Weathering the storm

Canada’s oil and gas sector has been dealt a series of blows over the past year, but it’s still standing. Gordon Cope discusses the country’s major planned and ongoing energy projects.

Canada has immense oil and gas resources, both conventional and unconventional. Upheavals, such as the COVID-19 pandemic, the US election and environmental interventions have had a profound impact on the country’s energy sector. In the meantime, great strides have been made in developing new pipeline networks and major projects.

Western Canada Pembina Pipeline has earmarked CAN$730 million in capital spending for 2021. Most of the funds, CAN$540 million, will be directed toward its Phase VII Peace Pipeline expansion. The original expansion in

the Valleyview-Fox Creek Corridor northwest of Edmonton, Alberta, was slated to have a capacity of 240 000 bpd. Feedback from customer development plans necessitated the company to re-scope the capacity to 160 000 bpd. The project will see a new, 20 in. line installed by the first half of 2023, mainly to handle the growth in condensate supply in the Western Canadian Sedimentary basin. Once Phase VII is complete, the company will have 1.1 million bpd capacity in its Peace and Northern pipeline systems to deliver a slate of crude liquids and condensates to the Edmonton area.

Inter Pipeline plans to spend CAN$1 billion on capital projects in 2021. Approximately CAN$800 million is for the final stages of the CAN$3.5 billion Heartland Petrochemical Complex (HPC) near Edmonton, Alberta, where the company is installing propane dehydrogenation (PDH) and polypropylene (PP) units. When the complex is commissioned in 2022, it is expected to produce 525 000 tpy of PP.

In February 2021, Brookfield Infrastructure Partners made an unsolicited bid to purchase Inter Pipeline for US$5.6 billion, a 23% premium over the stock’s current price. The utilities and transport operator already owns 19.65% of Inter Pipeline, and has been seeking a deal for almost a year. The latter’s stock fell by almost half after the pandemic hit, and has rebounded slowly. Inter Pipeline’s board feels that any conditional offers based on current stock value does not reflect the intrinsic value of the company.

Keyera announced that the cost of its proposed Keyera Access Pipeline System (KAPS), has risen to CAN$1.6 billion from CAN$1.3 billion due to competition from other regional pipeline construction projects. The KAPS system (a 50/50 JV with SemCAMS Midstream) is designed to deliver natural gas liquids (NGLs) from northwestern Alberta to refineries and petrochemical plants in the Edmonton area. The JV will build nine gas plants with access to approximately 2.5 billion ft3/d. Two pipelines, a 16 in. condensate pipeline and a 12 in. mixed NGL pipeline will deliver up to 130 000 bpd. The project, which was delayed by Keyera for one year, is expected to come onstream in 2023.

In late 2020, the federal government gave approval for TC Energy’s (formerly TransCanada) Nova Gas Transmission expansion plans for 2021. The company will spend an estimated CAN$509 million to add 85 km of 48 in. pipeline to deliver 310 million ft3/d to utilities in southern Alberta. The expansion is part of TC Energy’s programme to invest CAN$9.9 billion to add a total of 3.5 billion ft3/d incremental new capacity by 2024.

LNG Western Canada holds immense unconventional gas reserves. The Montney and Duvernay shales of northwest Alberta and northeast British Columbia (BC) contain trillions of cubic feet of gas and immense reserves of NGLs. Output now stands at 5.6 billion ft3/d of liquids-rich gas. While most of the gas is currently processed and distributed through Alberta to markets in Eastern Canada and the US, plans are underway to tap an entirely new market.

The west coast of Canada is significantly closer to Asia than Australia or the USGC, making LNG transport much more economical. LNG Canada, led by Royal Dutch Shell, is building up to four-train plant with a capacity of 26 million tpy in Kitimat, BC. In order to service the project, TC Energy is building the Coastal GasLink pipeline, designed to carry up to 2.1 billion ft3/d of gas from northeast British Columbia to the LNG Canada plant. The entire project is expected to cost approximately CAN$40 billion.

Eastern Canada is also half the distance to the European market than the USGC. Pieridae Energy of Calgary is in the final stages of giving the greenlight to its Goldboro LNG plant in Nova Scotia. The CAN$13 billion project would contain two trains capable of producing 10 million tpy. The company has an agreement to supply up to 5 million tpy to German utility Uniper. The first phase, a CAN$720 million work camp, is being finalised this year.

Oilsands The oilsands, a bitumen deposit in northeast Alberta, contains an estimated 165 billion bbls of reserves. Output from oilsands mines and SAGD operations reached a record 3.16 million bpd in late 2020. Suncor, CNRL, Cenovus and Imperial primarily relied on expansions of existing facilities, and expect to add approximately 140 000 bpd in 2021. The Canadian Energy Regulator estimates that production will peak at 4.3 million bpd over the next 20 years.

In the meantime, a wave of mergers and acquisitions continues. In October 2020, oilsands operator Cenovus and heavy oil giant Husky Energy announced a CAN$23.6 billion all-stock merger to create the third largest oil and gas company in Canada. The combined company will have about 750 000 boe/d of production and 660 000 bpd of refining capacity, as well as 16 million bbls of crude oil storage capacity. “The integration of Cenovus’s best-in-class in-situ oilsands assets with Husky’s extensive North American upgrading, refining and transportation network and high netback offshore natural gas production, will create a low-cost competitor and support long-term value creation,” said Husky CEO Rob Peabody.

Offshore east coast Newfoundland and Labrador offshore production from fields such as Hibernia and Terra Nova stands at 275 000 bpd. International explorers continue to show interest in deep water plays off the coast of Newfoundland, where independent studies have placed potential reserves at 52 billion bbls of oil and 200 trillion ft3 of gas. Several commercial deposits have already been discovered, including Equinor’s 300 million bbl Bay du Nord discovery in the Flemish Pass. In early 2021, the federal government approved proposals from BHP Canada, Equinor and Chevron for new exploration drilling projects in the West Flemish Pass.

Challenges Since 2008, TC Energy has been battling to build the Keystone XL pipeline. Designed to deliver 830 000 bpd of Alberta crude to the USGC, the Obama administration refused to authorise a cross-border permit. Upon his election, President Trump used an executive order to approve its construction. President Biden

campaigned on a promise to cancel it, and one of his first actions as president was to issue an executive order cancelling the previous administration’s permit for Keystone XL. The government of Alberta, which owns a stake in the line, protested vehemently, but chances of the line being built are increasingly slim. Enbridge, which exports over 3 million bpd to the US through its crude network, is working to add incremental capacity.

The Trans Mountain Expansion (TMX), a project to triple the capacity of a crude pipeline running from Alberta to the British Columbia port of Burnaby, has faced a decade of obstruction from the government of British Columbia, First Nations and environmental groups, to the point where Kinder Morgan sold the project to the federal government in 2018. The result of delays has been a massive cost escalation, from CAN$7.4 billion to CAN$12.6 billion. While protests continue, construction on the line proceeds apace in both British Columbia and Alberta.

Efforts to increase Indigenous support for the pipeline, which runs through a score of reserves, continues. Several Indigenous members from Saskatchewan, Alberta and British Columbia have joined together to form Project Reconciliation to negotiate an ownership stake. “I’m hoping it can happen in this new negotiation that’s taken place and everything comes out in a positive result and it’s a win-win for the First Nations, for TMX ownership and the government,” said Robert Morin, a member of the Enoch Cree First Nation, west of Edmonton.

In late 2020, British Columbia health authorities issued an order regarding the workforces at several major construction projects to limit the transmission of COVID. Two lodges housing workers for CoastalLink Pipeline experienced outbreaks in December 2020, just prior to demobilisation for the Christmas holidays. During remobilisation in January, the company was limited to 400 workers in January, 2021, slowly increasing to 1000 by mid-February. The company noted that the order will both increase costs and delay the construction schedule, but was still assessing data in order to determine the extent of the impact.

Renewables As the world gradually moves away from fossil fuels toward renewables, so too is the Canadian oil patch. Hydrogen has great advantages as a clean fuel because, when it is burned in a fuel cell to create energy for electricity, the only emission is water. Analysts project that the global hydrogen market could reach US$12 trillion by 2050, when up to 30% of fuel needs will be met by hydrogen.

The key to greenhouse gas (GHG) reductions is to create hydrogen without emitting carbon. Traditionally, hydrogen is made using the steam-methane reforming process, where hightemperature steam is used to strip hydrogen from natural gas. The energy-intensive process also produces large amounts of carbon dioxide (CO2).

Blue hydrogen is made the same way, but the carbon dioxide is captured and sequestered underground (CCS). Hydrogen can also be made by electrolysis (running an electric current through water to separate hydrogen from oxygen). If the electricity is sourced from solar or wind power, the output is called green hydrogen.

Many nations in Europe are already developing hydrogen hubs (also called hydrogen valleys and hydrogen clusters), that rely on existing production and usage of hydrogen, most notably around refinery and petrochemical plants. Government, researchers and consultants are looking at potential sites in Canada. “There is the potential for a sort of early hydrogen hub in Canada in the Alberta Industrial Heartland, and there’s been some work that’s been done there,” said Debbie Scharf, Director General, Natural Resources Canada, at a recent hydrogen forum.

Blue hydrogen is an ideal candidate for production in Alberta. As home to Canada’s oil and gas sector, the province has a long history of hydrogen production, as well as CCS. Royal Dutch Shell employed Fluor Canada to build its Quest Carbon Capture & Sequestration facility at the Scotford Refinery outside of Edmonton. In addition, it designed the nearby North West Redwater Sturgeon refinery, which captures carbon for transport via the Alberta Carbon Trunk Line to enhanced oil recovery projects in Central Alberta.

FortisBC, the largest energy transportation company in British Columbia, has a goal to reduce its costumer’s GHG emissions by 30% by 2030. A key facet will be introducing hydrogen into its energy mix; because hydrogen has a tendency to make metals brittle, studies are currently underway to determine what amounts are safe to both the infrastructures of pipeline companies and consumers.

The growth of electric vehicle (EV) cars will require massive amounts of lithium. The metal is primarily mined or extracted from brines, both costly and environmentally-damaging processes. Lithium also exists in high concentrations in waste brines from many conventional crude operations, however. A typical mature well in Alberta can produce up to 10 bbls of water for every bbl of crude extracted; every day, the province produces millions of barrels.

Normally, the waste water, which can contain over 80 mg/l of lithium, is reinjected. A Canadian company is working to commercialise that resource, however. In early 2021, E3 Metals opened a direct lithium extraction (DLE) testing facility in Calgary. Brine from a Leduc field well is injected into a vessel containing proprietary chemicals that selectively absorb lithium ion. The lithium concentrate (around 5000 mg/l) is then extracted for further processing into battery-grade chemicals. The company will gather information in order to build a larger field test facility.

Future While adversarial events such as the cancellation of Keystone XL have had short-term impacts on the Canadian energy sector, Canadian production and exports are still 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. Canada now exports approximately 3.8 million bpd to the US, which is expected to rise to 4.2 - 4.4 million bpd by 2026. Pipeline expansions in progress will add almost 1 million bpd by 2025, and crude-by-rail capacity is continually growing.

In conclusion, Canada’s potential as an energy producing nation will continue to grow due to perseverance, innovation and a focus on producing oil and gas in an ethical, cost efficient and environmentally-sound manner. To that end, the midstream sector will benefit as new and existing markets for oil, gas, and renewable fuels expand.