History of the petroleum industry in Canada (natural gas liquids)
Encyclopedia
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. That natural gas liquid could be poured directly into an automobile's fuel tank.
As the natural gas
industry grew with pipeline construction in the 1950s, many companies - Imperial
, British American (B/A; later Gulf Canada
) and Shell, for example - constructed plants in Alberta to process newly-discovered natural gas so it could be made pipeline
-ready. Many of these plants extracted NGL
s from natural gas as part of natural gas processing
.
For NGLs to become a major business, however, took the efforts of large and imaginative players, plus the development of a much larger gas supply from which to extract these light hydrocarbons. Conditions were right in the 1960s, and the two companies that took advantage of the opportunity were Amoco Corporation and Dome Petroleum
, neither of which is any longer in existence. Amoco took over Dome after the company essentially went bankrupt in 1988, and BP
took over Amoco in a friendly merger ten years later. Here is the story of how those two companies developed key components of the infrastructure for this vital niche industry.
Headquarters for Amoco Corporation were in Chicago
, because that city is close to Whiting, Indiana
. Whiting was home of Amoco’s largest oil refinery
(and one of the largest in the world). In operation since 1890, Whiting originally refined sour crude oil from the neighbouring state of Ohio. And it was Standard of Indiana’s (Amoco’s) most important single asset after the US Supreme Court ordered the Standard Oil Trust broken up. In its early years, Amoco was primarily a refiner and a marketer of refined products to expanding Midwestern markets. Whiting provided products that could be marketed from Chicago — a city that was itself a large market for petroleum products.
By 1970, Amoco had become one of the largest integrated oil corporations in the world through both acquisitions and internal growth. Besides being a large-scale refiner and distributor of refined products, it was a powerful force in petrochemicals, oil and gas exploration and production, pipelines, and in the marketing of crude oil, natural gas
and natural gas liquids (NGL
s).
The corporation was growing globally, but it was heavily focused in North America
. And though its oil and gas activity was concentrated in the US southwest and in western Canada, its marketing presence was strongest in middle America
. From its Chicago base, the corporation had unrivalled intelligence about hydrocarbon
demand in the US Midwest.
The liquids extraction plant closed in 1927 and reopened in 1933 after the company revamped the facility. The new plant used "lean oil" absorption, a process that forced raw gas into contact with lean oil in chains of steel bubble caps. Improvement of the absorption medium and contact between the gas and the oil made for substantially higher rates of liquids recovery. The new plant was so successful that other companies built two similar plants in Turner Valley, and Royalite built a second plant to handle its production from the south end of the field. Gas and Oil Products Ltd. built a similar plant at Hartell
in 1934 and British American (BA) opened one at Longview
in 1936.
Once Alberta's Petroleum and Natural Gas Conservation Board
began operating in 1938, the BA and Gas and Oil Products Limited plants had to change their operations significantly. Only Royalite had a market for its residue of gas stripped of liquids in the Canadian Western Natural Gas
distribution system. The other two plants flared
or burned off most of their residue gas until the board ruled that only wells connected to a market could be produced, stopping the practice. Since the rule applied only to wells that tapped the oil reservoir
's overlying gas cap, the Hartell and Longview plants stayed in operation by processing solution gas, or gas dissolved in oil from the Valley's wells.
to create sophisticated liquids infrastructure in Western Canada
.
Headquartered in Calgary
, Amoco Canada’s liquids marketing group had a great deal of independence in the early years. However, many synergies were possible through cooperation between Chicago
and Calgary. As importantly, Amoco and Dome Petroleum
formed a number of strategic partnerships in the liquids business during the 1960s. So extensive were those partnerships that, when Dome went on the block in 1986, it was inevitable that Amoco would be an aggressive suitor.
Alberta’s liquids business dates to the development of the Pembina field, when Dallas-based Goliad Oil and Gas received rights to recover solution gas
from the field. Also known as “casing head gas” or “associated gas,” solution gas is dissolved in reservoir oil at underground pressures. Released under the relatively low pressures at Earth
’s surface, it usually includes natural gas liquids. Often, as at Pembina, these can be profitably extracted. While Goliad received the gas from Pembina, the separated liquids were returned to the producers.
At about the same time, Dome developed a solution gas gathering business based on oilfields around Steelman, Saskatchewan
. And in Alberta, plants like the one at Whitecourt began processing liquids-rich gas in 1961. Amoco began planning this gas plant in 1957, as local gas discoveries made it clear a major new plant was necessary. When it went into production, West Whitecourt quickly began to boast the biggest volumes of condensate production in Canada: 13000 oilbbl/d. And from there, volumes went up. Since that time, bigger plants have made the records of 1962 seem small. However, this plant was nonetheless an industry pioneer.
, propane
, butane
and condensate
. To separate them into more valuable individual products requires fractionation facilities. Fractionation towers
separate a stream of mixed NGL feedstock into specification-grade ethane, propane, butane and condensate products.
Distillation is the process used to fractionate NGLs. The different components in a liquids mix evaporate at different temperatures. Thus, when heat is applied to a stream of product entering a fractionation tower, lighter components vapourize and move to the top of the tower; heavier components drop to the bottom. The amount of heat applied to the brew depends on which component is being separated out for sale to the customer.
The lighter product coming off the top of the tower as a vapour — called the overhead product — is then cooled so it will condense back into a liquid. To achieve full separation, a stream of product is processed through a series of towers. “Spec” or high-grade product is taken off the top of a tower, and the bottom product becomes the feedstock for the next tower.
In the mid-1960s, there were only two fractionation facilities in Alberta. One was a plant at Devon, Alberta
, and owned by Imperial Oil. That plant processed liquids from Leduc, Redwater and other Imperial-operated fields. Later, it also processed liquids from Swan Hills
, a wet gas field which was operated by other companies. Also, in 1964 Imperial constructed another plant for solution gas/liquids extraction to service Judy Creek, Swan Hills, and other fields.
Originally, Hudson’s Bay Oil and Gas had applied to construct, operate and own that plant. Imperial then made a proposal of its own. Amoco and British American intervened at an Oil and Gas Conservation Board hearing with a proposal that would give all operators a share of the plant. Under pressure from the Amoco/BA plan, Imperial modified its proposal and was awarded the project. As a result of the Amoco/BA intervention, Imperial became operator, but Amoco and the other producers were partners.
Because Amoco would soon begin to receive its considerable liquids from Swan Hills in kind, the need to find ways to get optimum value from these liquids was clear. Markets in western Canada could not absorb the large and growing liquids volumes that Alberta was producing. However, markets in central Canada
and the US Midwest could. Working with Chicago, Amoco Canada began developing a marketing strategy, a critical part of which would be the delivery system.
required 25 years of reserves in the ground in order to gain an export permit (from Canada). What drove the economics of this procedure was not gas production, but the liquids that could be recovered and sold as part of the crude mix.
Another Amoco/Dome joint venture soon followed. At the end of the ‘60s, Alberta and Southern Gas Company began building a larger plant at Cochrane
, a small town just west of Calgary. In industry parlance, this was a straddle plant. Another step in the development of the Amoco/Dome liquids system was Dome’s construction — in 1976 — of the Edmonton Ethane Extraction Plant. This straddle plant replaced an earlier facility.
Straddle plants extract ethane and heavier liquids from the gas stream, returning drier gas (by now almost entirely methane) to the pipeline. Liquids fetch a higher price (relative to their energy or BTU content) because they have uses other than firing furnaces — as gasoline
additives and petrochemical
feedstocks, for example.
While plant construction was underway, Dome and Amoco built a 320-kilometre pipeline from Cochrane to Edmonton (the Co-Ed line), with Dome as operator. This line fed liquids to Dome/Amoco’s new Fort Saskatchewan liquids terminal, and helped the company develop expertise in pipeline operations. Other Dome- and Amoco-operated lines were soon delivering NGLs to the Fort Saskatchewan plant.
Built in the early 1970s, Fort Saskatchewan supplemented the Edmonton Liquid Gas Plant. Key to the plant’s success was the existence underground of large salt formations. The operator was able to dissolve (“wash”) huge storage caverns in these formations. Those caverns provided large volumes of inexpensive, safe inventory capacity for the plant. Having storage capacity for NGLs enabled the company to buy and store surplus NGLs year round, including times when markets were soft and prices dropped to seasonal lows.
The Dome-operated plant quickly became a hub of western Canada’s liquids business. The reason is that Amoco and Dome created a partnership to do something that had never been tried before, anywhere. Using Fort Saskatchewan as a staging point, they batched natural gas liquids through Interprovincial’s oil pipeline to Sarnia
. In 1980, the partnership added fractionation
facilities at Fort Saskatchewan.
The impact of this arrangement on the economics
of transporting large volumes of NGL was considerable. To send propane that distance by rail at the time cost $3.50-$4.20 per barrel. Batching the stuff through Amoco/Dome facilities and IPL brought transportation costs down to approximately $1 per barrel.
, to enable this operation to work. They also had to construct batch receipt facilities, storage, and a fractionation plant at Sarnia. That plant went on stream in 1970.
Sarnia
was chosen for several reasons. Most importantly, of course, it is the terminus of Interprovincial Pipelines
’ main lines. The city itself is a big part of central Canada
’s petroleum market. Near the 1857 Oil Springs discovery, Sarnia became a refining centre during Ontario’s 19th century oil boom and a petrochemical centre during World War II. Sarnia has underground salt formations like those at Fort Saskatchewan. Caverns washed into those formations were used to receive NGL from IPL, and to store specification grade products to meet seasonal demand.
From the Sarnia plant, Amoco and Dome could meet regional requirements for liquids by rail, water and road links to central Canada and the US Midwest. Also, of course, pipelines were constructed to local petrochemical
plants. Thus, Sarnia had the essential infrastructure for a successful marketing operation.
Initially, the plant was small. Daily capacity was 17500 barrels (2,782.3 m³) of liquefied petroleum gases (propane and butane), and 12500 barrels (1,987.3 m³) of condensate and crude oil. It grew quickly, however: salt storage caverns were soon added, and a 1974 expansion of the fractionation plant increased NGL processing capacity to nearly 50000 oilbbl/d.
The early growth of Amoco’s liquids business was astonishing. By 1970 Amoco Canada’s NGL production had reached 25000 oilbbl/d. Amoco Corporation’s North American liquids operations processed 2.9 Gcuft of gas per day to produce 105000 barrels (16,693.7 m³) of liquids. Those volumes represented about 4 per cent of North America’s gas processing capacity, 5 per cent of the continent’s liquids capacity.
As Amoco prepared to increase market share
for liquids in the Midwest, its US liquids subsidiary — Tuloma Gas Products by name — moved headquarters from Tulsa to Chicago. Clearly, the business would grow through partnership between Calgary and Chicago.
, delivery point to the TransCanada transmission line. The Empress plant sits just inside the Alberta/Saskatchewan border. This is for reasons related to both politics
and infrastructure
. Politically, Alberta wanted value to be added inside provincial borders. As importantly, it made sense to extract liquids before sending the dry gas that remained - unadulterated methane - into the export market.
During inquiries into natural gas exports in the 1950s, the ERCB recommended the creation of a province-wide natural gas gathering system. The thinking behind this idea was twofold: first, it would be more efficient to develop a single gathering system than to let gathering systems evolve piecemeal. Second, such a system would eliminate the possibility of federal regulation of gas within the province. Alberta was jealous of its hard-won control over natural resources and saw gas transportation within the province as an aspect of resource management
. The province was also very conscious of the potential of natural gas and its products for provincial industrial development.
Accordingly, Alberta passed the Alberta Gas Trunk Line Act. Alberta Gas Trunk Line (later known as NOVA Corporation
’s Gas Transmission Division) would gather gas within the province, delivering the commodity to federally regulated TransCanada PipeLines and other export pipelines just inside the Alberta border. Empress was the site at which TransCanada PipeLines would receive gas for delivery to eastern markets.
Pacific Petroleums (acquired by Petro-Canada
) had already built a straddle plant at Empress to extract liquids, so Dome’s idea was not new. However, Dome built a much larger facility there. The facility was constructed on a patch of bald prairie in the early 1970s. The owners were Dome and a TransCanada subsidiary, which later sold its interest to PanCanadian Petroleums.
The NGLs recovered at the new Empress plant needed to be transported to market, and the largest markets continued to be in the US Midwest. So Dome built injection facilities at nearby Kerrobert, Saskatchewan. Those facilities enabled Dome to inject additional liquids into the batches that were flowing from Fort Saskatchewan through Interprovincial Pipeline.
At the same time the team of Dow Chemicals, Nova and Dome put together the Alberta Ethane Project. This plan was essentially a $1.5 billion blueprint for the creation of a petrochemicals business in Alberta based on natural gas liquids, especially ethane
. And the plan took on a political life of its own, since it offered the opportunity for value-added products to be manufactured in Alberta for export. The provincial government stood four-square behind it.
— to convert ethane to the petrochemical feedstock ethylene
. This would form the basis for a petrochemical manufacturing centre. That centre grew dramatically during the decades that followed. By the late 1990s, ten large-scale petrochemical plants were operating there.
A third component was the Alberta Ethane Gathering System (AEGS,) which would deliver ethane from Alberta straddle plants to storage caverns at Fort Saskatchewan. This system would include a reversible connection to the Joffre petrochemical complex. In addition, one leg of the AEGS pipeline would connect Empress, which would soon become the largest gas processing centre in the world.
The fourth component was the Cochin Pipeline, which would ship ethylene from Alberta to Sarnia, and would also export ethane and propane to the US. The world’s longest NGL pipeline went on stream in 1978. Amoco had the opportunity to participate in this venture, but chose not to do so. (There is irony in this, since Amoco became operator of both the Cochin pipeline and Empress after the acquisition of Dome.)
To complete the picture of the Canadian liquids business, it is worth noting that in 1977 Amoco and Dome bought the Canadian assets of Goliad Oil and Gas Company. This increased the supply of liquids available to Amoco by about 1800 oilbbl/d. But this acquisition also had symbolic importance, since Goliad had such a key role in the early liquids business.
Although not primarily related to the liquids business, the merger with Dome brought Amoco another large transportation system. The Rangeland Pipeline, which was originally developed by Hudson’s Bay Oil and Gas, by 1998 moved about 130000 barrels (20,668.3 m³) of oil per day. Because the company had developed pipeline expertise primarily through the liquids business, Amoco’s liquids organization operated the line.
While Amoco and Dome were the lead players in developing Canada’s liquids industry, neither company neglected exploration, development and production operations. Both companies helped pioneer conventional exploration and production in western Canada during the 1950s and '60s. And beginning in the 1960s, they were also pioneers in Canada’s geographic frontiers
and in oil sands and heavy oil
development.
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.
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...
in 1914. The gas was less important than the natural gasoline
Natural gasoline
Natural gasoline is a natural gas liquid with a vapor pressure intermediate between natural gas condensate and liquefied petroleum gas and has a boiling point within the range of gasoline. The typical gravity of natural gasoline is around 80 API....
- "skunk gas" it was called, because of its distinctive odour - that early producers extracted from it. That natural gas liquid could be poured directly into an automobile's fuel tank.
As the 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...
industry grew with pipeline construction in the 1950s, many companies - 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...
, British American (B/A; later Gulf Canada
Gulf Oil
Gulf Oil was a major global oil company from the 1900s to the 1980s. The eighth-largest American manufacturing company in 1941 and the ninth-largest in 1979, Gulf Oil was one of the so-called Seven Sisters oil companies...
) and Shell, for example - constructed plants in Alberta to process newly-discovered natural gas so it could be made 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....
-ready. Many of these plants extracted NGL
NGL
NGL may refer to:*Next Generation Learning*Natural gas liquids*Next-generation lithography*Next Generation Logistics*No Greater Love*Nordic Green Left*NGL *North German Lloyd, a German shipping company...
s from natural gas as part of 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:...
.
For NGLs to become a major business, however, took the efforts of large and imaginative players, plus the development of a much larger gas supply from which to extract these light hydrocarbons. Conditions were right in the 1960s, and the two companies that took advantage of the opportunity were Amoco Corporation and Dome Petroleum
Dome Petroleum
Dome Petroleum Limited was a Calgary-based petroleum producer in the Alberta oilfields. Jack Gallager joined a group of investors in Dome Exploration Ltd. in 1950 and built it into the major Canadian oil company Dome Petroleum Limited . Gallagher was the sole employee for the first two years...
, neither of which is any longer in existence. Amoco took over Dome after the company essentially went bankrupt in 1988, and BP
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
took over Amoco in a friendly merger ten years later. Here is the story of how those two companies developed key components of the infrastructure for this vital niche industry.
Headquarters for Amoco Corporation were in Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
, because that city is close to Whiting, Indiana
Whiting, Indiana
Whiting is a city located in the Chicago Metropolitan Area in Lake County, Indiana, which was founded in 1889. The city is located on the southern shore of Lake Michigan. It is roughly 16 miles from the Chicago Loop and just short of two miles from Chicago's South Side. Whiting is home to Whiting...
. Whiting was home of Amoco’s largest oil refinery
Oil refinery
An oil refinery or petroleum refinery is an industrial process plant where crude oil is processed and refined into more useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas...
(and one of the largest in the world). In operation since 1890, Whiting originally refined sour crude oil from the neighbouring state of Ohio. And it was Standard of Indiana’s (Amoco’s) most important single asset after the US Supreme Court ordered the Standard Oil Trust broken up. In its early years, Amoco was primarily a refiner and a marketer of refined products to expanding Midwestern markets. Whiting provided products that could be marketed from Chicago — a city that was itself a large market for petroleum products.
By 1970, Amoco had become one of the largest integrated oil corporations in the world through both acquisitions and internal growth. Besides being a large-scale refiner and distributor of refined products, it was a powerful force in petrochemicals, oil and gas exploration and production, pipelines, and in the marketing of crude oil, 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...
and natural gas liquids (NGL
NGL
NGL may refer to:*Next Generation Learning*Natural gas liquids*Next-generation lithography*Next Generation Logistics*No Greater Love*Nordic Green Left*NGL *North German Lloyd, a German shipping company...
s).
The corporation was growing globally, but it was heavily focused in North America
North America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
. And though its oil and gas activity was concentrated in the US southwest and in western Canada, its marketing presence was strongest in middle America
Midwestern United States
The Midwestern United States is one of the four U.S. geographic regions defined by the United States Census Bureau, providing an official definition of the American Midwest....
. From its Chicago base, the corporation had unrivalled intelligence about hydrocarbon
Hydrocarbon
In organic chemistry, a hydrocarbon is an organic compound consisting entirely of hydrogen and carbon. Hydrocarbons from which one hydrogen atom has been removed are functional groups, called hydrocarbyls....
demand in the US Midwest.
Liquids extraction in Turner Valley
Between 1924 and 1927, Royalite operated two gas processing facilities side-by-side in Turner Valley: the sweetening plant and the liquids plant.The liquids extraction plant closed in 1927 and reopened in 1933 after the company revamped the facility. The new plant used "lean oil" absorption, a process that forced raw gas into contact with lean oil in chains of steel bubble caps. Improvement of the absorption medium and contact between the gas and the oil made for substantially higher rates of liquids recovery. The new plant was so successful that other companies built two similar plants in Turner Valley, and Royalite built a second plant to handle its production from the south end of the field. Gas and Oil Products Ltd. built a similar plant at Hartell
Hartell, Alberta
Hartell is an unincorporated community in Alberta, Canada within the Municipal District of Foothills No. 31. It is located at the intersection of Highway 22 and Highway 543, approximately south of Black Diamond.- External links :*...
in 1934 and British American (BA) opened one at Longview
Longview, Alberta
Longview is a village in southern Alberta, Canada. It is located in the Canadian Rockies foothills, on Cowboy Trail, 32 km west of High River and 64 km south of Calgary...
in 1936.
Once Alberta's Petroleum and Natural Gas 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...
began operating in 1938, the BA and Gas and Oil Products Limited plants had to change their operations significantly. Only Royalite had a market for its residue of gas stripped of liquids in the Canadian Western Natural Gas
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...
distribution system. The other two plants flared
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....
or burned off most of their residue gas until the board ruled that only wells connected to a market could be produced, stopping the practice. Since the rule applied only to wells that tapped the 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 overlying gas cap, the Hartell and Longview plants stayed in operation by processing solution gas, or gas dissolved in oil from the Valley's wells.
Amoco/Dome Synergies
As the Turner Valley story illustrates, the extraction of natural gas liquids goes back to the industry's early years. However, the development of partnerships between the large American oil company Amoco and the young, dynamic Dome PetroleumDome Petroleum
Dome Petroleum Limited was a Calgary-based petroleum producer in the Alberta oilfields. Jack Gallager joined a group of investors in Dome Exploration Ltd. in 1950 and built it into the major Canadian oil company Dome Petroleum Limited . Gallagher was the sole employee for the first two years...
to create sophisticated liquids infrastructure in Western Canada
Western 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 :...
.
Headquartered in 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...
, Amoco Canada’s liquids marketing group had a great deal of independence in the early years. However, many synergies were possible through cooperation between Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
and Calgary. As importantly, Amoco and Dome Petroleum
Dome Petroleum
Dome Petroleum Limited was a Calgary-based petroleum producer in the Alberta oilfields. Jack Gallager joined a group of investors in Dome Exploration Ltd. in 1950 and built it into the major Canadian oil company Dome Petroleum Limited . Gallagher was the sole employee for the first two years...
formed a number of strategic partnerships in the liquids business during the 1960s. So extensive were those partnerships that, when Dome went on the block in 1986, it was inevitable that Amoco would be an aggressive suitor.
Alberta’s liquids business dates to the development of the Pembina field, when Dallas-based Goliad Oil and Gas received rights to recover solution gas
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....
from the field. Also known as “casing head gas” or “associated gas,” solution gas is dissolved in reservoir oil at underground pressures. Released under the relatively low pressures at Earth
Earth
Earth is the third planet from the Sun, and the densest and fifth-largest of the eight planets in the Solar System. It is also the largest of the Solar System's four terrestrial planets...
’s surface, it usually includes natural gas liquids. Often, as at Pembina, these can be profitably extracted. While Goliad received the gas from Pembina, the separated liquids were returned to the producers.
At about the same time, Dome developed a solution gas gathering business based on oilfields around Steelman, Saskatchewan
Saskatchewan
Saskatchewan is a prairie province in Canada, which has an area of . Saskatchewan is bordered on the west by Alberta, on the north by the Northwest Territories, on the east by Manitoba, and on the south by the U.S. states of Montana and North Dakota....
. And in Alberta, plants like the one at Whitecourt began processing liquids-rich gas in 1961. Amoco began planning this gas plant in 1957, as local gas discoveries made it clear a major new plant was necessary. When it went into production, West Whitecourt quickly began to boast the biggest volumes of condensate production in Canada: 13000 oilbbl/d. And from there, volumes went up. Since that time, bigger plants have made the records of 1962 seem small. However, this plant was nonetheless an industry pioneer.
Extracting NGLs
Separated from a gas stream, NGLs are an undifferentiated batch of light hydrocarbons — ethaneEthane
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....
, 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 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....
. To separate them into more valuable individual products requires fractionation facilities. Fractionation towers
Fractional distillation
Fractional distillation is the separation of a mixture into its component parts, or fractions, such as in separating chemical compounds by their boiling point by heating them to a temperature at which several fractions of the compound will evaporate. It is a special type of distillation...
separate a stream of mixed NGL feedstock into specification-grade ethane, propane, butane and condensate products.
Distillation is the process used to fractionate NGLs. The different components in a liquids mix evaporate at different temperatures. Thus, when heat is applied to a stream of product entering a fractionation tower, lighter components vapourize and move to the top of the tower; heavier components drop to the bottom. The amount of heat applied to the brew depends on which component is being separated out for sale to the customer.
The lighter product coming off the top of the tower as a vapour — called the overhead product — is then cooled so it will condense back into a liquid. To achieve full separation, a stream of product is processed through a series of towers. “Spec” or high-grade product is taken off the top of a tower, and the bottom product becomes the feedstock for the next tower.
In the mid-1960s, there were only two fractionation facilities in Alberta. One was a plant at Devon, Alberta
Devon, Alberta
Devon is a town in the province of Alberta, Canada, situated southwest of Edmonton, the provincial capital, and located along the banks of the North Saskatchewan River.- History :Devon owes its existence to one of the largest oil discoveries in the world...
, and owned by Imperial Oil. That plant processed liquids from Leduc, Redwater and other Imperial-operated fields. Later, it also processed liquids from Swan Hills
Swan Hills, Alberta
Swan Hills is a town in northern Alberta, Canada. It is located north of Whitecourt at the junction of Highway 32 and Grizzly Trail. Swan Hills is located in Municipal District of Big Lakes within census Division No...
, a wet gas field which was operated by other companies. Also, in 1964 Imperial constructed another plant for solution gas/liquids extraction to service Judy Creek, Swan Hills, and other fields.
Originally, Hudson’s Bay Oil and Gas had applied to construct, operate and own that plant. Imperial then made a proposal of its own. Amoco and British American intervened at an Oil and Gas Conservation Board hearing with a proposal that would give all operators a share of the plant. Under pressure from the Amoco/BA plan, Imperial modified its proposal and was awarded the project. As a result of the Amoco/BA intervention, Imperial became operator, but Amoco and the other producers were partners.
Because Amoco would soon begin to receive its considerable liquids from Swan Hills in kind, the need to find ways to get optimum value from these liquids was clear. Markets in western Canada could not absorb the large and growing liquids volumes that Alberta was producing. However, markets in central Canada
Central 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...
and the US Midwest could. Working with Chicago, Amoco Canada began developing a marketing strategy, a critical part of which would be the delivery system.
Recycling plants
Recycling plants such as those at Kaybob, West Whitecourt and Crossfield produced liquids-rich gas from "retrograde condensation" reservoirs. They stripped condensate and natural gas liquids and sulfer (which they alternately stored in blocks or sold, depending on demand and price), then re-injected the dry gas to cycle the reservoir to capture more liquids. Usually these plants needed make-up gas to replace the volume of the liquids stripped which came from other reservoirs. In the case of West Whitecourt, they also processed dry but sour gas from the Pine Creek field (near Edson) as a source of make-up gas. In the case of Crossfield, the liquids-rich gas came from the Wabamun D-1 zone and the make-up gas from the uphole Elkton zone. Most of these plants were built in the days of 16 cent long-term contracts from TransCanada PipeLine when the National Energy BoardNational Energy Board
The National Energy Board is an independent economic regulatory agency created in 1959 by the Government of Canada to oversee "international and inter-provincial aspects of the oil, gas and electric utility industries"...
required 25 years of reserves in the ground in order to gain an export permit (from Canada). What drove the economics of this procedure was not gas production, but the liquids that could be recovered and sold as part of the crude mix.
Dome-Amoco partnership
Dome had built the other fractionation plant, known as the Edmonton Liquid Gas Plant, in 1962. As Amoco made plans to build liquids as a business, in 1967 the company bought a half interest in this facility. This arrangement was the beginning of a series of liquids-related deals that would soon see Amoco and Dome partnering to become the largest players in Canada’s NGL business.Another Amoco/Dome joint venture soon followed. At the end of the ‘60s, Alberta and Southern Gas Company began building a larger plant at Cochrane
Cochrane, Alberta
Cochrane is a town in the Canadian province of Alberta. The town is located 18 km west of the Calgary city limits along Highway 1A. With a population of 15,424 , Cochrane is the second largest town in Alberta and one of the fastest growing communities in Canada...
, a small town just west of Calgary. In industry parlance, this was a straddle plant. Another step in the development of the Amoco/Dome liquids system was Dome’s construction — in 1976 — of the Edmonton Ethane Extraction Plant. This straddle plant replaced an earlier facility.
Straddle plants extract ethane and heavier liquids from the gas stream, returning drier gas (by now almost entirely methane) to the pipeline. Liquids fetch a higher price (relative to their energy or BTU content) because they have uses other than firing furnaces — as gasoline
Gasoline
Gasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
additives and 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....
feedstocks, for example.
While plant construction was underway, Dome and Amoco built a 320-kilometre pipeline from Cochrane to Edmonton (the Co-Ed line), with Dome as operator. This line fed liquids to Dome/Amoco’s new Fort Saskatchewan liquids terminal, and helped the company develop expertise in pipeline operations. Other Dome- and Amoco-operated lines were soon delivering NGLs to the Fort Saskatchewan plant.
Built in the early 1970s, Fort Saskatchewan supplemented the Edmonton Liquid Gas Plant. Key to the plant’s success was the existence underground of large salt formations. The operator was able to dissolve (“wash”) huge storage caverns in these formations. Those caverns provided large volumes of inexpensive, safe inventory capacity for the plant. Having storage capacity for NGLs enabled the company to buy and store surplus NGLs year round, including times when markets were soft and prices dropped to seasonal lows.
The Dome-operated plant quickly became a hub of western Canada’s liquids business. The reason is that Amoco and Dome created a partnership to do something that had never been tried before, anywhere. Using Fort Saskatchewan as a staging point, they batched natural gas liquids through Interprovincial’s oil pipeline to Sarnia
Sarnia, Ontario
Sarnia is a city in Southern Ontario, Canada . It is the largest city on Lake Huron and is located where the upper Great Lakes empty into the St. Clair River....
. In 1980, the partnership added fractionation
Fractionation
See also: Fractionated spacecraftFractionation is a separation process in which a certain quantity of a mixture is divided up in a number of smaller quantities in which the composition changes according to a gradient. Fractions are collected based on differences in a specific property of the...
facilities at Fort Saskatchewan.
The impact of this arrangement on the economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
of transporting large volumes of NGL was considerable. To send propane that distance by rail at the time cost $3.50-$4.20 per barrel. Batching the stuff through Amoco/Dome facilities and IPL brought transportation costs down to approximately $1 per barrel.
Sarnia
Liquefied petroleum gases (or LPGs, another name for propane and butane) have to be contained well above atmospheric pressure to remain in liquid form. The partners therefore had to build special “breakout” facilities in Superior, WisconsinSuperior, Wisconsin
Superior is a city in and the county seat of Douglas County, Wisconsin, United States. The population was 26,960 at the 2010 census. Located at the junction of U.S. Highways 2 and 53, it is north of and adjacent to both the Village of Superior and the Town of Superior.Superior is at the western...
, to enable this operation to work. They also had to construct batch receipt facilities, storage, and a fractionation plant at Sarnia. That plant went on stream in 1970.
Sarnia
Sarnia, Ontario
Sarnia is a city in Southern Ontario, Canada . It is the largest city on Lake Huron and is located where the upper Great Lakes empty into the St. Clair River....
was chosen for several reasons. Most importantly, of course, it is the terminus of Interprovincial Pipelines
Enbridge
Enbridge Inc. is a Calgary, Alberta based company focused on three core businesses: crude oil and liquids pipelines, natural gas transportation and distribution, and green energy. The company has approximately 6,000 employees, mostly in Canada and the United States...
’ main lines. The city itself is a big part of central Canada
Central 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...
’s petroleum market. Near the 1857 Oil Springs discovery, Sarnia became a refining centre during Ontario’s 19th century oil boom and a petrochemical centre during World War II. Sarnia has underground salt formations like those at Fort Saskatchewan. Caverns washed into those formations were used to receive NGL from IPL, and to store specification grade products to meet seasonal demand.
From the Sarnia plant, Amoco and Dome could meet regional requirements for liquids by rail, water and road links to central Canada and the US Midwest. Also, of course, pipelines were constructed to local 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....
plants. Thus, Sarnia had the essential infrastructure for a successful marketing operation.
Initially, the plant was small. Daily capacity was 17500 barrels (2,782.3 m³) of liquefied petroleum gases (propane and butane), and 12500 barrels (1,987.3 m³) of condensate and crude oil. It grew quickly, however: salt storage caverns were soon added, and a 1974 expansion of the fractionation plant increased NGL processing capacity to nearly 50000 oilbbl/d.
The early growth of Amoco’s liquids business was astonishing. By 1970 Amoco Canada’s NGL production had reached 25000 oilbbl/d. Amoco Corporation’s North American liquids operations processed 2.9 Gcuft of gas per day to produce 105000 barrels (16,693.7 m³) of liquids. Those volumes represented about 4 per cent of North America’s gas processing capacity, 5 per cent of the continent’s liquids capacity.
As Amoco prepared to increase market share
Market share
Market share is the percentage of a market accounted for by a specific entity. In a survey of nearly 200 senior marketing managers, 67 percent responded that they found the "dollar market share" metric very useful, while 61% found "unit market share" very useful.Marketers need to be able to...
for liquids in the Midwest, its US liquids subsidiary — Tuloma Gas Products by name — moved headquarters from Tulsa to Chicago. Clearly, the business would grow through partnership between Calgary and Chicago.
Empress
During this early period of growth, Dome proposed to build a liquids recovery plant — in effect, a very large straddle plant — at the Empress, AlbertaEmpress, Alberta
- See also :*List of communities in Alberta*List of villages in Alberta*Monarchy in Alberta- References :...
, delivery point to the TransCanada transmission line. The Empress plant sits just inside the Alberta/Saskatchewan border. This is for reasons related to both politics
Politics
Politics is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the...
and infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
. Politically, Alberta wanted value to be added inside provincial borders. As importantly, it made sense to extract liquids before sending the dry gas that remained - unadulterated methane - into the export market.
During inquiries into natural gas exports in the 1950s, the ERCB recommended the creation of a province-wide natural gas gathering system. The thinking behind this idea was twofold: first, it would be more efficient to develop a single gathering system than to let gathering systems evolve piecemeal. Second, such a system would eliminate the possibility of federal regulation of gas within the province. Alberta was jealous of its hard-won control over natural resources and saw gas transportation within the province as an aspect of resource management
Resource management
In organizational studies, resource management is the efficient and effective deployment of an organization's resources when they are needed. Such resources may include financial resources, inventory, human skills, production resources, or information technology...
. The province was also very conscious of the potential of natural gas and its products for provincial industrial development.
Accordingly, Alberta passed the Alberta Gas Trunk Line Act. Alberta Gas Trunk Line (later known as NOVA Corporation
NOVA Chemicals
NOVA Chemicals Corporation is a plastics and chemical company headquartered in Calgary, Alberta, with Executive Offices in the Pittsburgh suburb of Moon Township, Pennsylvania and Lambton County, Ontario. It was founded in 1954 as Alberta Gas Trunk Lines and was later renamed to NOVA Corporation...
’s Gas Transmission Division) would gather gas within the province, delivering the commodity to federally regulated TransCanada PipeLines and other export pipelines just inside the Alberta border. Empress was the site at which TransCanada PipeLines would receive gas for delivery to eastern markets.
Pacific Petroleums (acquired by Petro-Canada
Petro-Canada
Petro-Canada was a crown corporation of Canada in the field of oil and natural gas. It was headquartered in the Petro-Canada Centre in Calgary, Alberta. In August, 2009, Petro-Canada merged with Suncor Energy, a deal in which Suncor investors received approximately 60 per cent ownership of the...
) had already built a straddle plant at Empress to extract liquids, so Dome’s idea was not new. However, Dome built a much larger facility there. The facility was constructed on a patch of bald prairie in the early 1970s. The owners were Dome and a TransCanada subsidiary, which later sold its interest to PanCanadian Petroleums.
The NGLs recovered at the new Empress plant needed to be transported to market, and the largest markets continued to be in the US Midwest. So Dome built injection facilities at nearby Kerrobert, Saskatchewan. Those facilities enabled Dome to inject additional liquids into the batches that were flowing from Fort Saskatchewan through Interprovincial Pipeline.
At the same time the team of Dow Chemicals, Nova and Dome put together the Alberta Ethane Project. This plan was essentially a $1.5 billion blueprint for the creation of a petrochemicals business in Alberta based on natural gas liquids, especially 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....
. And the plan took on a political life of its own, since it offered the opportunity for value-added products to be manufactured in Alberta for export. The provincial government stood four-square behind it.
Other components
The plan consisted of four components. The straddle plants at Empress were the first. The second was a petrochemical complex at Joffre — then a village near the city of Red DeerRed Deer, Alberta
Red Deer is a city in Central Alberta, Canada. It is located near the midpoint of the Calgary-Edmonton Corridor and is surrounded by Red Deer County. It is Alberta's third-most-populous city – after Calgary and Edmonton. The city is located in aspen parkland, a region of rolling hills...
— to convert ethane to the petrochemical feedstock 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...
. This would form the basis for a petrochemical manufacturing centre. That centre grew dramatically during the decades that followed. By the late 1990s, ten large-scale petrochemical plants were operating there.
A third component was the Alberta Ethane Gathering System (AEGS,) which would deliver ethane from Alberta straddle plants to storage caverns at Fort Saskatchewan. This system would include a reversible connection to the Joffre petrochemical complex. In addition, one leg of the AEGS pipeline would connect Empress, which would soon become the largest gas processing centre in the world.
The fourth component was the Cochin Pipeline, which would ship ethylene from Alberta to Sarnia, and would also export ethane and propane to the US. The world’s longest NGL pipeline went on stream in 1978. Amoco had the opportunity to participate in this venture, but chose not to do so. (There is irony in this, since Amoco became operator of both the Cochin pipeline and Empress after the acquisition of Dome.)
To complete the picture of the Canadian liquids business, it is worth noting that in 1977 Amoco and Dome bought the Canadian assets of Goliad Oil and Gas Company. This increased the supply of liquids available to Amoco by about 1800 oilbbl/d. But this acquisition also had symbolic importance, since Goliad had such a key role in the early liquids business.
Although not primarily related to the liquids business, the merger with Dome brought Amoco another large transportation system. The Rangeland Pipeline, which was originally developed by Hudson’s Bay Oil and Gas, by 1998 moved about 130000 barrels (20,668.3 m³) of oil per day. Because the company had developed pipeline expertise primarily through the liquids business, Amoco’s liquids organization operated the line.
While Amoco and Dome were the lead players in developing Canada’s liquids industry, neither company neglected exploration, development and production operations. Both companies helped pioneer conventional exploration and production in western Canada during the 1950s and '60s. And beginning in the 1960s, they were also pioneers in Canada’s geographic frontiers
History of the petroleum industry in Canada (frontier exploration and development)
Canada's early petroleum discoveries took place near population centres or along lines of penetration into the frontier.The first oil play, for example, was in southern Ontario. The first western natural gas discovery occurred on a Canadian Pacific Railway right-of-way...
and in oil sands and heavy oil
History of the petroleum industry in Canada (oil sands and heavy oil)
Canada's oil sands and heavy oil resources are among the world's great petroleum deposits. They include the vast oil sands of northern Alberta, and the heavy oil reservoirs that surround the small city of Lloydminster, which sits on the border between Alberta and Saskatchewan...
development.
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. 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.