The Shale Gas Revolution |
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In just a few short years, the conventional wisdom about natural gas has been upended by an unconventional resource. Here’s what it means for Alberta’s industry
by Michael McCullough
It all seemed so clear. Hurricanes Katrina and Rita had just disrupted Gulf Coast production, the winter heating season was upon us and natural gas prices shot up to an all-time high of US$16 per million British thermal units (MMBtu). Here in Alberta, gas demand was expected to soar from the new oilsands projects planned or under construction, which mostly would burn gas to make steam to liberate the stubborn bitumen.
In fact, nothing had been the same since California’s power crisis in 2000, the previous high. Natural gas, which until the 1950s was just a waste byproduct of oil production to be burnt off at the wellhead, and through most of the 1990s had languished around US$2 per MMBtu, was running out in North America. The unprecedented price spikes of 2000 and 2005 seemed proof positive that in the very near future, production would not be able to meet demand. Like Europe, North America would become a net importer of natural gas.
The oil and gas industry and its financial backers were already preparing for this turning point. Plans were revived to build pipelines to the stranded gas fields of the Arctic. There were also proposals for regasification terminals – half a dozen for Canada alone – on the Atlantic and Pacific coasts to bring liquefied natural gas (LNG) from places of relative abundance like Qatar, Indonesia and Russia.
Indeed, much of the economy was girding itself for an era of expensive natural gas. Electrical utilities and industrial users began shifting away from the increasingly costly fossil fuel; pulp and paper mills here in Canada switched to cogeneration systems burning wood waste instead. Proponents readied an application to build Alberta’s first nuclear power plant.
Few paid much heed at the time to a funny thing happening across a swath of northeastern Texas, the heartland of North American hydrocarbon production. In an area encompassing the metropolis of Dallas-Fort Worth, where the conventional oil and gas pools had long been exhausted, a new generation of junior producers was, after years of experimenting, managing to cost-effectively coax gas out of an overlooked layer from the late Carboniferous period known as the Barnett Shale.
Today this mile-deep layer the consistency of brick is producing 3.8 billion cubic feet a day and the lessons learned there have been successfully applied to several more similar formations, including the Montney and Horn River plays in northeastern British Columbia. Together they have boosted North American natural gas production by upwards of 8%, depressed prices and doubled the reserve base within reach of the existing pipeline grid. Indeed, the emergence of shale gas is forcing companies throughout the industry and beyond to rethink their assumptions about the future of gas. And that has serious implications here in Alberta.
