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While Alaska and Canada may be the northern frontiers of the continent, both have a long and storied history of oil and gas exploration and development. As the challenges and opportunities of the new decade gain momentum, the regions are undergoing profound changes and adjustments.

Alaska

Thanks to the discovery of the 25 billion bbl reservoir at Prudhoe Bay in the late 1960s, the state was exporting up to 2 million bpd from the North Slope via the Trans Alaska pipeline system (TAPS) throughout the 1980s. While production has ebbed over the last several decades to just under 500 000 bpd, exciting new discoveries give hope to the 77 000 Alaskans (one quarter of the population) who work in the oil and gas sector: In early 2021, 88 Energy announced an oil discovery at its

Merlin 1 exploration well in the National Petroleum

Reserve-Alaska (NPRA). Based in initial information, the

Australian-based company is projecting a potential 650 million bbl reserve. The target reservoir in the

Nanushuk formation is at a depth of approximately 1800 m. Just north of the Merlin discovery, ConocoPhillips is planning on developing its Willow prospect, a 750 million bbl reservoir. The multi-billion dollar project is designed to produce 160 000 bpd, or 600 million bbl over 30 years, starting in the mid-2020s. Recent drilling by Australia-based Oil Search has now increased reserves at its Pikka discover east of Merlin to 1 billion bbl, pushing the US$3 billion development closer to approval. Oil Search and partner Repsol plan to have the discovery online by 2026. Shell, which has an 81 000 acre lease in the shallow waters of the Beaufort Sea, received approval in late 2020 to explore the West Harrison Bay prospect, also located in the

Nanushuk Formation. The plan calls for the drilling of two wells in the next five years.

In late 2020, Hilcorp Energy fi nalised its US$5.6 billion acquisition of BP’s energy assets in Alaska. The deal included BP’s interest in the Prudhoe Bay fi eld and TAPS. In February 2021, the company requested approval to drill two oil and gas exploration wells at its Whiskey Gulch prospect, located approximately 200 km southwest of Anchorage, on the south shore of Cook Inlet. Hilcorp already has several onshore gas wells, serviced by the ENSTAR natural gas line that runs down the peninsula.

In early 2021, the Alaska Gasline Development Corp. (AGDC) announced it was seeking federal funding to build a natural gas pipeline from the North Slope to Fairbanks. The US$5.9 billion line would run approximately 800 km to central Alaska. The proposed line is part of a larger US$38.7 billion Alaska LNG project that would include a 1300 km line with a capacity of 3.3 billion ft3/d to transport gas to an LNG facility in Nikiski on the Kenai Peninsula. The plan is an effort to

Gordon Cope, Contributing Editor, examines the profound challenges and adjustments facing Alaska and Canada as the demands and opportunities of the new decade gain momentum.

monetise over 26 trillion ft3 of stranded gas in the North Slope.

Canada

In April 2021, Inter Pipeline, which is building the Heartland petrochemical project near Edmonton, announced several purchase contracts that will cover 60% of the plant’s output. The US$3.2 billion plant is designed to convert propane into 525 000 tpy of polypropylene when it begins operation in early 2022; the long-term contracts to seven Canadian and international buyers will cover approximately 315 000 tpy. The plant is being designed with the latest technology, and will have a greenhouse gas (GHG) emissions footprint 65% lower than the global average for similar petrochemical facilities.

In April 2021, Calgary-based Nauticol Energy announced it was building a US$3 billion blue methanol plant in northern Alberta. “This will be the fi rst project at world scale that will be net zero, or blue methanol, which is really important,” noted Mark Tonner, President and Chief Executive Offi cer. When the plant enters operation in 2025, it will produce up to 3.4 million tpy of methanol, to be shipped by rail to ports in British Columbia for transport to Singapore. The plant will require 250 million ft3/d of natural gas as feedstock; modules will capture 1 million tpy of pure CO2 for sequestration. In addition, electrical power for the plant will largely be supplied by a biomass utility plant adjacent to the site. Singapore-based Fortrec Chemicals & Petroleum, which supplies marine fuel, is a partner in the venture. “Singapore is one of the world’s largest bunkering fuel centres so there’s a big role that methanol will play in helping to decarbonise and improve the air quality of shipping,” said Tonner.

In late 2020, Alberta launched a new programme to attract petrochemical investments to the province. The Alberta Petrochemicals Incentive Program (APIP) offers a direct 12% grant on eligible capital costs. The province has approximately 223 trillion ft3 in natural gas reserves, and exports over 10 billion ft3/d to markets in Eastern Canada and the US. The programme is designed to attract value-added projects to the province; government offi cials estimate that it could generate up to CA$30 billion in investments by 2030.

Construction on Shell Canada and partners’ LNG Canada is approximately 25% complete. The fi rst phase of the US$30 billion project, situated in the Pacifi c port of Kitimat, British Columbia, will have two 6.5 million tpy trains; phase two will add two further trains, bringing the plant’s capacity to 26 million tpy. The project includes TC Energy’s Coastal GasLink pipeline that will deliver up to 2.1 billion ft3/d from northern British Columbia to the coast. TC Energy reported that recent COVID-19 related lockdowns are expected to raise the cost of the US$6.6 billion line, as well as delay commissioning.

Canadian crude production and exports are on an upward trajectory. Oil output in Western Canada is expected to rise from 3.9 million bpd in 2020 to 4.45 million bpd by the end of 2021, primarily due to the oilsands. Mexican heavy crude exports have slowed, and Venezuelan exports are curtailed by US sanctions. Canada now exports around 3.8 million bpd to the

US (primarily the Midwest and USGC), which is expected to rise to 4.2 – 4.4 million bpd by 2026. Although the Keystone XL line is once again cancelled, expansions on the current system will add almost 1 million bpd capacity by 2025, and crude-by-rail capacity is continually growing.

To counter the ‘dirty oil’ image, oilsands operators are continually working to reduce their carbon footprint. Cenovus, which has been operating its Foster Creek SAGD project for 20 years, has two different solvent pilots underway. One of the projects involves solvent-aided process, where propane displaces about 10% of the injected steam. Preliminary fi ndings support a 30% reduction in the steam-to-oil-ratio (SOR), a measure of the effi ciency of the lift process. CNRL has been experimenting with an In-Pit Extraction Process (IPEP) at its Horizon open pit mine. The company uses a portable modular extraction plant that can be positioned at the mine face, where it extracts bitumen and leaves only dry tailings. The process greatly reduces GHG emissions and water usage, and eliminates tailings ponds.

Challenges

In addition to the cancelation of Keystone XL, crude producers in Canada face further pipeline complications. In late 2020, Michigan ordered Line 5 (which transports 540 000 bpd from Canada through the state to Ontario and Quebec) to shut down operations by 13 May, due to the potential for spills where it passes under the Straits of Mackinac in the Great Lakes. Pipeline operator Enbridge has sought legal relief, and the case is being heard in a US federal court. While the May deadline passed without closure, an eventual shutdown would affect refi neries in Sarnia, Ontario, as well as millions of consumers in both Canada and the US.

The Biden administration’s suspension of new leases on federal lands and waters threatens new discoveries in Alaska. Although exploration companies have a comprehensive catalogue of leases to keep them busy for most of the decade, if the suspension should turn into a permanent ban, then Alaska, which is primarily federal land, would fi nd its future jeopardised. Along with 12 other states, Alaska fi led a lawsuit to counter the White House suspension. “We fear that President Biden’s attack on federal oil and gas leasing has only begun, and the State must be involved to protect the interests of all Alaskans in the responsible development of the bountiful natural resources contained within Alaska,” said Governor Mike Dunleavy.

The Biden administration also posted a temporary moratorium on new leases in the Arctic National Wildlife Refuge (ANWR). Federal agencies are also putting the brakes on the enclave that protects polar bears, caribou and endangered bird species. In early 2021, a proposed seismic survey of over 350 000 acres on the coastal plain of the ANWR was scuttled when the Department of the Interior ruled that the project lacked protection for polar bears. They noted that Kaktovik Inupiat Corp., an indigenous-owned company, failed to adequately identify polar bear dens in the region. The fi nding is another roadblock to the 2017 decision made by President Trump to allow exploration in the ANWR.

Financing exploration in the region also became more diffi cult. In late 2020, Bank of America joined JP Morgan, Wells Fargo, Chase, Citigroup and Goldman Sachs by publicly announcing it would refuse lending for oil and gas exploration in ANWR, although they continue to lend to fossil fuel development in other jurisdictions. The move (there are now approximately 50 fi nancial institutions worldwide with similar bans), drives up the cost of exploration, but major explorers have much better prospects (such as offshore South America), where costs and above-ground risks are lower. An ANWR lease sale held by the Bureau of Land Management (BLM) in the later days of Trump’s administration drew qualifying bids for only 11 tracts, most from an Alaska state agency acting as a backstop to the lease.

The future

In early 2021, an alliance of government, indigenous, academic and economic developers announced CA$2.2 million in funds to develop a plan for the Edmonton Region Hydrogen HUB. The Edmonton region is already a major producer of hydrogen using steam reforming technology, primarily for upgrading crude. The money will be used to develop blue and green hydrogen projects, as well as the infrastructure to store and transport hydrogen to market in Western Canada.

Green hydrogen also has great potential in Canada. It derives almost 60% of its electricity from hydro power, primarily in Quebec and British Columbia. Hydro-Quebec has commissioned Thyssenkrupp to build an 88 MW water electrolysis plant in Varennes, Quebec. When the plant enters service in 2023, it will generate over 11 000 tpy of green hydrogen, which will then be used to generate biofuels. A consortium is also looking at building a similar plant in British Columbia.

The demand for lithium, a primary component of electric vehicle (EV) batteries, is expected to grow exponentially over the coming decade. However, commercial deposits are in limited supply and involve mining or evaporation processes that are environmentally damaging. However, brines from mature wells in Alberta contain high levels of lithium (over 70 mg/l), and companies are exploring means to economically harvest the metal in a clean manner. Calgary-based E3 Metals Corp. has a plan to produce 20 000 tpy of battery-grade lithium hydroxide using a direct lithium extraction (DLE) process involving highly-selective, ion-exchange technology. The US$600 million plant, located in central Alberta, would use renewable energy (either wind or geothermal) to make green lithium, re-injecting the spent brine in order to avoid freshwater contamination. E3 estimates that the average cost of producing lithium at its plant would be slightly over US$3600/t; the current retail price is in the range of US$12 000/t.

Conclusion

The election of President Joe Biden in 2020 reversed the trend toward deregulation of the oil and gas sector in North America under the previous Trump administration. The White House has launched moratoriums on new leases on federal lands, which has the potential to signifi cantly impact Alaska. The cancellation of the Keystone XL pipeline and impediments toward existing lines carrying crude to the US could also disrupt Canada’s oil and gas sector. That said, explorers are continuing to discover new fi elds in Alaska and expanding production in the oilsands, guaranteeing that fossil fuels will continue to prosper as new forms of renewable fuel, including hydrogen, become a greater part of the energy mix.