From Wellhead to Burner Tip: How the Canadian Natural Gas Industry is Structured

Canadian Natural GasFrom Wellhead to Burner Tip: How the Canadian Natural Gas Industry is Structured

From Wellhead To Burner Tip

How the Canadian Natural Gas Industry is Structured Canada is the world’s third largest natural gas producer. The state-of-the-art facilities operated by each part of the full Canadian natural gas industry value chain are located in every region of the country. The Canadian natural gas industry operates in the three main types of business, often referred to as upstream, midstream and downstream. While the three “streams” are distinct – with unique requirements, regulations, and technologies – they are fully interconnected and share the common purpose of reliably and safely delivering clean, effi cient Canadian natural gas to the market for a variety of uses.

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Natural gas resource development begins with an analysis of the local geology. Geologists map out the layers of underground rocks (many hundreds or thousands of metres deep) to identify where natural gas-bearing formations might be located. They use models of modern geography but apply them to identify features that existed million of years ago and are now thousands of feet underground. For example, geologists know that ancient seas had shorelines and rivers fl owing into them and they build their underground geological interpretations based on this knowledge.

Geologists also work closely with geophysicists to conduct seismic surveys to refi ne their interpretation of the subsurface geology. These seismic surveys are carefully planned and executed to

minimize disturbances to the environment and limit impacts on wildlife and habitat. Reservoirs are assessed using 2- or 3-dimensional seismic imaging, which is conducted by capturing the returning sound waves (which refl ect off subsurface rock layers) induced by a controlled source of seismic energy emitted on the surface (small explosive charge or seismic vibrator). The gas sector is constantly assessing and adopting new technologies to improve the effi ciency, effectiveness and environmental footprint of its work.

When the prospective areas have been identifi ed, it is necessary for exploration and production companies to acquire surface leases and mineral rights. These companies negotiate land lease deals with land owners and acquire mineral

rights from the appropriate government jurisdiction, since in most areas surface land owners do not have legal ownership of the resources located under their lands. The industry is also subject to comprehensive regulations and requirements that are designed to maximize public safety during the exploration for, and production of, oil and gas resources and ensure that these operations conform to existing environmental laws and that affected stakeholders have been consulted.

Under the Constitution of Canada, the majority of mineral rights in Canada are owned and administered by provincial governments, although the federal government has ownership and jurisdiction over federal Crown lands, such as frontier oil and gas resources in the north and offshore. In some cases these are administered in cooperation with provincial and territorial governments. It is also the federal government that administers freehold rights on treaty lands, on behalf of various aboriginal groups.

With the acquisition of surface leases and mineral rights and with regulatory permits and approvals in place to explore for gas, companies can begin drilling operations.

At the Ground Level: Resource Development

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Until the mid 1990s, natural gas wells in Canada were typically drilled vertically to recover conventional gas: these wellbores were drilled straight into a reservoir, and then the process was repeated for each adjacent geographic area.

Technological innovation has made it possible to create horizontal wellbores, which are increasingly used to recover conventional, and especially, unconventional gas. The wells usually start out vertically, but the drill bit is gradually “steered” into a horizontal position many hundreds of meters under the surface. The two signifi cant advantages of horizontal drilling are the opportunities it has created for the recovery of unconventional natural gas and for noticeably

reducing the land footprint required to produce the gas. Horizontal drilling consolidates many wells into one location, leading to fewer well pads, roads, pipelines, and surface facilities.

Conventional gas is typically “free gas” trapped in multiple, relatively small, porous zones in various naturally occurring rock formations such as carbonates, sandstones, and siltstones. Exploration for conventional gas has been almost the sole focus of the oil and gas industry since it began nearly 100 years ago. However, most of the growth in supply from today’s recoverable gas resources is found in unconventional formations. The technological breakthroughs in horizontal drilling and fracturing that have made shale and other

Buried Treasure: Natural Gas Production What is Fracturing?

Hydraulic fracturing (also called “fraccing”) is the process of pumping a fl uid or a gas down a well, many hundreds or thousands of metres below ground, to a depth considered appropriate for natural gas production. The pressure this creates causes the surrounding rock to crack, or fracture. A fl uid (usually water with some additives) holding a suspended proppant (usually sand) then fl ows into the cracks. When the pumping pressure is relieved, the water disperses leaving a thin layer of the sand to prop open the cracks. This layer acts as a conduit to allow the natural gas to escape from tight (low permeability) formations and fl ow to the well so that it can be recovered.

Fracturing has been in use with both vertical and horizontal wells in Canada since the 1950s, meaning that there is a signifi cant body of experience and study related to its use. The technology is carefully used and managed to prevent environmental impact, particularly on groundwater.

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Tight Gas Shale GasCoalbed MethaneProduced Offshore Coast NorthernExisting Conventional (WCSB)

20102000

700-1300 TCF*100+ years of supply

390 TCF*70 years of supply

unconventional gas supplies commercially viable have revolutionized Canada’s natural gas supply picture.

In unconventional reservoirs, dense layers of gas molecules are literally attached to organic rock fragments by a mechanism

known as “methane adsorption.” Horizontal drilling, combined with a process known as hydraulic fracturing, is especially important in unconventional gas recovery because it enables the natural gas to be detached from the surrounding rock formations and brought to the surface.

Wellbores are carefully constructed to effi ciently recover gas while protecting the surrounding environment, particularly underground drinking water (most often

called potable groundwater). A well bore is drilled to allow a narrow pipe to be sunk deep into the ground. This pipe is surrounded in the bore hole with cement to ensure that both the pipe and the underground area it travels through are completely separated. At the production site, deep underground and several hundred meters below the water table, the production pipe is perforated to allow the natural gas to fl ow into the pipe and rise up to the surface.

Technology has greatly expanded Canada’s natural gas resource base, which is constantly being re-assessed as new technology economically

unlocks new resources. Source: CSUG.

Fact:Horizontal drilling noticeably reduces the land footprint required to produce natural gas.

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Before the 1950s, Canadian natural gas was a local resource, transported and used in areas that were close to production sites. In 1957, the Westcoast Pipeline (in use today by Spectra Energy Corp.) began carrying gas from northeast British Columbia to the U.S. border. Later that same year, TransCanada began operating its Alberta System (known as AGTL or NOVA), and also started construction of the TransCanada Pipeline to carry natural gas to Central Canada, which was completed in 1958.

The transformational nature of a cross-country natural gas pipeline launched a period of infrastructure investment that has resulted in today’s widespread national and international pipeline transmission and distribution network. This system features an underground network of almost 480,000 km of pipeline, ranging in diameter from one-metre (or more) central pipelines fl owing compressed gas across Canada’s vast terrain to three-centimetre pipes that fl ow gas at low pressure into more than six million Canadian homes and businesses. The National Energy Board generally regulates Canadian pipelines that cross multiple jurisdictions,

with provincial regulators having jurisdiction over intra-provincial transportation and Local Distribution Companies (LDCs).

Natural gas has to be pushed along the pipeline by taking advantage of methane’s natural physical properties. By compressing the gas and then letting it fl ow from an area of higher pressure to an area of lower pressure and repeating the process at intervals, Canada’s gas companies move about 16 billion cubic feet of natural gas each day, approximately half of which is used by Canadian consumers. Depending on demand and the season, the remaining gas is either stored for future use, or exported to the United States. A much smaller fraction of the gas is used by the transportation network itself, to self-fuel the pipeline compressors.

Canada also has an emerging liquefi ed natural gas (LNG) industry, with an LNG production and export facility proposed in British Columbia and LNG import capacity now in place in New Brunswick. LNG is stored and transported in specialized containers. LNG also provides a solution for the local storage of gas for use at times of peak demand.

In the Pipeline: Natural Gas Goes to Market Pure Natural Gas

The raw natural gas that is recovered at a well then fl ows into small (5 to 15 cm) gathering pipelines for transportation to a processing facility. To be ready for market, natural gas has to be processed into pipeline-ready dry gas in the form of purifi ed methane.

Gas processing plants range in size from small, movable compression facilities capable of removing impurities and water from gas, to larger plants that remove sulphur, carbon dioxide and natural gas liquids (these are familiar and valuable substances such as ethane, butane and propane). Almost all the removed sulphur and natural gas liquids are recovered and sold for other commercial uses.

Natural gas may pass through one or more processing facility on its way to market. Once the natural gas is “dry,” in its pure methane state, it can be compressed for transmission along Canada’s pipeline highway.

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NBQCONSKABBC

Bcf

Canadian Storage Capacity by Province in 2007

Whether natural gas is stored in underground holding facilities or transformed into LNG, the storage of natural gas plays a critical role in balancing North American natural gas supply and demand.

While production from natural gas wells remains fairly constant throughout a calendar year, demand fl uctuates signifi cantly between winter and summer. In Canada, depending on the weather, winter demand in the residential and commercial sector can surpass summer demand by up to six times.

This large seasonal gap could have quite an effect on price, but this is addressed in part by injecting natural gas into storage in summer so that it can be used later when

temperatures fall. Total North American storage capacity equals almost two months of average North American supply. Canada has about one-fi fth of North American capacity. The most common form of natural gas storage is in depleted oil and gas reservoirs. Examples

of this type of storage can be found close to production areas in Alberta and close to end use markets in Southern Ontario. Natural gas can also be stored in mined-out salt caverns and old aquifers, or liquefi ed and stored in tanks in the form of LNG.

Ready and Waiting: The Importance of Natural Gas Storage

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“Now you’re cooking with gas,” is an expression synonymous with speed and effi ciency. Canadian natural gas is a progressive, modern, versatile source of energy. It is truly remarkable that, after more than a century of use in Canada, natural gas continues to be a key energy choice for innovative, effi cient, cleaner, cost-effective technologies. Increasingly popular uses of natural gas include:

TRANSPORTATION 3

Compressed or liquefi ed natural gas is an option for fuelling heavy vehicles, such as highway tractor trailers and garbage trucks. This reduces both fuel costs and carbon emissions. Natural gas is also an effi cient feedstock

for hydrogen production for use in fuel cells.

SPACE AND WATER 3

HEATINGAdvanced home heating systems running at effi ciencies over 90% (and often over 95%) maximize the potential of natural gas to offer economy and environmental benefi ts. Tankless water heaters are another example of the energy effi ciency natural gas technologies offer today’s homeowner. District energy and combined heat and power systems can provide both distributed heat and produced electricity to local residences. The excess energy produced by combined heat and

power systems in local industries can be used to heat nearby buildings.

INDUSTRIAL 3

PROCESSESMany of the energy-intensive industries operating in Canada today, particularly in the natural resources sector, rely on natural gas to operate, harnessing the instant-heat and unique combustion advantages of natural gas. Using combined heat and power systems (CHP), many industries can become net energy producers.

ELECTRICITY 3

GENERATIONNatural gas is an effi cient source of electric power

Nothing Like It: The Unmatched Versatility of Natural Gas

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Natural gas powers Canada’s industries, with 58% of all gas used in Canada fuelling industrial processes.

Natural gas is the single largest source of energy for space heating in Canada. Homeowners with access to natural gas enjoy the benefi ts of effi ciency, cost-effectiveness, safety, and reliability.

Residential Space Heating by system type

Wood2%

Electric Baseboard28.6%Dual Fuel System9.3%

Heat Pump4.1%Other (Coal & Propane)1%

Heating Oil7.2%

Natural Gas47.7%

Construction2%Refined Petroleum Products4% Chemicals & Fertilizers11%

Mining & Oil & Gas Extraction34%

Pulp & Pulp Manufacturing6%

Iron & Steel7%

Aluminum & Non Ferrous Metals2%

All Other Manufacturing34%

Industrial Sector Natural Gas Use

and is a foundation fuel for an electricity system looking to include more intermittent renewable generation sources such as wind or solar. With its low emissions profi le and ability to be quickly responsive to sudden changes in electricity supply and demand, natural gas can easily partner with wind and solar power to meet the reliability and environmental objectives of the electricity grid.

Canadian natural gas is already delivered to over 6 million customers nationwide. The residential and commercial sectors account for 42 per cent of consumption in Canada, while the industrial and power generation sectors account for 58 per cent. There is ample supply in Canada to permit more users to enjoy the many benefi ts of natural gas, particularly as infrastructure development continues to provide natural gas wherever it is needed.

For more information:

[email protected]

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Please recycle.

© 2011 Canadian Natural Gas.

Canadian Natural Gas is a made-in-Canada advocacy project sponsored by the following associations:

Canadian Energy Pipeline AssociationAssociation canadienne de pipelines d’énergie