province.The city and its census...
. Trucks transported the propane
Propane
Propane is a three-carbon alkane with the molecular formula , normally a gas, but compressible to a transportable liquid. A by-product of natural gas processing and petroleum refining, it is commonly used as a fuel for engines, oxy-gas torches, barbecues, portable stoves, and residential central...
, butane
Butane
Butane is a gas with the formula C4H10 that is an alkane with four carbon atoms. The term may refer to any of two structural isomers, or to a mixture of them: in the IUPAC nomenclature, however, butane refers only to the unbranched n-butane isomer; the other one being called "methylpropane" or...
and "pentanes plus" (the Canadian term for heavier gas liquids) until 1954, when three pipelines began moving the products from Imperial Leduc to Edmonton. When markets could not be found for the propane, the board occasionally granted permission to flare it.
The next important plant built in Canada resulted from the discovery in 1944 of a wet sour gas
Sour gas
Sour gas is natural gas or any other gas containing significant amounts of hydrogen sulfide . Natural gas is usually considered sour if there are more than 5.7 milligrams of H2S per cubic meter of natural gas, which is equivalent to approximately 4 ppm by volume...
find by Shell Oil at Jumping Pound, west of Calgary
Calgary
Calgary is a city in the Province of Alberta, Canada. It is located in the south of the province, in an area of foothills and prairie, approximately east of the front ranges of the Canadian Rockies...
. Calgary, Exshaw
Exshaw, Alberta
Exshaw is a hamlet in Alberta, Canada within Municipal District of Bighorn No. 8. Located approximately west of downtown Calgary and east of Canmore, Exshaw is situated within the Bow River valley north of the Bow River....
(where there was a cement factory) and Banff
Banff, Alberta
Banff is a town within Banff National Park in Alberta, Canada. It is located in Alberta's Rockies along the Trans-Canada Highway, approximately west of Calgary and east of Lake Louise....
were all potential markets for Jumping Pound gas, but the sour gas first required processing and sweetening. The gas plant began operating in 1951.
As the Westcoast and TransCanada natural gas pipelines went into operation in 1957, a new and better day dawned for Canadian gas processing. Most of the gas that travelled those pipelines needed processing to meet the specifications of pipeline companies. Consequently, the late 1950s and early 1960s saw a boom in gas plant construction.
In 1957, a new gas plant at Taylor, near Fort St. John, British Columbia
Fort St. John, British Columbia
The City of Fort St. John is a city in northeastern British Columbia, Canada. A member municipality of the Peace River Regional District, the city covers an area of about 22 km² with 22,000 residents . Located at Mile 47, it is one of the largest cities along the Alaska Highway. Originally...
, began supplying Westcoast Transmission Co. Ltd. This plant's practices differed from those used in Alberta in a number of ways. For example, although it generally required dehydration
Dehydration
In physiology and medicine, dehydration is defined as the excessive loss of body fluid. It is literally the removal of water from an object; however, in physiological terms, it entails a deficiency of fluid within an organism...
, sweetening and processing for liquid hydrocarbons, companies transported the natural gas from northeastern British Columbia
British Columbia
British Columbia is the westernmost of Canada's provinces and is known for its natural beauty, as reflected in its Latin motto, Splendor sine occasu . Its name was chosen by Queen Victoria in 1858...
long distances before processing it further. Consequently, while planning the Westcoast pipeline, the field operators agreed to process all the gas at a single facility, rather than have individual gas plants in every major production area. At 10 million cubic metres per day, the Taylor plant had the capacity to process as much natural gas as all eleven of the other gas plants operating in Canada combined. The plant was also by far Canada's most northerly. Heavily insulated buildings protected the processing facilities and allowed them to function at temperatures typical of more southerly climes.
Selling the products
The enormous growth in Canadian processing capacity in the late 1950s and early 1960s created large inventories of natural gas liquids, liquefied petroleum gases and sulfurSulfur
Sulfur or sulphur is the chemical element with atomic number 16. In the periodic table it is represented by the symbol S. It is an abundant, multivalent non-metal. Under normal conditions, sulfur atoms form cyclic octatomic molecules with chemical formula S8. Elemental sulfur is a bright yellow...
. Growing supplies sometimes created marketing problems.
Natural gas liquids
Sales of gas liquids were seldom difficult because of their ready use in oil refining. Refiners also used butane for blending. Propane, on the other hand, presented a challenge because the volumes available greatly exceeded demand.Companies set out to widen the market with considerable success. Farmers and small communities not served by natural gas adopted it for home heating fuel
Fuel
Fuel is any material that stores energy that can later be extracted to perform mechanical work in a controlled manner. Most fuels used by humans undergo combustion, a redox reaction in which a combustible substance releases energy after it ignites and reacts with the oxygen in the air...
. In the early 1960s, markets for liquid petroleum gases grew rapidly.
Companies responded by building "straddle" plants. These facilities straddled gas pipelines to extract additional volumes of gas liquids from the gas stream. Where economic, field processors began "deep cutting" their own gas by installing facilities that culled more LPG from the gas through deep refrigeration. In the early 1970s, companies began extracting the even lighter hydrocarbon ethane
Ethane
Ethane is a chemical compound with chemical formula C2H6. It is the only two-carbon alkane that is an aliphatic hydrocarbon. At standard temperature and pressure, ethane is a colorless, odorless gas....
at some field processing and straddle plants. Ethane became a feedstock for Alberta's growing petrochemical
Petrochemical
Petrochemicals are chemical products derived from petroleum. Some chemical compounds made from petroleum are also obtained from other fossil fuels, such as coal or natural gas, or renewable sources such as corn or sugar cane....
industry, used in the manufacture of ethylene
Ethylene
Ethylene is a gaseous organic compound with the formula . It is the simplest alkene . Because it contains a carbon-carbon double bond, ethylene is classified as an unsaturated hydrocarbon. Ethylene is widely used in industry and is also a plant hormone...
.
Sulfur
From a slow start in 1952, sulfur production from gas processing snowballed as plant construction boomed in the late 1950s and early 1960s. Tough new regulations enacted by the Alberta government in 1960 forced the industry to reduce its emissions of such sulfur compounds as sulfur dioxideSulfur dioxide
Sulfur dioxide is the chemical compound with the formula . It is released by volcanoes and in various industrial processes. Since coal and petroleum often contain sulfur compounds, their combustion generates sulfur dioxide unless the sulfur compounds are removed before burning the fuel...
and hydrogen sulfide.
Over the years, sour gas processing technology steadily improved. By 1970, more stringent emission standards were technically feasible. The Alberta government announced new, tougher regulations in 1971. Improvements in sulfur extraction technology and the addition of tail gas clean-up units enabled processors to meet these stricter standards.
The amount of sulfur produced in Alberta increased rapidly, and soon far outstripped demand. By 1963, Alberta's annual sulfur production exceeded one million tonnes, compared with 30,000 tonnes in 1956. In 1973 it peaked at slightly more than 7 million tonnes. Stockpiles grew annually. By 1978, 21 million tonnes of sulfur in large yellow blocks dotted the Alberta countryside. These inventories grew almost every year after 1952, and government and industry became seriously concerned about the surplus. Beginning in 1978, a strong sulfur marketing effort made Canada the largest supplier to international trade. Sales of sulfur generally exceeded production and stockpiles at gas plants began to shrink.
Looking at the large, sophisticated, high-tech enterprise that Canadian gas processing is today, it is hard to imagine the challenges the industry faced as it grew up. Gas processing developed as an adjunct to the construction of the major gas transmission pipeline system, which began operating in the late 1950s.
Gas sausage
During the 1980s and 1990s the natural gas industry faced a new series of problems. As demand for gas grew, suppliers expanded their capacity and soon a "gas bubble" developed. There was more producible gas than markets demanded. Although market analysts regularly forecast the end of the bubble as only a few years away, the bubble refused to burst. Some called it the "gas sausage", as it extended over time. The perceived problem of large gas inventories overhanging the market and keeping down prices did not begin to disappear until the late 1990s.Crude oil prices dropped throughout the 1980s and natural gas supplies remained abundant, so consumers began taking advantage of the twin surpluses. Individuals, corporations and governments alike window-shopped for the cheapest crude oil and natural gas available, and demand grew.
In the mid-1980s, conservative governments in Washington, D.C.
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
, Ottawa
Ottawa
Ottawa is the capital of Canada, the second largest city in the Province of Ontario, and the fourth largest city in the country. The city is located on the south bank of the Ottawa River in the eastern portion of Southern Ontario...
and Edmonton
Edmonton
Edmonton is the capital of the Canadian province of Alberta and is the province's second-largest city. Edmonton is located on the North Saskatchewan River and is the centre of the Edmonton Capital Region, which is surrounded by the central region of the province.The city and its census...
moved their petroleum sectors towards deregulation. Throwing the market open to competition added to the gas surplus and to depressed gas prices. Suppliers across the continent began looking for new customers to make up in volume sales what they were unable to earn from low gas prices. But gas pipelines, built decades before, had little excess capacity.
Debate on a second gas pipeline from Alberta to California served as a good example of changing values during this period. For decades, California consumers opposed rival pipelines for fear of having to pay higher gas prices to cover pipeline construction. Deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
made the pipeline companies common carrier
Common carrier
A common carrier in common-law countries is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport...
s so that any producer or marketer could buy space on the pipeline to move its gas. Gone were the days when the pipeline company moved the gas and also marketed it.
As deregulation put an end to vertically integrated
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...
gas delivery and marketing, consuming regions began crying for additional pipeline capacity. In Alberta, half a continent away from America's east coast and from the San Francisco Bay, cheap gas awaited. All they needed were pipelines. By the late 1980s and early 1990s, governments generally supported throwing open to all contenders the race to build pipelines. Competition among operators moving the gas to market - not government regulation - was supposed to keep transmission costs reasonable in the new milieu.
As pipeline projects proliferated, natural gas producers sought new markets for their inexpensive and apparently plentiful product. Electrical power generation with gas became a growth industry. As coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
, hydroelectric and nuclear-powered
Nuclear power
Nuclear power is the use of sustained nuclear fission to generate heat and electricity. Nuclear power plants provide about 6% of the world's energy and 13–14% of the world's electricity, with the U.S., France, and Japan together accounting for about 50% of nuclear generated electricity...
generation facilities came under attack for environmental reasons, gas stepped in and sold itself as a clean alternative. Businesses arranged for pipelines to transport natural gas for them, found markets for electricity, and even created "cogeneration
Cogeneration
Cogeneration is the use of a heat engine or a power station to simultaneously generate both electricity and useful heat....
plants" to sell the heat created by gas-fired generators to other markets.
As long as natural gas supplies exceeded demand, these facilities remained attractive. They used an inexpensive and environmentally friendly fuel. They met immediate needs at only a fraction of the cost of large nuclear, hydro-electric or coal-powered facilities. Although their share of the market would shrink if gas prices rose, these ingenious projects filled an important market niche during the long period of gas surplus.
Exploration and development
The demand for larger supplies of natural gas to meet expanding markets created a need for more gas processing facilities. Industry responded by developing new fields in the rural west. Occasionally this led to tragedy, as in the case of the second of Amoco CanadaAmoco
Amoco Corporation, originally Standard Oil Company , was a global chemical and oil company, founded in 1889 around a refinery located in Whiting, Indiana, United States....
's Lodgepole blowouts.
Lodgepole blowout
In 1982, the company was drilling a sour gasSour gas
Sour gas is natural gas or any other gas containing significant amounts of hydrogen sulfide . Natural gas is usually considered sour if there are more than 5.7 milligrams of H2S per cubic meter of natural gas, which is equivalent to approximately 4 ppm by volume...
well, which blew wild. Especially because the company had experienced a serious blowout in the same gas field five years earlier, regulatory and public opprobrium was intense. Much of the public outrage occurred because, on some days, the rotten-egg odour of hydrogen sulfide
Hydrogen sulfide
Hydrogen sulfide is the chemical compound with the formula . It is a colorless, very poisonous, flammable gas with the characteristic foul odor of expired eggs perceptible at concentrations as low as 0.00047 parts per million...
in the gas could be smelled as far away as Winnipeg
Winnipeg
Winnipeg is the capital and largest city of Manitoba, Canada, and is the primary municipality of the Winnipeg Capital Region, with more than half of Manitoba's population. It is located near the longitudinal centre of North America, at the confluence of the Red and Assiniboine Rivers .The name...
, nearly 1,500 kilometres distant.
In this spectacular event, sour gas flowed at an estimated rate of 150 Mcuft per day. The H2S
Hydrogen sulfide
Hydrogen sulfide is the chemical compound with the formula . It is a colorless, very poisonous, flammable gas with the characteristic foul odor of expired eggs perceptible at concentrations as low as 0.00047 parts per million...
content of the gas was 28 per cent, and the well also produced 20 koilbbl/d of sulfur-contaminated, orange-coloured condensate
Natural gas condensate
Natural-gas condensate is a low-density mixture of hydrocarbon liquids that are present as gaseous components in the raw natural gas produced from many natural gas fields....
. The well was out of control for 68 days, during 23 of which the well was not ignited. During that time hydrogen sulfide from the blowout took the lives of two blowout specialists and sent another 16 people to hospital. Today, operators are required to ignite the well quickly in the event of a major sour gas blowout. This eliminates the dangers of highly toxic hydrogen sulfide in the air.
When the crew ignited the well, the fire destroyed the Nabors 14E rig (worth about $8 million) in nine minutes; it also scorched 400 acres (1.6 km²) of forest. Amoco's direct costs to bring the well under control were approximately $20 million. Huge amounts of natural gas, natural gas liquids and sulfur were wasted through the disaster. This meant energy lost to consumers, revenues lost to the company, and royalties and taxes lost to government. According to a report commissioned by Alberta's Energy Resources Conservation Board
Energy Resources Conservation Board
The Energy Resources Conservation Board is an independent, quasi-judicial agency of the Government of Alberta. It regulates the safe, responsible, and efficient development of Alberta's energy resources: oil, natural gas, oil sands, coal, and pipelines...
, these and other direct costs totalled about $200 million.
The incident spawned a generation of safety regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
s that require the industry to designate hazardous drilling targets as "critical wells" and to use elaborate safety precautions at the drill site. The new regulations imposed much more stringent drilling procedures at critical wells, required specialized safety features on drilling and other equipment, and forced companies to develop detailed emergency response plans before beginning to drill. Combined, these additional costs can range from $250,000 to $500,000 for a single deep sour gas well. Thus, the indirect costs of the blowout have probably been on the order of $1 billion.
Caroline
Later in the decade, many large companies began reviewing their existing land holdings, looking for discoveries that had eluded earlier exploration. This was partly a money-saving idea - necessary because both gas and oil prices were in decline throughout much of the decade.One find from such a program was the Caroline
Caroline, Alberta
Caroline is a village in central Alberta, Canada. It is located southwest of Red Deer. It is most famous for being the hometown of figure skater Kurt Browning, for whom the local ice rink is named.- Demographics :...
sour gas discovery in south-central Alberta, in the mid-1980s. This discovery brought the industry into a new era. Because of the costs and dangers involved in developing sour gas, producers in the past had often shut in these discoveries. In the case of Caroline, this was unthinkable.
As the biggest Canadian gas discovery since the 1970s and its richest gas project ever, the Shell-operated Caroline field stood out as a $10 billion resource jewel. Although classified as a gas field
Natural gas field
Oil and natural gas are produced by the same geological process according fossil fuel suggestion: anaerobic decay of organic matter deep under the Earth's surface. As a consequence, oil and natural gas are often found together...
, in the lower-price environment of the day sulfur, liquids and other by-products from the gas promised to exceed the value of the natural gas itself.
However, this discovery proved complicated, environmentally sensitive and economically challenging. The planning and review process took from 1986 to 1990, and set a new standard for community participation and consultation. Two companies, Shell and Husky
Husky Energy
Husky Energy Inc. is a large integrated Canadian energy company based in Calgary, Alberta. Husky's foundation is in Western Canada, where it has extensive conventional oil and natural gas assets, significant heavy oil production and a range of midstream and downstream operations, including...
, competed for the right to operate the field. The public hearing into the development forced the corporations to compete for the right to develop the resource on new terms.
Farmers, acreage owners and other interested parties quickly made their concerns known. The competing corporations were required to respond to these concerns, so the Caroline experience made public consultation an integral part of planning. Sustainable development theories came under close scrutiny, as did all aspects of the gas processing system. When they recognized that public consultation had become critical to the winning bid, the companies raised community relations to a new level.
Eventually, Shell and its backers won the bid. They constructed a processing plant that recovered almost all the sulfur from Caroline production, and was environmentally advanced in other areas.
By the early 1990s, natural gas processing had come of age. Since its infancy, when operators removed only few of a gas stream's impurities, the gas sector had matured to become an important part of the petroleum industry and of the economy itself. Gas moved around the North American continent in unprecedented volumes. It was and is an environmentally desirable fuel, and gas processing is the handmaiden of natural gas sales.
Supply, demand and price
While Canada is one of the world's three largest gas producers (the other two are Russia and the United States), she does not host many of the world's largest gas fields. It is therefore not surprising that, although in the final years of the 20th century Western CanadaWestern Canada
Western Canada, also referred to as the Western provinces and commonly as the West, is a region of Canada that includes the four provinces west of the province of Ontario.- Provinces :...
saw a rapid escalation in natural gas drilling, for the first time the rate of production growth began to falter.
In early 2000, as Murphy Oil
Murphy Oil
Murphy Oil Corporation is an international oil and gas company, founded in 1944 as C.H. Murphy & Co by Charle H Murphy Sr., that conducts business through various operating subsidiaries. Murphy produces oil and/or natural gas in the United States, Canada, Malaysia, the United Kingdom and Republic...
, Apache
Apache Corp.
Apache Corporation is an American independent oil and gas corporation. It is headquartered in 1 Post Oak Central in the Uptown district of Houston, Texas....
and Beau Canada announced their discovery of the Ladyfern Slave Point gas field in a remote area of Northeastern British Columbia, their achievement seemed to herald a new era of successful wildcat exploration. As word of a major discovery leaked out, many of the significant players in the industry jumped on the bandwagon. A frenzy of land purchases, drilling and pipeline construction followed. In little more than a year, production from the new fields rose to more than 700 Mcuft per day - and this from an area only accessible during the cold winter months. Production from this region helped raise Canada's gas production to a new peak (in late 2001) of 17.4 Gcuft of sales gas per day. Then production began to decline slightly.
Rather than representing a new era of large discoveries, Ladyfern appears to have been just another increasingly rare large gas find. During boom periods in the 1950s, for example, gas exploration yielded large new gas fields almost every year, and many discoveries waited for years to be tied into the pipeline network. As the industry matured, such discoveries became unusual. Prior to Ladyfern, the last large gas discovery had been at Caroline, more than ten years earlier.
Unconventional gas
In any given area, free-flowing, buoyancy-driven conventional gasNatural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
represents a very small fraction of the natural gas resources present. Unconventional gas represents possibly hundreds of times more natural gas resource than there is for conventional gas. It comes from five major sources:
- One is shallow, biogenically derived gas in mixed sand and shale sequences. Shallow biogenic gas is considered to be an unconventional gas resourceNatural resourceNatural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
since it is not generated in the same temperature and pressure systems found in conventional hydrocarbon generation. The Milk River and Medicine Hat sands of southeastern Alberta and southwestern Saskatchewan are classic examples of this type of unconventional gas. This is the area where gas was first produced in western Canada, and it is still a major producing region. This continuously gas-producing area is the largest in the Western Canadian Sedimentary BasinWestern Canadian Sedimentary BasinThe Western Canadian Sedimentary Basin is a vast sedimentary basin underlying of Western Canada including southwestern Manitoba, southern Saskatchewan, Alberta, northeastern British Columbia and the southwest corner of the Northwest Territories. It consists of a massive wedge of sedimentary rock...
. - Coalbed methaneCoalbed methaneCoalbed methane or Coal Bed Methane, coalbed gas or coal mine methane is a form of natural gas extracted from coal beds. In recent decades it has become an important source of energy in United States, Canada, and other countries...
or coal seam methane is natural gas within the structure of coal. Special production techniques to remove this gas from its coal seam reservoirOil reservoirA petroleum reservoir, or oil and gas reservoir, is a subsurface pool of hydrocarbons contained in porous or fractured rock formations. The naturally occurring hydrocarbons, such as crude oil or natural gas, are trapped by overlying rock formations with lower permeability...
include lowering reservoir pressures rather than keeping them high. Coalbed methane knowledge has advanced rapidly. So has the development of water-free natural gas from coal in the Horseshoe Canyon FormationHorseshoe Canyon FormationThe Horseshoe Canyon Formation is part of the Edmonton Group and is up to 230m in thickness. It is Late Campanian to Early Maastrichtian in age and is composed of mudstone, sandstone, and carbonaceous shales...
in Central AlbertaCentral AlbertaCentral Alberta is a region located in the Canadian province of Alberta.Central Alberta is the most densely populated rural area in the province...
. First commercial production only occurred in 2002, but current production is already more than 500 Mcuft per day. - Tight gas is gas in low-permeabilityPermeability (fluid)Permeability in fluid mechanics and the earth sciences is a measure of the ability of a porous material to allow fluids to pass through it.- Units :...
rock. Reservoirs require artificial fracturing to enable the gas to flow. Canadian Hunter Exploration in the 1970s identified a huge gas resource in the Deep Basin of western Alberta. In this area, much of the sedimentary section is charged with natural gas. The rock can have extremely low permeability but production is not hampered by the presence of water. Horizontal drilling and hydraulic fracturingHydraulic fracturingConsiderable controversy surrounds the current implementation of hydraulic fracturing technology in the United States. Hydraulic fracturing, or fracking, is the process of utilizing pressurized water, or some other liquid, to fracture rock layers and release petroleum, natural gas, or other...
are techniques used to develop such resources. Similar gas-charged areas have been found in many parts of the world; a common term for this kind of reservoir is "basin-centred gas". The Montney PlayMontney FormationThe Montney Formation is a stratigraphical unit of Middle Triassic age in the Western Canadian Sedimentary Basin in British Columbia and Alberta....
has seen significant development in the early 2000s in the southern Peace River CountryPeace River CountryThe Peace River Country is an aspen parkland region around the Peace River in Canada. It spans from northwestern Alberta to the Rocky Mountains in northeastern British Columbia, where the region is also referred to as the Peace River Block.- Geography :The Peace River Country includes the...
. - Shale gas is held in shaleShaleShale is a fine-grained, clastic sedimentary rock composed of mud that is a mix of flakes of clay minerals and tiny fragments of other minerals, especially quartz and calcite. The ratio of clay to other minerals is variable. Shale is characterized by breaks along thin laminae or parallel layering...
reservoirs. This is also a highly challenging, low-permeability resource. Large volumes of gas molecules are trapped in shales which represent one of the commonest rock types in any sedimentary sequence. Shale gas production has been pursued in the United States since the early days of the natural gas industry, and in recent years the Barnett ShaleBarnett ShaleThe Barnett Shale is a geological formation located in the Bend Arch-Fort Worth Basin. It consists of sedimentary rocks of Mississippian age in Texas...
in west TexasTexasTexas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
has been a tremendous success. Many companies are experimenting with shale gas production in Saskatchewan, Alberta and even in Nova ScotiaNova ScotiaNova Scotia is one of Canada's three Maritime provinces and is the most populous province in Atlantic Canada. The name of the province is Latin for "New Scotland," but "Nova Scotia" is the recognized, English-language name of the province. The provincial capital is Halifax. Nova Scotia is the...
, New BrunswickNew BrunswickNew Brunswick is one of Canada's three Maritime provinces and is the only province in the federation that is constitutionally bilingual . The provincial capital is Fredericton and Saint John is the most populous city. Greater Moncton is the largest Census Metropolitan Area...
and QuebecQuebecQuebec or is a province in east-central Canada. It is the only Canadian province with a predominantly French-speaking population and the only one whose sole official language is French at the provincial level....
. Large-scale projects are underway in northeastern British Columbia, tapping the Muskwa shalesMuskwa FormationThe Muskwa Formation is a stratigraphical unit of Frasnian age in the Western Canadian Sedimentary Basin.It takes the name from Muskwa River, and was first described in the Western National Gas Fort Nelson a-95-J/94-J-10 well by F.F. Gray and J.R. Kassube, in 1963.-Lithology:The Muskwa Formation is...
in the Horn River BasinHorn River FormationThe Horn River Formation is a stratigraphical unit of Devonian age in the Western Canadian Sedimentary Basin.It takes the name from the Horn River, a tributary of the Mackenzie River, and was first described in outrop on the banks of Horn River in the Northwest Territories by Whittaker in 1922...
. - Gas hydrates consist of natural gas trapped in iceIceIce is water frozen into the solid state. Usually ice is the phase known as ice Ih, which is the most abundant of the varying solid phases on the Earth's surface. It can appear transparent or opaque bluish-white color, depending on the presence of impurities or air inclusions...
crystals in areas of permafrostPermafrostIn geology, permafrost, cryotic soil or permafrost soil is soil at or below the freezing point of water for two or more years. Ice is not always present, as may be in the case of nonporous bedrock, but it frequently occurs and it may be in amounts exceeding the potential hydraulic saturation of...
and on the ocean floor.
In 1985, unconventional gas production received a boost when the United States introduced incentives to encourage the development of energy alternatives. This incentive advanced the technical understanding of the resources themselves and of ways to develop them. Canada has benefited from this, learning new ways to exploit her own unconventional resources.
Complacency
The existence of these resources has led to complacency among consumers, who still assume they will always be supplied with gas at "affordable" prices. Developing these resources can have substantial impacts on the environment through closer well spacing, more intensive infrastructure, additional noise from compression, the challenges of water disposal, NIMBYNIMBY
NIMBY or Nimby is an acronym for the phrase "not in my back yard". The term is used pejoratively to describe opposition by residents to a proposal for a new development close to them. Opposing residents themselves are sometimes called Nimbies...
issues, and other factors. In recent years, changes in production technology (notably horizontal drilling and more advanced systems of hydraulic fracturing
Hydraulic fracturing
Considerable controversy surrounds the current implementation of hydraulic fracturing technology in the United States. Hydraulic fracturing, or fracking, is the process of utilizing pressurized water, or some other liquid, to fracture rock layers and release petroleum, natural gas, or other...
or "fraccing") have greatly increased shale gas production. Greater shale gas production in the United States has been an important factor in reduced Canadian exports to that country.
Consider this matter in the context that natural gas producers generally buy mineral rights
Mineral rights
- Mineral estate :Ownership of mineral rights is an estate in real property. Technically it is known as a mineral estate and often referred to as mineral rights...
from the Crown
The Crown
The Crown is a corporation sole that in the Commonwealth realms and any provincial or state sub-divisions thereof represents the legal embodiment of governance, whether executive, legislative, or judicial...
but must negotiate surface access and other land rights
Land rights
Land law is the form of law that deals with the rights to use, alienate, or exclude others from land. In many jurisdictions, these species of property are referred to as real estate or real property, as distinct from personal property. Land use agreements, including renting, are an important...
with their neighbours. In this environment, the chances are high that some projects will face delays as a result of public hearings - for example, as Shell and the other contenders did at the Caroline hearing. After all, those with an interest in a single land use
Land use
Land use is the human use of land. Land use involves the management and modification of natural environment or wilderness into built environment such as fields, pastures, and settlements. It has also been defined as "the arrangements, activities and inputs people undertake in a certain land cover...
decision could include petroleum producers, Aboriginal communities, landowners, farmers, ranchers, loggers, trappers, campers, sports and environmental groups, and others. Many conflicting interests need to be resolved.
Forecasters now commonly suggest that western Canada's conventional gas production has peaked and will continue to decline. Gaps between traditional supply
Supply (economics)
In economics, supply is the amount of some product producers are willing and able to sell at a given price all other factors being held constant. Usually, supply is plotted as a supply curve showing the relationship of price to the amount of product businesses are willing to sell.In economics the...
and growing demand
Demand (economics)
In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay . The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time....
are already being filled with gas from such diverse sources as tight sands; coalbed methane; and since January 2000, frontier gas and liquids from Nova Scotia's Sable Offshore Energy Project
Sable Offshore Energy Project
The Sable Offshore Energy Project is a consortium based in Halifax, Nova Scotia which is attempting to locate and produce natural gas found near Sable Island on the edge of the Nova Scotian continental shelf in eastern Canada...
. Other likely future sources include Mackenzie Delta
Mackenzie River
The Mackenzie River is the largest river system in Canada. It flows through a vast, isolated region of forest and tundra entirely within the country's Northwest Territories, although its many tributaries reach into four other Canadian provinces and territories...
gas and liquefied natural gas
Liquefied natural gas
Liquefied natural gas or LNG is natural gas that has been converted temporarily to liquid form for ease of storage or transport....
from abroad. This suggests higher future cost
Cost
In production, research, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this...
s and risk
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...
s, and that suggests higher-price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
d future energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
.
Metric conversions
One cubic metre of oil = 6.29 barrels.One cubic metre of natural gas = 35.49 cubic feet.
One kilopascal = 1% of atmospheric pressure (near sea level).
Canada's oil measure, the cubic metre, is unique in the world. It is metric in the sense that it uses metres, but it is based on volume so that Canadian units can be easily converted into barrels
Barrel (unit)
A barrel is one of several units of volume, with dry barrels, fluid barrels , oil barrel, etc...
. In the rest of the metric world, the standard for measuring oil is the metric tonne. The advantage of the latter measure is that it reflects oil quality. In general, lower grade oils are heavier.
Further reading
- Peter McKenzie-Brown, Gordon Jaremko, David Finch, The Great Oil Age, Detselig Enterprises Ltd., Calgary; 1993
- Fred Stenson, Waste to Wealth: The History of Natural Gas Processing in Canada, Canadian Gas Processors Association/Canadian Gas Processors Suppliers' Association; 1985
- Robert Bott, Our Petroleum Challenge: Sustainability into the 21st Century, Canadian Centre for Energy Information, Calgary; Seventh edition, 2004
- This original series written and maintained by Peter McKenzie-Brown. Section above on "Supply, demand and price" largely the work of Dave Russum; see this article.