Canada: FMC’s Overview Of Significant Developments In The Canadian Energy Industry - June, 2006

Last Updated: September 26 2006

Article by Doug Black, Bill Gilliland, Nick Kangles, Alex MacWilliam, Karim Mahmud, Miles Pittman, Rich Miller, John Hurley, Roxanna Benoit, Jerry Farrell & Ron Stuber

Alberta Oilsands News

BP PLC will spend up to US$3 billion to upgrade three of its northern U.S. refineries to be capable of handling growing output from the Canadian oilsands. It is also currently seeking long-term shipping supply contracts with Canadian oilsands producers for up to 300,000 bpd of heavy crude. Certain oilsands producers have indicated interest in shipping bitumen to the U.S. for upgrading, citing labour shortages and rising costs as the primary impediments to building upgrading facilities in northern Alberta. Both EnCana and Husky have indicated they would be willing to form joint ventures, exchanging some of their oilsands base for access to upgrading facilities.

TransCanada filed a regulatory application with the National Energy Board to convert a portion of its natural gas pipeline in Canada to carry oil as part of its $2.5 billion Keystone proposal. The transfer application is the first of two major approvals required to construct the Canadian portion of the pipeline. TransCanada will apply for facilities approval later this year once the environmental assessment is complete. The Canadian portion of the project involves the construction of approximately 370 km of new pipeline and the conversion of approximately 860 km of existing pipeline. The U.S. portion includes approximately 1,730 km of new pipeline construction. TransCanada secured long term shipping commitments for 340,000 bpd of crude oil, with an average duration of 18 years. Construction is scheduled to begin in late 2007, with commercial operations commencing in late 2009. (See number 1 on map)

Kinder Morgan will begin construction this summer on a crude oil tank storage facility in Edmonton, Alberta. The new facility will have 9 tanks with a storage capacity of up to 2.2 mbbl, and will be connected with more than 20 incoming pipelines and several major outbound pipelines. One of the major outbound lines will be Kinder Morgan's Trans Mountain Pipeline system, which currently transports up to 225,000 bpd of crude oil from Edmonton, Alberta to the Vancouver area in British Columbia. The tank farm should be operational by late 2007. (See number 2 on map)

The federal Minister of the Environment recently referred the proposed Kearl Lake Oil Sands Development Project to an environmental assessment review panel. The panel will be a joint review between the federal and Alberta governments, and will satisfy the requirements of both the Canadian Environmental Assessment Act and the Alberta Energy Resources Conservation Act. The Project will consist of 4 open pit mines located approximately 70 km north of Ft. McMurray, which are expected to produce 300,000 bpd of bitumen over a 50 year period, beginning in 2010.

According to the Alberta Energy and Utilities Board's 2005 reserve report, Alberta has harvested less than 3 percent of its available bitumen resources. Alberta's oilsands reserves are estimated at 174 bbbl, which is more than 100 times greater than the Province's conventional reserves of 1.6 bbbl. The Energy Information Administration estimates Canadian oilsands production to grow to more than 5 percent per year to 3.6 million bpd by 2030. (See number 3 on map)

West Coast News

The month of June saw two major announcements regarding British Columbia LNG terminal projects. Kitimat LNG has received provincial environmental assessment approval for its proposed $500 million LNG plant near Kitimat, B.C. WestPac LNG has begun the environmental assessment process for its proposed $350 million LNG terminal near Prince Rupert, B.C. The WestPac project will include storage tanks with capacity to transship the natural gas equivalent of up to one bcfpd of LNG, and LNG regassification facilities with capacity of up to 130 mmcfpd of natural gas.

The Nisga'a First Nations group will receive $283,000 from the British Columbia government to explore the economic potential of offshore oil and gas development. A spokesperson for the Nisga'a said that the group is interested in working cooperatively with the provincial government in any offshore oil and gas development. (See number 4 on map)

Canadian Arctic News

The National Energy Board expects production from Alberta's oil sands to triple by 2015. This increase in production will require an increase in the amount of natural gas being used in the region, as natural gas is a key power source for oil sands production and processing. Oil sands projects currently use 700 mcf per day of natural gas, which is approximately 13% of Canada's daily production. The increased supply requirement, which will reach 2.1 bcf per day by 2015, are expected to be largely met through gas transported through the planned Mackenzie Valley pipeline. The pipeline will be able to transport up to 1.2 bcfpd of gas produced from the Canadian Arctic. Public consultations are currently underway, with first gas being transported in 2011. (See number 5 on map)

East Coast News

Husky Energy announced a hydrocarbon discovery in the western section of the White Rose oil field, offshore Newfoundland and Labrador. The discovery could contain a potential recoverable resource of 40 to 90 mbbl of oil. This potential recoverable resource is in addition to the gross proved and probable reserves of approximately 240 mbbl already recognized in the White Rose oil field at the end of 2005.

Husky plans to tie the new White Rose discovery to the SeaRose FPSO (floating production, storage and offloading vessel). The SeaRose FPSO is presently producing approximately 85,000 bpd from four production wells in the South Avalon pool. A fifth production well, which is scheduled to begin production later this month, will increase reservoir production capacity to approximately 110,000 bpd, and a sixth production well that is scheduled to come onstream at the end of 2006 will increase reservoir production capacity to 125,000 bpd. (See number 6 on map)

Alternative Energy News

Suncor has almost completed construction on Canada's biggest ethanol plant and expects to reach full production at the facility by the end of next month. Suncor is set to begin commissioning the $120 million St. Clair ethanol plant near Sarnia, Ontario, which will produce 200 million litres of ethanol annually. Ethanol, a fuel and gasoline additive, is fermented from corn and the St. Clair plant will use 20 million bushels of the grain a year. (See number 7 on map)

On The Horizon

Anadarko to sell its Bear Head LNG project in Nova Scotia.

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