Pipeline News North

Northern British Columbia and Alberta's Oil and Gas Industry Vol. 2 Issue 9 • dist: 18,000

AUGUST/SEPTEMBER • 2012

h t r No

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in this issue: • INTEGRITY COMES FIRST - PIPELINE INDUSTRY FOCUSES ON SAFETY • TIME FOR AN OIL CHANGE - TRANSCANADA EYES OIL TRANSPORT TO EASTERN CANADA • PICKING UP THE PACE - GROWING FORESTS FASTER

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construction of transcanada’s keystone pipeline - PHOTO courtesy of transcanada

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• PIPELINE NEWS NORTH

AUGUST 31, 2012

Peace Island Park saw over 380 happy children and parents on the weekend of August 17-19.

That was the Fort St. John Petroleum Association’s third Annual Oilmen’s Family Weekend, a three day event for the young and young-at-heart featuring helicopter tours, horse rides, movies, karaoke, all kinds of toys and games, finishing off with the Duck Race on Sunday.

“Phenomenal,” said Blaine Kitzul, owner and manager of Compressor Control Technologies (CCT), not to mention the chair of the organizing committee for the event.

The weekend began with a big dinner provided by Total Enerflex, quickly followed by karaoke.

Saturday morning kicked off with a breakfast sponsored by Trans Carriet Ltd. (TCL) before everybody took off to spend the day either quadding or riverboating. There was also a barbecue at Clayhurst courtesy of Weatherford.

Saturday night was movie night.

“We had three movies for all the kids to watch,” said Kitzul. “And that ended at almost 1:00 in the morning. So, this morning, everyone woke up to the sound of the helicopters flying over about 8:00.”

CCT provided breakfast on Sunday morning before the kids began their helicopter tours and horse rides.

There were also games, crafts and bouncy toys for the youngsters.

The helicopter rides were a big hit with young Jordy Wever and Noah Whitford.

“It’s been fun,” said Whitford, who also too part in the helicopter trips during the first Oilmen’s Family Weekend two years ago.

“It’s a good idea,” he said of the event.

“It was really, really fun,” added Brooke Bowyer, who also enjoyed the movies and the helicopter rides.

It was her second Oilmen’s Family Weekend and she is already looking forward to next year.

“It’s fun when they do this,” she said.

“The families love it,” Kitzul said when asked why it was important the Petroleum Association put together such a weekend.

Got to give special thanks to all our sponsors that make this happen,” he added.

“It’s nice to see kids with a smile. And all the parents are smiling, too.”

PETROLEUM ASSOCIATION - HAPPENINGS

industry news MAKING AMENDMENTS B.C. government changes regulations to improve oil and gas exploration in the province james waterman Pipeline News North Improving oil and natural gas exploration, reducing impacts to the land-base and expediting payment of royalties to the Province were behind the amendments to drilling license regulations announced by the provincial government in late July, according to a British Columbia Ministry of Energy and Mines spokesperson.

“British Columbia is in the process of updating regulations for Crownowned natural gas subsurface rights – a commitment made in our Natural Gas Strategy,” said the ministry spokesperson.

The changes concern new rules for grouping oil and gas tenures, a redefinition of earning wells and an extension of the validation table used to measure earnings produced by an earning well.

“The changes made [in July] improve the B.C. oil and gas tenure system now, in advance of a full modernization of the Petroleum and Natural Gas Act planned for next year,” he said.

The grouping rules have been modified to ensure that tenure holders are devoting their resources toward areas where oil and gas production is most likely to be fruitful, rather than attempt to prove they are performing adequate exploration activities by drilling in remote areas.

Previously, producers were limited to grouping only two tenures within a four-kilometer radius, unless a greater number of tenures within that radius were each smaller than four gas spacing areas.

The gas spacing area is a unit of land used to administer tenures.

It is the responsibility of tenure holders to show that they are making an effort to find oil and gas resources. The original regulations were designed to ensure that producers were doing that work, but the gov28231

ernment decided they are no longer appropriate in the age of horizontal drilling and multi-well pads.

“Certainly, the ability to group wells to convert petroleum licenses to tenure in a more sensible way is probably the most important development,” said Geoff Morrison, BC Operations Manager with the Canadian Association of Petroleum Producers (CAPP), discussing the amendments.

“Conventional wells were one well per pad,” he continued. “And so you would put many wells over a geographic area. And then you would be able to group them. And then you would be able to delineate the resource and say, ‘We’re going to convert these drilling licenses into a lease for production.’

“But now with shale gas and [multi-well] pads, where you’re drilling five, ten, fifteen, whatever number of wells off a single pad, you’re not covering the same geographic distance on the surface.”

However, the producers are exploring a substantial amount of the subsurface through long horizontal wells.

“And so the [original] regulations were drafted [in a way] – which was sensible – that would reflect the way industry developed the resource. But now when you’re working off a single pad, you’re not able to capture the same land-base.”

That explains the change to the grouping rules.

“This new ability to group wells is a reflection of the evolution from conventional to unconventional resource,” Morrison added.

Prior to the drilling license regulation amendments, an earning well was defined as the first well drilled in a particular geological zone or depth of rock on a tenure or the first well drilled into a particular gas spacing area within that tenure.

Multi-well pads have also complicated that regulation, as there can now be several wells passing

through one spacing area. Attempting to drill their wells in the order they would prefer, according to the original regulation, could be disorderly and potentially hazardous.

Producers are now able to choose which well to use as an earning well for each drilling space, as long as that well has generated well reports and well data that provides sufficient information about the resource in the spacing area.

A drilling license can only be converted to a lease that allows the tenure holder to produce oil or gas after that license has been explored by a drilling well.

“There [was] this inability to start flowing resources to the surface in a way that produces revenue for the company and royalties for the government,” Morrison said of the past rules.

“Under the old system – the old grouping rules – you would potentially have to create a new well pad and a new road at some distance to justify the capture of a specific resource. And, in a sense, government did that to encourage companies to go out and explore new areas, because there was geological uncertainty. There was a benefit to the Crown for encouraging companies to go out and maximize and delineate that resource,” he continued.

“But now, with shale gas, you already know how big it is ahead of time. There’s not geological uncertainty. And so you’re basically forcing companies to spend money that they don’t really need to do to prove where the resource is because it’s known now. That’s the change.

“It’s a recognition that shale gas development is different than conventional gas. So, from industry’s perspective, these help the industry to develop the resource more orderly. And there’s obviously some cost savings to the industry as well.

“That’s a benefit in the low price environment.”

AUGUST 31, 2012

PIPELINE NEWS NORTH •

3

special feature 16 Wait your turn - Liard

Basin last in line for shale

gas production 18 Integrity comes first -

pipeline industry focuses on

safety

community

9 Shell moves into new Fort

St. John office 10 Encana races against

hunger

industry news

4 Big benfits - B.C. to profit from pipelines and LNG 14 TransCanada eyeing new oil

transportation to the east

environment 6 Picking up the pace - how

industry is growing forests

faster

careers & training 8 Big changes at NLC 29 High wages and low

unemployment in Alberta

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• PIPELINE NEWS NORTH

AUGUST 31, 2012

North

industry news

big benefits

Oil pipelines and LNG could mean economic boom for B.C. james waterman Pipeline News North

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British Columbia could be on the verge of experiencing huge economic benefits stemming from the oil and gas industry in Western Canada.

That is the verdict of two reports recently released by the Canadian Energy Research Institute (CERI) that examine the economic impacts of pipelines that would transport Alberta oil sands bitumen across B.C. and shale gas extraction in the Horn River Basin of northeast B.C., all in terms of exporting Canadian oil and gas resources to Asia.

Those reports follow an initial study exploring the economic impacts of oilsands development in Alberta.

“All three of them were intended to be separate,” said Peter Howard, president and CEO of CERI. “And the reasoning behind it was to try and differentiate the components that make up the energy movement to the West Coast.

“Part one is obviously the oil sands and that’s all about Alberta.

But one of the things that even that document shows is the knock-on effects with British Columbia, Ontario and Quebec. So, even though there’s a whole lot of royalties, whole lot of employment, and a whole lot of other things going on in Alberta, it does mean a lot to British Columbia.

And I guess the question is: what’s a lot?

“To me, a bunch of billion dollars is a lot.”

The second phase of the project builds on that theme of oil and gas activity in Canada creating big economic benefits for B.C., as well as other provinces.

CERI predicts that Kinder Morgan’s proposed Trans Mountain Pipeline Expansion (TMX) project, which will increase their oil transportation capacity to the West Coast, would add over $8 billion in total GDP to the Canadian economy overall. B.C. would see the largest share of that total at $4.4 billion, while $2.4 billion would go to Alberta and $523 million would go to Ontario.

The $2 billion in tax revenues generated nationwide over the next 25 years would include $522 million to provincial and municipal governments in B.C. and $134 million to provincial and municipal governments in Alberta.

Those governments in Ontario would receive $72 million.

As for the beleaguered Northern

Gateway project proposed by Enbridge, CERI projects that $4.7 billion of the $8.9 billion in GDP added to the Canadian economy over the next 25 years of pipeline construction and operation will go to B.C. Alberta will receive $2.9 billion and Ontario will receive $608 million.

Over that same 25-year period, the project is expected to generate $2.3 billion in tax revenues. The Government of Canada would receive, $1.45 billion of that total, while $545 million would go to governments in B.C. Alberta governments would receive $162 million. Ontario would get $83 million.

Saskatchewan also stands to gain from TMX and Northern Gateway.

“The reason why Saskatchewan is in there is because the pipe itself is not rolled in British Columbia,” Howard explained. “There are only two mills in Canada that can handle that.

One’s in Alberta. And the other one’s in Saskatchewan. And the Northern Gateway pipeline, in their filings, suggests that about 80 per cent of the pipe would actually be sourced from Saskatchewan. So, that’s a good deal for Saskatchewan.

“But the pipeline itself is a net benefit to British Columbia,” he continued. “Just shy of 60 per cent of all the GDP, employment, taxation benefits go to British Columbia.”

Not surprisingly, the third study, which focuses on shale gas extraction from the Horn River Basin and liquefied natural gas (LNG) export projects such as the Kitimat LNG plan led by Apache, EOG Resource and Encana, again shows that the economic impacts favour B.C. CERI forecasts that the level of Horn River Basin development necessary to satisfy the demands of Kitimat LNG will generate 828,700 person-years of employment based in British Columbia.

The Canadian total would be 944,500 person-years.

Additionally, B.C. will receive the lion’s share of the $161 billion added to the national GDP with a remarkable $152.1 billion.

B.C. will also see $39.4 billion in employee compensation and $36.8 billion in tax revenues.

The actual exploration and production activity is only the beginning.

The Pacific Trail Pipeline to carry Horn River Basin gas to Kitimat for liquefaction and export to AsiaPacific markets will generate 24,700 job in B.C. out of a national total of 31,000 jobs, according to the CERI report.

That project will also add $2.2 billion to the national GDP with B.C. accounting for a $1.7 billion share of that number.

Employee compensation in B.C. will amount to $1.0 billion and tax revenues to the Province will reach $471 million.

The final component of that train, the actual Kitimat LNG export terminal, would be the source of 112,000 job across Canada. B.C. would earn 97,000 of those jobs.

Additionally, B.C. would see $6.6 billion of the $7.8 billion added to the national GDP, while Canada would receive a total employee compensation of $4.6 billion and total tax revenues of $2.2 billion.

“By far, the most impacts are felt right within the province of British Columbia,” said Howard.

“When you look at the numbers,” he continued, “the single biggest component is actually the drilling activity up in Horn River. It’ s ninety per cent of the money. Nintey per cent of the employment effort is up there, although goods and services does feed into that area from Alberta and from the Lower Mainland.

“The biggest problem there is you’ve got a project which makes technical sense, it makes economic sense, but, right at this point in time, the market hasn’t been signed. It’s not going to move forward until, in fact, they secure a market for it.”

That uncertainty is why the reports can’t really be used as planning tools for industry or government.

“What it could be used for is a view of what the future potential is,” said Howard. “And you could say, ‘Well, if this actually goes ahead, and we’re sitting in Fort St. John and Fort Nelson, there’s going to be a draw on community services, there’s going to be a draw on road maintenance, there’s going to be a draw on this, that and the other thing.’ And maybe not necessarily planning for it, but being cognizant of that would be a good thing for those districts.”

The forecast is also built on informed assumptions that may not hold true in every situation, particularly in terms of the employment benefits to B.C. “With regard to all of our studies, that problem exists,” Howard admitted. “Because we can only identify employment by province or by region. And we’ve got no way of saying that this job is actually a British Columbian. It actually could be a guy from Newfoundland. continued pg 23

AUGUST 31, 2012

PIPELINE NEWS NORTH •

5

how to buy a canadian oil company CNOOC’s bid to acquire Nexen gets political

Canadian oil and gas company Nexen, which has operations in the oil sands in Alberta and the Horn River Basin in British Columbia, is the subject of a friendly takeover bid by China National Offshore Oil Company (CNOOC). The federal governments in Canada and the United States could halt that transaction due to national interest concerns. photO COURTESY OF dave olecko, nexen

james waterman Pipeline News North When it was announced in July that China National Offshore Oil Corporation (CNOOC) was bidding to acquire Canadian oil company Nexen for $15 billion, it didn’t only become an issue of concern for the Canadian government, but also one for the federal government in the United States.

During his recent visit to the Canadian Arctic this August, Prime Minister Stephen Harper responded to questions about the impending deal by indicating that reciprocity and public opinion regarding the sale of a Canadian oil company to a Chinese entity would play significant roles in a decision to either approve or deny the deal.

A sale of this type must receive federal government approval, according to Canadian law that stipulates that the foreign acquisition of a Canadian company must offer a net benefit to Canada.

“This is a significant transaction with significant implications for the Canadian economy, both today and in the long term, and I think those considerations need scrutiny and they need some clear, long-term policy direction,” said Harper.

“Our government will take the time we have to properly scrutinize this transaction, and to assess that – if it is to go ahead – that it will only go ahead if it is in the best long-term interests of the Canadian economy,” he added.

“Not just [the] net benefit of Canada, but in the best long-term interests of the Canadian economy. And that will be measured across a range of considerations.”

The U.S. government began raising objections as soon as the bid was announced.

High on their list of concerns is a matter brought forward by Democrat Edward Markey on July 30 regarding Nexen’s offshore oil operations in the U.S. and a piece of legislation known as the 1995 Deep Water Royalty Relief Act. Under that act, oil companies were offered royalty relief in exchange for investing in the Gulf of Mexico at a time when oil prices were relatively low.

Nexen took advantage of that opportunity.

According to Markey, the company hasn’t paid royalties on 32 million barrels of oil and 34 million cubic feet (mmcf) of natural gas that they have produced in the Gulf of Mexico as of May, 2012.

Markey suggested that that situation should have to be rectified for the U.S. government to approval CNOOC’s acquisition of Nexen.

“Giving valuable American resources away to wealthy multi-national corporations is wasteful, but giving valuable American resources away to a foreign government is far worse: it has the potential to directly undermine American economic and national security,” Markey said in a letter to Treasury Secretary Timothy Geithner.

Greg Anderson, a political science professor at the University of Alberta,

specializing in Canada-U.S. relations, international trade and finance, and U.S. foreign economic policy, thinks those concerns are something of a political smokescreen.

“It’s linked to this Keystone nonsense where they’re talking about gateway pipelines,” said Anderson, referring to the TransCanada Keystone XL pipeline project that is currently in limbo due to objections from south of the border and the Enbridge Northern Gateway project that is presently under regulatory review in Canada.

Keystone would ship Alberta oil sands bitumen to refineries in Texas. Northern Gateway would send that product to China and other Pacific Rim markets, including California.

“Keystone kind of goes down in flames, at least temporarily, and then all of a sudden the rhetoric changes: we’re going to build a pipeline to the west coast and ship it to the Chinese,” Anderson continued.

“And even though that is at best – as I understand it – at best a decade away, given all the hurdles that have to be managed on that front, First Nations and so on and so forth, that perks up ears in the U.S. congress.

“Whenever you play that card, then the national security hawks come out and they say, ‘Oh my god, the Chinese are taking over.’ And, to some extent, it’s part of what congress does. There’s a kind of great theatre quality to what the U.S. congress is up to most of the time. They like to fire off letters – grumpy letters – to the president, get members of the administration to come up to the hill and testify, so they can kind of embarrass them and puff out their chests and bang the gavel a little bit. So, some of it is much ado about nothing.”

Anderson doubts that congress has thought through all the implications of CNOOC acquiring a stake in the oil sands in Alberta and Horn River Basin shale gas in British Columbia as a result of buying Nexen, particularly in terms of those assets becoming preferred resources for a booming Chinese economy at a time when the U.S. is trying to ramp up oil and liquefied natural gas (LNG) exports to Asia.

“I sometimes question how bright some of the members of congress actually are, that they’ve actually played it out that far,” said Anderson.

“It could be sort of raising national security red herrings,” he continued. “It could be basic private sector concerns over who’s actually going to… get the benefits of extraction from different parts of North America.

“That’s just about money it seems to

me.”

Anderson doesn’t seem to think that the U.S. government is going to be able to stop this deal, partly because of lessons learned by CNOOC after their failed bid to acquire Unocal, a California-based oil company, in a similar manner.

“That was a high profile attempted purchase anyway,” said Anderson. “And it raised hackles for exactly the same reasons. And I think the Chinese learned a little bit from that. They got burned by it. And so they’ve done things a little bit more slowly this time. And Nexen is not a gigantic firm, but it’s a stake in the oil sands, and it’s an important one for them.

“Ultimately, it’s a Canadian firm and a Chinese firm,” he continued. “And the bulk of the decision-making will happen here in Canada. And it’s not beyond the Harper government to stand in the way of things… Any time there’s a foreign acquisition like that, it’s always possible.

But my guess is that Harper’s not going to stand in the way of this particular one.

“So, some of it is grandstanding and some of it is probably just about money.

But I don’t think it’s going to stand in the way of ultimately this deal completing itself and going through.”

However, Anderson does admit that the mention of China acquiring a Canadian company does raise some eyebrows at home, too.

“I think everybody looks at the Chinese economy with some degree of mystery,” said Anderson. “It’s a bit opaque the way a lot of these firms run. And it’s unclear how arm’s length from the state they actually are in some cases. And so they’re not 100 per cent transparent in many respects. And so people get a little nervous about that.

“They see what a lot of Chinese firms are doing in Africa, for example, and elsewhere, and it’s a big resource grab in some ways. And so people kind of look at this and they wonder if these companies are just arms of the State and they’re just pursuing a state driven industrial policy of some kind. So, everybody’s a little nervous about that.”

Canadians are also nervous about China’s human rights record and skeptical of the idea that Canada can export its values along with its resources, an idea mentioned by Harper during a recent visit to the Asian nation.

“In some ways that is already happening,” said Anderson. “You look at the China of today versus thirty years ago and it’s completely different. I mean, the Chinese are trying to hold it together in terms of one state, two systems. So, you’ve got this… increasingly open capitalist system,, continued pg 24

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• PIPELINE NEWS NORTH

AUGUST 31, 2012

environment

picking up the pace OSLI reclamation project aims to grow forests faster james waterman Pipeline News North It takes a lot of time for bare earth to transform into a forest again, but a handful of oil companies are doing their best to speed up the process.

The project has been dubbed Faster Forests by the members of the Oil Sands Leadership Initiative (OSLI), a group of oil sands producers that includes ConocoPhillips Canada, Nexen, Shell Canada, Statoil Canada, Suncor Energy and Total E&P Canada, and it is a significant change from past practices where lease sites would commonly be left to reclaim themselves without human intervention.

“Where it makes sense, we would have left sites for natural regeneration,” said Jeremy Reid, an environmental specialist with Nexen and project manager with the Land Stewardship Working Group of OSLI, discussing the work that began in 2009.

Reid noted that companies would also plant grass seed in cases where it was necessary for erosion control.

“And there was a large push to spread mulch in the past,” he added.

The industry has been moving away from that practice because it accomplished the opposite of that which OSLI is attempting to achieve with Faster Forests.

“In cooperation with the government, we’ve determined that mulch isn’t a good way to go with these sites because it inhibits vegetation growth,” said Reid, remarking that a mulch layer greater than five centimeters in depth is detrimental to regeneration.

At the same time that OSLI companies began to move away from using mulch, they were discussing how they could quicken the pace of reclamation on their lease sites.

“And planting trees, where it makes sense, is an option that we’re using,” said Reid.

They began by planting commercial forestry species.

“Because they’re readily available,” Reid explained.

“The local forestry company grows tons of them for planting every year,” he continued. “So, we would sort of piggy-back on their planting programs.”

Initially, they were primarily planting common and abundant boreal tree species – poplar and white spruce.

“The strategy we made,” said Reid, “is to expand the number of species we’re planting. So, we’re not just

planting those forestry species. We’re planting other native trees like black spruce, birch. And then a bunch of shrub species as well to more closely mimic the natural ecosystem.”

OSLI companies use the Alberta Vegetation Inventory to help them return those sites to what Reid calls their “pre-disturbance forest condition.”

They also take wildlife into account.

“In the wildlife context,” said Reid, “we are evaluating where we plant with another program we have called LEAP (Landscape Ecological Assessment and Planning), which uses forestry modeling to model the forest after we’ve planted these sites.”

The geospatial database and modeling project can allow OSLI members to get a glimpse of their reclamation work anywhere from five years to fifty years in the future, which can help them determine what additional work needs to be done or what sites are priorities for reclamation work.

It is closely tied to another project, the Algar Caribou Habitat Restoration, which is focused on reclaiming linear features such as seismic lines in the interest of protecting caribou populations.

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AUGUST 31, 2012

PIPELINE NEWS NORTH •

7

Boreal forest plants such as bog birch (left) and saskatoon berries (above) are among the many species now included in an Oil Sands Leadership Initiative (OSLI) reclamation project known as faster forests. The program began a few years ago with companies only planting spruce and poplar. photOS COURTESY OF OSLI

Linear features are one of the contributing factors to declining caribou numbers because they provide avenues for predators such as wolves to easily prey

on the ungulates.

It is still too early to be certain of any benefits to wildlife stemming from this reclamation work.

“We work with the Alberta Biodiversity Monitoring Institute,” said Reid. “They’re monitoring around our area. But we also have a project specific wildlife monitoring program that, as a regulatory requirement, we report to the government. This work is fairly new to draw meaningful conclusions from that monitoring. But it’s something that we will look to in the future.”

So, for the time being, the main focus is on the plants.

“We’re definitely planting more species every year,” said Reid.

This season was the first time that OSLI planted trees and shrubs grown from seeds they collected from provincially designated seed zones late in the summer of 2011.

That crop, which was raised in Alberta Nurseries greenhouses, amounted to

600,000 plants in total.

“This year, we really took control of the program to ensure we are able to plant the number of species and type of species we need to make our reclamation activities more effective,” said Reid.

Shrubs are becoming a greater priority for the project every year. The first shrubs – about 10,000 to 20,000 – were planted in 2011. This year they are planting 300,000 shrubs, partly because they replace fast-growing grasses that are tough competition for the trees where nutrients and water are relatively scarce.

“We’d like to get as many species as we can,” said Reid. “And we’d also like to plant more sites every year.

“That would hopefully mean we plant larger numbers every year wherever it makes sense.”

Newspaper publisher proposes Kitimat oil refinery STAFF REPORTER Pipeline News North Newspaper publisher David Black has been getting some ink of his own in recent weeks with his announcement that he plans to build an oil refinery in Kitimat, British Columbia.

The proposed refinery would be the biggest in Canada, outstripping the Irving Oil refinery in Saint John, New Brunswick, which processes 300,000 barrels of oil per day. It would also be big enough to handle all the Alberta oil sands bitumen transported to the Pacific Coast by Enbridge’s embattled Northern Gateway pipeline, amounting to an output of

550,000 barrels of oil per day.

The cost would be $13 billion.

“Is it economic? Yes it is,” Black said during the days following the announcement.

“The budget is pretty solid, I think,” he added. “I employed two different consultants and they came up with basically the same numbers. And I ran them by one of the big oil companies and they confirmed the numbers.”

The refinery could be an important piece of the puzzle as Canadian producers seek to expand markets for their oil, as well as an answer to the question of why Canada seems determined to ship its oil to foreign refineries instead of improving domestic refining capacity, but

the fate of the project will ultimately be decided by commercial interests.

“Access to new markets is crucial to the success of Canada’s growing oil and natural gas industry,,” said Greg Stringham, vice president of markets and oil sands with the Canadian Association of Petroleum Producers (CAPP).

“Broadly speaking, the recent refinery proposal is an example of the several types of potential opportunities that are being evaluated in the context of west coast oil exports,” he added. “ The goal is safe and responsible market access while delivering benefits to British Columbia and Canadians.

“Refineries, however, compete in a

very competitive market place. Any such project has to attract commercial interest and investors to succeed.”

Black has said that he will foot the bill for the environmental assessments, but hopes to attract investors that can fund the construction. No company has put their name behind the project yet, although Black has discussed the idea with Enbridge.

“Our focus remains on the regulatory process reviewing our application for Northern Gateway,” said Enbridge spokesperson Graham White.

If the project goes forward, the six year construction project would begin in 2014.

Refined products would likely be destined for Asian markets.

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careers add & subtract Big changes at NLC staff reporter Pipeline News North

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While Fort St. John residents hoping to work on the exploration and production side of the oil and gas industry will soon have new opportunities to study at their local campus of Northern Lights College (NLC).

The newest addition to the Simulated Wellsite Training Facility, a full-sized drilling rig, should be completely installed in time for the first batch of students to begin studying in two new programs – Drilling and Exploration, Production – on October 1.

“This drilling rig project has been part of the vision for the Fort St. John Campus for more than a decade,” said Laurie Rancourt, president and CEO of NLC, shortly after the early July announcement of $930,000 in funding for the project from the Government of Canada via Western Economic Diversification Canada.

“Now that it is coming to fruition,” Rancourt added, “the rig quickly will become a focal point in helping provide skilled and trained workers to meet the needs of our partners in the oil and gas industry.”

The $5.5 million triple-cantilever, beam-leg mast drilling rig was donated by Shehtah LP and Nabors Canada, while a handful of other industry partners contributed funds and services to the installation of the rig.

Shell Canada has contributed a $100,000 donation and the $1,500 per day cost of a site supervisor, while Encana also contributed $100,000. Mullen Oilfield Services added $120,00 worth of rig storage and transportation, while the personnel and equipment necessary to move and assemble the rig is being provided by Swanberg Bros. Trucking.

“Our goal is to hire local people and A triple-cantilever, beamleg mast drilling rig worth $5.5 million is the latest addition to the Simulated Well Site Training Facility at the Fort St. John campus of Northern Lights College.

The rig will be used to train students in careers in the exploration, production and drilling aspects of the oil and gas industry.

The first batch of students in the new programs using the rig will begin their studies on October 1.

Northern Lights College expects to put about 200 people through those new programs on an annual basis after the rig is installed this September. james waterman photO

support the development of the communities in which we operate,” said Rej Tetrault, operations manager at Shell’s Fort St. John office. “With this program we know the college will be able to attract the best talent, and we, in turn will get the best operators.”

The industry-sponsored Science and Community Environmental Knowledge Fund (SCEK) also contributed $50,000 to the rig installation.

“This project is an excellent example of a partnership among educational institutions, industry and government providing direct benefits to the local community.

The Science and Community Environmental Knowledge Fund looks forward to working with the partnership to build locally skilled workers who are trained in the safe operation of oil and gas equipment in a sector with significant growth projections” said Geoff Morrison, who serves on the SCEK Steering Committee as per his role as BC Operations Manager with the Canadian Association of Petroleum Producers (CAPP).

The mud tanks for the rig were installed recently with an eye to completing the project in September.

NLC expects the new programs will see 200 students per year.

However, there won’t be any students moving through the Geomatics program in the near future, as it was decided in March that it will no longer be offered.

College staff stepped up their marketing and recruiting efforts across northern British Columbia and Alberta during the three months prior to the decision, but found that interest wasn’t sufficient to continue the program.

The small number of students who had shown interest in studying Geomatics at NLC this year were notified as quickly as possible so that they would have time to pursue other options.

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IT’S GOOD TO BE HOME Shell settles into their new Fort St. John digs

james waterman Pipeline News North Life just got a little bit better for Shell Canada’s Fort St. John employees.

After making due with a dusty old building no longer able to support the level of activity the oil and gas company is experiencing with their operations in the region, they were finally moving into their new building this summer, marking the occasion with a grand opening barbecue on Friday, July 27.

“Did you see what we used to have in Fort St. John?” said Louis Auger, vice president of Production North with Shell, when asked what he thought of the new home for their Fort St. John business.

“Fantastic, eh?” Auger continued. “The space. The openness. The brightness. Just the effectiveness. We’ve now got the whole team together.

“And people aren’t doubled up and tripled up,” he added, alluding to the cramped conditions at the old office. “So, it’s just awesome.”

“We have proper workspaces now for everyone,” said Rej Tetrault, Shell’s Fort St. John operations manager.

“In our old office, we were crammed into four people per office – if you could find a desk. Now we have 110 professionally designed ergonomic desks for everyone, with multiple breakout rooms. Breakout rooms for anywhere from four people up to the large conference room.”

The large conference room can hold 110 people, ample space for the approximately 80 employees who now work in the Fort St. John office.

“If you need to make a personal phone call,” Tetrault continued, “we have phone booth rooms. So, we’ve got lots of flexibility.”

However, the improvements aren’t simply about adequate space, but also the design of the space, which includes an open concept, striking photographs from across their operating areas and messaging on the walls that reinforces values such as safety and sustainability.

“It comes back to our values,” said Auger. “We are very, very committed to trying to build an organization and instill in people the want [and] the desire … to do the right thing. And so by having this messaging and being able to interact with each other, we can reinforce those values and really build our culture.”

“Having a nice, quality office that’s clean, ergonomically designed, so that people can work effectively,” Tetrault added. “And that’s not [just] individually, but, also, we work a lot in teams. So, this office is really designed around working in teams.”

Tetrault also remarked that the photographs and the messaging are all about building a culture.

“The pictures are meant to represent the various parts of our businesses, whether that be upstream or downstream, and it allows us to reflect and see that we’re part of a great business,” he said.

“We work for Royal Dutch Shell, that has 110,000 employees, that is in a variety of different businesses throughout the world,” he continued. “So, that’s where the pictures come from. It’s just to reground yourself, to say, ‘I’m part of something exciting and big and helping the world attack the energy challenge.’ And that’s what it means to me.

“In terms of the messages on the walls, that’s partly where we really try to build and ingrain culture. Sustainability – it’s a value, it’s how we work. Safety – it’s not a priority, it’s a value.”

It is also a way of showing the values Shell considers important to their contractors when they enter the building.

“They see ‘sustainability’ and they should ask, ‘What

Shell’s Fort St. John operations manager Rej Tetrault welcomes guests to the grand opening celebration of their new offices in Fort St. John on Friday, July 27.

JAMES WATERMAN photO

does it mean to you? What do you do about sustainability?’” said Tetrault.

The new building also features a meditation room and a state of the art emergency response centre.

“When Shell builds a building, we’re required to follow particular protocol in terms of how we design the building to be a diverse workplace,” said Tetrault, pointing to the fact that Shell’s employees come from various cultural and religious backgrounds.

“And so one of the requirements around that diverse workplace is to have the ability to meditate if you choose to practice,” he added.

The emergency response centre is equipped with special infrastructure, including dedicated telephone lines.

“To allow us to quickly and effectively respond in the event of emergency,” said Tetrault.

“It’s actually designated as a crisis room,” he continued. “It’s not a room that people can use to have meetings in. And the reason we do that is, if we do have an emergency, we want to quickly go in there, we want to know exactly where the maps are, and we don’t want things to be displaced.

“And we’ve already been asked, ‘Can we use that room? It looks like a beautiful room.’ And the answer is no. It’s a crisis room. It might fit your needs, but we have many other… meeting rooms that can suit your needs.”

The key addition to their workspace is a modern air filtration system that has already provided noticeable health benefits to Shell’s Fort St. John employees.

“We’ve already had feedback from a lot of our staff that, in the old office, they used to have to take allergy medicine, and since coming into this office, they don’t have to take any allergy medicine at all,” said Tetrault.

“We are now working in a very high quality, healthy environment that will hopefully help… keep my staff here

happy and motivated to deliver the business,” he added.

“And then also be able to allow us to attract other talents.”

Tetrault gives much of the credit for the finished project to Bruce Reid, president and owner of WL Construction, which is based in Fort St. John, particularly when it comes to the fact that the building was actually ready on schedule.

“When we first made contact with Shell, they were looking at 10,000 square foot building,” said Reid, describing the long process of designing and constructing the new offices.

“I toured them through my CNRL (Canadian Natural Resources) building,” he continued. “And their new plans came out to a 20,000 square foot building. And then they put the job on hold … for about a year. And then when we came back , they knew more what they were looking for. And we started again at 22,000 square feet. And then up to 27,000 square feet. And then we ended up at 34,800 square feet. That’s how fast they’re expanding up here.”

“We initially started this about two years ago,” added Tetrault, who has only been in Fort St. John for about a year himself.

The first year was devoted entirely to planning and scouting locations.

“Last summer, we had a conceptual design,” said Tetrault. “And we took several months to reiterate that back to having a final design.”

Reid was starting construction by late July.

“And so it took a whole year, which was the plan, to finish construction and get all the infrastructure installed,” added Tetrault. “[Reid] had actually finished a lot of his construction continued pg 22

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community racing against hunger Encana circles the wagons to help local food bank james waterman Pipeline News North It was reminiscent of the old west, a team of chuckwagons delivering food to the hungry settlers of western Canada, but this time it was all to benefit the local Salvation Army food bank in Dawson Creek, British Columbia.

Every year, Canadian natural gas producer Encana invites local stakeholders to their Community “Pardner” BBQ held during the Dawson Creek Fall Fair partly as an effort to promote their Race Against Hunger campaign, an initiative they have undertaken in conjunction with the World Professional Chuckwagon Association (WPCA) to gather food and funds to help those in need.

“Last year, we raised 5000 pounds of food and over $16,000,” said Brian Lieverse, a community relations advisor with

Encana in Dawson Creek, discussing the local portion of a campaign that also makes stops in Grande Prairie, Ponoka, Strathmore and Calgary, Alberta.

Invited guests are encouraged to bring donations and stay to enjoy world-class chuckwagon racing after dinner.

“For every pound of food we bring in, we donate $2 to the food bank,” Lieverse continued. “And for every dollar that’s donated as a cash donation, we match dollar for dollar. And all that goes to the local Dawson Creek food bank – the Salvation Army.”

The Race Against Hunger truck was stationed at the grandstands to accept donations between every night of the fair, as well as prior to the professional rodeo from every afternoon.

A WPCA chuckwagon driver challenge was also held at a local grocery store on the afternoon of Friday, August 10.

“It’s the same thing,” Lieverse said of the driver challenge. “Encana does match the $2 for every pound that’s raised. But then there’s also [that] they recognize the chuckwagon driver that raises the most money or the most amount of food.

“You can go and support your favourite chuckwagon driver by buying food and have it donated on his behalf,” he continued. “And then he continues to accumulate pounds toward him winning that chuckwagon driver Race [Against] Hunger award.”

The Community “Pardner” BBQ brought in $2,640 and 312 pounds of food this year, not including the matching contributions from Encana. All Dawson Creek events put together raised about $11,085 and 1,085 pounds of food.

The tally for the whole Race Against Hunger drive this summer was approximately $102,796 and 11,436 pounds of

food.

“I’m kind of involved in two ways,” said chuckwagon driver Mark Sutherland, describing his role in the campaign.

“In the off-season, I do work for Encana,” he explained. “So, I’m pretty proud of the program. I’ve been involved with it in the planning and also implementing it as one of the drivers from the World Professional Chuckwagon Association.”

Sutherland brought his usual smile and good nature to the barbecue despite the fact that he had a bit of a tough season on the track.

“I started off pretty good,” he said, noting that his summer was off to a good start until he ran in to an injury in Ponoka.

“I broke my shoulder and dislocated my shoulder and tore my bicep,” he continued. “And so I kind of battled through the injury through the rest of the Ponoka

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World Professional Chuckwagon Association (WPCA) drivers racing against each other and hunger during Encana’s Community “Pardner” BBQ at the Dawson Creek Fall Fair. The event was part of the Race Against Hunger campaign led by Encana and the WPCA that raises food and cash donations for local food banks.

JAMES WATERMAN photO

Stampede and through the Calgary Stampede and then these shows following. It’s been a little bit difficult. I’m not moving a hundred per cent.

“And every time you’re trying to do a sport and you’ve got an injury, it’s trying. But at least the horses are happy and healthy and they’re running good, which is even sometimes more frustrating, because I’ve got a ton of horsepower right now, and I’m just not on my A Game.”

Sutherland remarked that the Race Against Hunger is actually a pretty simple way to do something good for the community.

“We just show up,” he said. “We bag some groceries. We collect some money.

We ask our fans and we ask our chuckwagon sponsors – those types of people [and] companies – to put money in.

“And it’s an opportunity for them to get double the bang for their buck, because Encana doubles the money,” he added.

“It’s a great way for the people within the community, our fans and our sponsors, to get behind us and help us just give back to the communities where we race.”

Sutherland also suggested that is the responsibility of those enjoying success in the oil and gas industry to share the wealth with those who need a little help.

“With the success of the oil and gas in this area, there are a number of people that would love … to donate to charities that they think are appropriate for their company or them personally,” he said.

“If we can make these people in this community aware, they’ll donate,” he added. “A lot of the folks in the oil and gas industry are probably not the ones that currently are using the food banks.

Who knows? Maybe they have in previous times. So, oil and gas – pretty pros-

perous right now. So, I think that people their employees, but work with the stakestep back and they kind of look at it and holders in the area,” he added. “And it’s they think, ‘Holy smokes. There are some really important from our perspective … people that are kind of in need.’ Some of that we have that great working relationthese people are deciding which holiday ship that we have with Encana.” to book, and then there’s people in your The barbecue unites two very different community trying to decide where they’re but very important aspects of the regional going to get their next meal.” economy – energy and agriculture.

Peace River South MLA Blair Lekstrom “Agriculture is our mainstay in the applauded Encana for their efforts to con- Peace,” said Lekstrom. “It always has nect with the residents of Dawson Creek been and it always will be. That’s what through the barbecue and Race Against the region was built around. But, obviHunger. ously, the world changes. And with that “I think it’s just one more way that they change comes new opportunity for try to give back to the community,” said resource development.

Lekstrom.

“We’re fortunate we’re diversified in the “They know that the work that they do northeast,” he added. “We have forestry. is certainly welcome by the majority of We have mining. We have tourism. We people that live have oil and gas in this region,” and agriculture. he continued. “It The key to our sucdrives our ecocess up here is our nomic well being, “It’s great to see Encana ability to find ways not just for the to work together. northeast, but for recognize that there are “I think it can British Columbia actually be used as as a whole. But a showcase for the people in need.” they do know rest of the country, they have an and the rest of the – Mayor Mike Bernier, impact. world, really, to find “Many of the out what we can do Dawson Creek people who actuto work together. ally have wells Doesn’t mean that on their land and are affected directly by there isn’t work to do. Because there alit come to the barbecue, they hear from ways is every day. But we’ve done a lot of Encana, and it’s just kind of a nice time to things right here, as have the companies get together.” that are working in the area.”

Dawson Creek Mayor Mike Bernier Sutherland is not at all surprised that agreed: “I think it’s great to see a comthe agriculture sector would work with the pany like Encana, who really understands energy sector to help the local food bank. what it means to have social license, to “They’re farmers,” he said. “They’re be involved in the communities and give community people.” back to the communities in which they The food bank certainly needs the supwork. port, too.

“It’s one of those times of year that they “There’s always needs,” said Lekstrom. get to showcase not only themselves and “There always has been. And, unfortu-

nately, for a long time, there probably always will be. And there is an influx of people that come to our area looking for work. Many of them come well prepared.

Many don’t. And sometimes, when they get here, it’s not as easy to get that job they’re looking for.

“Also, there’s families that work very hard here, but still struggle from day to day,” he added.

“Sometimes,” said Bernier, “we can have that false sense that everybody’s doing well. And you have the oil and gas activity right now, and we’re very fortunate to have all of this, to have zero unemployment and the high incomes that we have, but we have to remember that that’s not everybody.

“And so this is actually a great opportunity for the people in the region that are doing well, that are prospering because of this activity, to really recognize that there are people that … might be being left behind a little bit. And we have to do what we can to help them.

“It’s great to see Encana and everybody recognize that there are people in need,” he continued. “And to be able to support the local food bank is something that, I think, it’s an unfortunate situation that we have to be out there support because there’s need, but it’s good to see there are people out there doing that.”

“People that use these food banks come from all walks of life,” Lekstrom added. “Some are down on their luck at times. I think, probably, what makes our region so good – and I’ve been here all my life and I plan on staying here – is the people that live here. And they’re the ones that make this work for everybody.”

“The idea behind this Race Against Hunger is that all the food banks are in constant need of food,” said Lieverse.

“And by Encana and the WPCA partnering together, we help raise the profile.”

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Donnycreek drilling second deep basin Montney well at Kakwa Daily Oil Bulletin Donnycreek Energy reports that drilling began August 22 on the horizontal 1430-63-5W6 well, the company’s second well on its Deep Basin lands at Kakwa, Alberta, where it has a 50 per cent working interest in 16 contiguous sections of Montney rights.

The well is targeting the Montney formation and is approximately two miles from the company’s initial Montney well. The new well is programmed for a total drilled length of 4,684 metres, including a horizontal leg of 1,200 metres.

Donnycreek has a 50 per cent working interest in the well.

It is anticipated that the well will reach total depth by October with well completion (stimulation and testing) to be completed by November 2012.

Additionally, the company confirms that the pipeline construction to tie-in the company’s initial well in the Kakwa area continues, with anticipated construction completion by late September 2012.

Bonavista acquires deep basin gas properties Daily Oil Bulletin Bonavista Energy Corporation has entered into an agreement to acquire natural gas weighted properties in its Deep Basin core area in west-central Alberta for an estimated $155 million purchase price at closing.

The acquisition has an effective date of July 1, 2012, and is expected to close on or about Oct. 1, 2012. The completion of the transaction is subject to customary regulatory approvals and other conditions.

To accommodate the acquisition, Bonavista’s board of directors has approved an increase in its 2012 capital budget to $410 million, including $10 million of development expenditures allocated to the acquired properties. This revised capital budget consists of $385 million in exploration and development spending and $25 million in net acquisition spending.

The acquisition is consistent with Bonavista’s strategy of acquiring high quality, multi-zone oil and natural gas assets with significant low risk development opportunities and extensive gathering, compression and processing infrastructure. At closing, production from the acquired properties is estimated to be 6,700 bbls of oil equivalent per day (94 per cent natural gas).

With an expected closing date of Oct. 1, 2012, Bonavista anticipates fourth quarter 2012 production of between 73,000 boe per day and 74,000 boe per day and average 2012 production of between 69,500 boe per day and 70,500 boe per day.

The properties are on approximately 113,000 net acres of land adjacent to Bonavista’s existing Deep Basin land position.

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choosing ngl over gtl Talisman opts out of gas-to-liquids plant to focus on liquids-rich gas STAFF REPORTER Pipeline News North Talisman Energy is turning its focus to liquids-rich resources in Alberta’s Duvernay field and the Eagle Ford play in Texas, since opting out of a plan to develop a gas-to-liquids (GTL) facility associated with their Farrell Creek natural gas holdings near Hudson’s Hope, British Columbia.

Talisman announced a joint venture agreement with South African oil company Sasol in December, 2010 that included Sasol receiving a 50 per cent interest in the Farrell Creek operation and a plan to explore the feasibility of building a GTL plant to transform Montney formation natural gas into liquid fuels. That deal was quickly followed by the March, 2011 announcement that Sasol was acquiring a 50 per cent interest in Talisman’s Cypress A operation.

“This transaction allows Talisman and Sasol to unlock additional value in the world-class Montney shale play and potentially accelerate development of the resources in the area,” said John Manzoni, president & CEO of Talisman, at the time of the Cypress A announcement.

“The Cypress A assets are very similar to Farrell Creek and, with our partner, we will now build an integrated long-term development plan for the area,” he added.

The GTL portion of that plan is no longer in the cards.

“Talisman participated in Sasol Canada’s feasibility study for a GTL facil-

ity,” said Talisman spokesperson Berta Gomez. “And after careful consideration, we concluded that there are better ways to allocate capital in support of our strategy.

“Talisman’s immediate focus is to accelerate investment in near-term liquids opportunities, with the goal of increasing liquids and oil-linked gas production to 300,000 barrels a day by 2015.”

The plan to jointly develop resources at Farrell Creek and Cypress A with Sasol remains intact, but the Montney play isn’t presently a strong focus for Talisman.

“The Montney is a large, strategic asset for the company with a contingent resource of 29 tcfe (trillion cubic fee equivalent),” said Gomez.

However, there are other factors at play besides the quality or quantity of the resource.

“Given the decline in North American gas prices, Talisman has cut spending here in order to focus on the liquids -rich opportunities in our portfolio,” Gomez added, noting that those opportunities are in the Duvernay and Eagle Ford plays.

“Together with Sasol,” she continued, “we have decided to slow down expenditure to three-rig program, allowing us to continue to deepen our understanding of the Montney, reduce our [drilling and completions] costs and optimize the ultimate field development plan.”

Talisman is projecting an average net production of 60 to 75 million cubic feet equivalent per day (mmcfe/d) from the Montney in 2012.

Talisman’s Farrell Creek operation near Hudson’s Hope, British Columbia. photO COURTESY OF TALISMAN ENERGY

“We will also continue to delineate the area for liquids-rich gas. As we move east in the area, we have observed liquids yields of up to 35 barrels per million cubic feet,” said Gomez.

“Our Montney position provides an

enormous amount of flexibility to be able to ramp up at the appropriate time,” she added. “Although we have exited the GTL study, we continue to examine gas monetization options, including LNG (liquefied natural gas) and gas to power.”

Northeast B.C. wildfires trouble gas producers through August james waterman Pipeline News North Wildfires continued to be cause for concern for natural gas producers in northeast British Columbia throughout the month of August, but there was no damage to infrastructure as a result.

The Pesh Fire, which was discovered on July 5, continued to be a significant concern for producers working northeast of Fort Nelson. Measuring 8,697 hectares in size on August 24, the fire was situated just south of a gas plant.

“We set up sprinklers around the plant … closer to the forested area to make sure it was damper in that area,” said Jillian Chimko, a fire information officer with the Prince George Fire Centre, adding that there was also an evacuation alert for operations south of the fire.

“It’s actually still in place,” she said on August 24. “And just kind of set up a trigger point that if the fire passed this trigger point, then there would be an evacuation. And then we would take different steps to protect whatever structures were out there.”

The Capot-Blanc Complex was also a

concern.

Discovered on July 22, the pair of fires had grown to a collective size of about 6,000 hectares by August 24.

“The Capot-Blanc Complex … also had a gas plant, a switching station and a drill site to the west of it,” said Chimko.

“We had a structural protection unit set up on each one of those stations. We had four of them set up in total. And then we just worked on our main objective, [which] was working on the west side of the fire to build a really good guard between the fire and the infrastructures in the area. And then we successfully built our guard and things have calmed down. That fire’s got quite a bit of rain in the past 24 hours.

“We don’t foresee any problems there.”

A camp close to the Capot-Blanc complex made their own decision to evacuate.

“And then they themselves chose to come back when they realized the fire was a little more secure and the threat wasn’t as imminent as anticipated,” said Chimko. “[The wildfires have] quieted down a little bit based on the precipitation and the cooler temperatures we’re finally getting up north.”

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industry news TIME FOR AN OIL CHANGE TransCanada could convert gas pipelines to oil service to eastern Canada james waterman Pipeline News North It isn’t very likely that TransCanada Corporation is surprising anybody who pays attention to the energy sector in this country.

It is improbable that there were many raised eyebrows among keen observers of the industry when it was remarked by president of energy and oil pipelines Alex Pourbaix during their second quarter conference call on Friday, July 27 that it was “technically feasible” for the company to convert pipelines transporting natural gas to eastern Canada to oil service.

“They’ve done that already,” said Bill Gwozd, vice president of gas services with energy sector consulting firm Ziff Energy Group.

Indeed, the first phase of their well-known Keystone Pipeline project began with converting nearly 540 kilometres of natural gas pipeline in Saskatchewan and Manitoba to oil service in order to transport Alberta crude to the United States.

TransCanada has also converted oil pipelines to natural gas service in the past.

“They have multiple lines in the ground,” Gwozd continued, explaining that the company would only be converting one of those pipes to oil service if they were to follow through with the plan.

“Five or six pipes in the ground that actually transport the gas,” he added. “It’s not just one large, supermassive pipe. It’s multiple pipes. And the reason for that is, as the gas production in western Canada grew, they simply added extra pipes to help transport the gas. So, they didn’t anticipate all this gas on day one.

“As this basin grew, they added more pipe.”

However, the dynamics of the energy industry have changed considerably since TransCanada began developing a system of parallel pipes to deliver western Canadian natural gas to markets in eastern Canada and the eastern United States over fifty years ago.

“When we look at an opportunity, there’s just a number of factors,” said Robert Jones, senior vice president of major projects with TransCanada, discussing the feasibility of the fledgling plan to create new oil service to eastern Canada.

“And the most critical one is: does it make sense for the market?” he continued. “I mean somebody’s got to want this and have a need to move energy. So, I think what we have all experienced over the past couple of years is that there is real need – a real drive – to diversify the markets for western Canadian crude oil. And so a number of Canadian producers and refiners… are looking for alternatives to the existing markets.”

There is also the fact of the shale gas explosion that

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isn’t just happening in traditional petroleum producing areas like Alberta or Texas, but also right next door to eastern Canadian consumers in the Marcellus shale gas play of the northeast U.S. “That has resulted in a lot of natural gas in our markets,” said Jones.

“And there are already a number of pipelines that can access those markets in those basins, including one of ours – ANR,” he added.

“And so you’re seeing a shift from our traditional markets, being New York and Boston and eastern Canada, that used to just consume massive amounts of western Canadian natural gas, [but] are now shifting to local natural gas and gas that’s being produced out of the shale basins near their areas.

“And so western Canadian gas production is seeing a lot of competition and we’re seeing reduced flows then on the mainline. And that’s really why we have spare capacity.”

Interestingly, Gwozd doesn’t believe that it is all about eastern Canadian demand or how that it is being met by shale gas production south of the border.

It is also about western Canadian supply.

“If there’s going to be a shortage of gas, and people are going to freeze in the dark, they may be going the wrong way,” said Gwozd.

TransCanada won’t have to shoulder the blame if that does occur in his opinion.

“Gas supply will drop,” he explained. “And, therefore, they won’t need all the transport capacity. Therefore, the extra pipe is redundant. Therefore, there’s no concerns of somebody freezing in the dark because there’s a shortage of gas transport. They may still freeze in the dark due to a shortage of gas, but not because of a shortage of gas transport capacity.”

The issue isn’t strictly about the amount of natural gas coming out of the ground in western Canada, but also about the amount of natural gas going to serve other purposes in western Canada as oil sands demand for the fuel increases and producers start shipping the product to Pacific Rim markets in the form of liquefied natural gas (LNG).

“Gas demand is going to rise in western Canada,” said Gwozd. “Supply’s going to be flat out of western Canada. So, as a result these long haul transport systems have little growth potential.”

The economics are also in favour of converting to oil service, according to Gwozd, largely because of low natural gas prices and the fact that TransCanada already has 80 per cent of a pipeline that would ship oil all the way to the East Coast in the ground.

They already have pipeline to Montreal, Quebec.

“The other pipes then have to operate at a higher pressure, which means more compression and horsepower,” said Gwozd, explaining the consequences of removing one pipeline from their gas service.

“So,” he continued, “it’s almost like putting more cars on four roads versus spreading them out over five. Over four roads – more congestion. More congestion means more stop and go traffic. More stop and go traffic means more compression, more gas fuel.

“So, there’s a little bit more fuel required to transport it, but a little bit savings on the capital side. When gas prices are in the one, two, three dollar range, it’s a slam dunk. No problem. Let’s take the pipe out of service.

Because the operating costs are miniscule.

The situation would be quite different if natural gas was above the $10 price point.

“The extra fuel might be very significant [then],” said Gwozd. “We may not want to take that pipe out of service. So, they have to go through and wrestle with these price forecasts, gas supply, gas demand matters.

“Eventually, the word gets out that, hey, prices will be depressed for a spell, and we don’t need the extra capacity, so they convert it to oil,” he added.

Still, determining the feasibility of such a project goes beyond the market pressures and economic rationale.

“When we go to look at converting,” said Jones, “we got to look at the diameter of the pipe. Because, if it’s too small and you can’t move sufficient amounts of oil, than cost per barrel to move it will be inefficient. Not only that, but you won’t meet, ultimately, the needs of your customers.”

The issue that arises if the diameter of the pipe is too large is that the company will be unable to “batch” the products they are transporting.

“In other words, you can’t move different, discrete types of oil down the pipeline,” Jones explained.

“The critical part is the diameter,” he added.

The other chief concern is the ability to operate that pipeline in a safe and reliable manner that will not harm the public or the environment.

“We have a very high standard [of] how we maintain a pipeline, whether it’s an oil service or a gas service,” said Jones.

“TransCanada has rationalized that protecting their pipeline infrastructure is paramount,” said Gwozd.

“TransCanada can’t afford to be the Vancouver [Canucks] goalie and have pucks flying in their net,” he continued. “Or, in this case, have gas or oil leaking from their pipelines. So, I believe that TransCanada instituted safety procedures, design procedures to make sure these things are all always operating.”

Still, TransCanada isn’t immune to disagreements with regulators such as the National Energy Board (NEB).

It was reported this August that the NEB has had to order TransCanada to comply with a regulatory requirement to install alternate power sources at their Portage La Prairie, Rapid City, Moosomim and Richardson pump stations along their Keystone pipeline in Manitoba and Saskatchewan.

They are legally required to have alternate power to operate emergency shut-down systems at those stations. TransCanada must meet that requirement by September 17.

The company believed that they were compliant with the regulation because of their ability to remotely close valves on the mainline, which they feel serves the same purpose of back-up power capable of closing the valves at the stations. They also felt that was a better option than installing generators and fuel tanks at the pump stations, considering the greenhouse gas emissions and risk of diesel fuel spills associated with those facilities.

TransCanada applied for an exemption from those regulations, which the NEB denied following an inspection of the stations.

TransCanada will now be installing back-up power, while the NEB has also acknowledged that not complying with the regulation poses minimal risk, as leaks or spills at a pump station are very unlikely to occur during a power outage.

Gwozd suggest that TransCanada enjoys the sort of solid reputation that can’t be shaken by such a minor incident.

“TransCanada’s been in that long haul transport business for a long time under the banner of TransCanada,”

AUGUST 31, 2012

PIPELINE NEWS NORTH •

15

Market pressures could inspire TransCanada to start shipping Alberta oil to eastern Canada through one of their existing natural gas pipelines in the near future. photO courtesy of transcanada

he said. “I think the brand name of TransCanada is more recognized than what I call the interprovincial pipe or the energy bridge. That’s how Enbridge got its name.

“I think TransCanada’s brand is a bit more powerful,” he continued. “I think TransCanada hasn’t had any issues because their rate of return model is set up that they put money in the ground, they fix it and maintain it and recover their operating costs.

“Over fifty years of good, reliable service for western Canada producers. And they’ve been there in our backyard for a long period of time.”

It certainly looks as though a new oil pipeline to eastern Canada could soon be part of that service, too.

“We are doing a couple of parallel things,” said Jones. “Obviously, we’re working on the technical aspects, the challenges it would take to convert one of our pipelines to oil service. And we’re also working with the market. Those two efforts are going on in parallel. And hopefully in the not too distant future the two will come together and we’ll be able to provide an announcement with further details.”

The goal is likely to refine that oil in eastern Canada to serve that market.

“That makes a lot of sense. Those are our customers,” said Jones.

“We believe that they would displace the oil that they’ve imported,” he continued. “They have to serve the eastern market today. The majority of Canadians

still live in Ontario and Quebec. And a majority of them still drive vehicles. And so there is a need.

“And so the refineries in eastern Canada – Montreal and Quebec City – today really rely on international sources. And so if we could supply those two refineries with western Canadian oil – I just think it makes a ton of sense that they would refine [it], turn it into jet fuel, gasoline for vehicles.

“Western Canada would be the supply that would displace other sources. And then there’s another refinery in New Brunswick. And so it’s a little more challenging to get there, but we’re looking at that. And then once we’ve kind of got that satisfied, you would look at international markets.”

Gwozd is focused on that international market.

“The end point eventually is going to be Houston area,” he said. “So, right down to the Gulf of Mexico. And the reason for that is no one lives in the centre of the U.S.A. People live in big cities around the coastlines of U.S.A. “This extra oil from Canada is actually destined for the Gulf of Mexico area for multiple purposes,” he concluded.

Diversifying their business and the market options for western Canadian resources is another important piece of the puzzle for TransCanada.

“We are in business to move energy and to transport energy for our customers and to serve the overall public good,” said

Jones. “And there’s no doubt, traditionally, we have moved our gas virtually everywhere. Our network of natural gas, literally, in the northern hemisphere, we touch almost every basin and every market. People know about us. They know who TransCanada is.

“We have the lion’s share of the natural gas transportation market, especially in Canada.”

The oil part of their business – which they are trying to expand overall – isn’t as well known at this point.

“We’ve got a nice threshold with Keystone – a nice a platform to build on – and we are serving markets south of Chicago, and now in the Midwest out of Cushing,” Jones continued. “And with Keystone XL and the Gulf Coast project, we hope to expand that and be able to serve the Gulf Coast markets.

“What we’re definitely seeing is there is a need to move to new markets, whether they be in Europe or in India or in China.

And, of course, really importantly, eastern Canada. Eastern Canada imports 600,000 barrels a day from international sources, from North Sea, from Nigeria, from OPEC nations. And so we can displace that with Canadian production.

“And with the expansion of shale oil in the Bakken and the oil sands – and there’s still conventional oil here in Alberta and Saskatchewan – we can start serving domestic markets instead of them using oil that’s imported from around the world.”

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TransCanada is also pursuing new natural gas opportunities such as the Coastal GasLink project linked to LNG Canada, the plan by Royal Dutch Shell, Korea Gas Corporation (KOGAS), Mitsubishi Corporation and PetroChina Company to ship gas from northeast British Columbia’s Montney natural gas play to foreign markets via Kitimat as LNG. LNG Canada submitted their application to the NEB this summer for a license to export as much as 24 million tonnes of LNG per year over a 25 year period.

“It’s in the consultation stage. We are working with local stakeholders … and we’re getting ready for regulatory filing,” Jones said of the pipeline portion of the plan.

“We just have a vast portfolio,” he continued. “Alaska. Mackenzie. LNG to the west coast. Mexico. And then whatever pipeline infrastructure in both the United States and Canada.

“We do look at a very diverse approach. And where it makes sense, we believe we provide a competitive edge in the sense that we’ve got a great reputation, we’ve got a very high standard, and we been involved in pipelines and that’s all we’ve done since the fifties. And we’ve been successful from the northern regions of Canada all the way down into Mexico. So, we continue to look at all these opportunities.

“It’s an exciting time for the industry, but it’s an extremely exciting time for TransCanada.”

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special feature

wait your turn Economics puts Liard Basin last in line of North American natural gas plays james waterman Pipeline News North

Although it could prove to be the most prolific shale gas reservoir in the world, the Liard Basin of northeast British Columbia will likely have to patiently wait its turn at the end of the line of North American natural gas plays.

Apache, the biggest player in the basin so far, is now in the process of drilling their fourth well on their 430,000 acres.

The first three wells – two verticals and one horizontal – have revealed a net resource of 48 trillion cubic feet (tcf) of sales gas. The initial production of 21 million cubic feet (mmcf) per day on 6-stage frack is thought to be the most prolific shale gas resource test in the world.

“It’s a huge resource,” said Rob Spitzer, vice president of exploration for Apache in Canada, discussing the Liard Basin resource overall.

“I don’t think there’s any doubt about that.

Three wells over a broad area with seventeen other existing wells, that’s a pretty reasonable database [for us to] say there’s a large gas accumulation. It’s no doubt.”

Other players in the Liard include Nexen, who have acquired 300,000 acres in the Liard and the nearby Horn River Basin and Cordova Embayment since 2006, and Korean company STX Energy, who acquired conventional gas holdings in the Maxhamish area from Encana in 2010 for $152 million.

Transeuro Energy has been the sole operator of three wells producing 2.2 mmcf per day in the Beaver River field since buying out their old partner, Questerre Energy Corporation, in June, 2011.

“We changed the operations to improve compression when the company took over the operatorship,” said Darren Moulds, CFO at Transeuro.

“What we want to do now is just re-

enter the existing A-5 and A-8 wells and do some acid stimulation and prepare for hydraulic fracks of the same shales that Apache’s testing. But we will use the existing vertical wellbores to reduce costs.

“We’re not drilling new wells as of yet,” he added, “but going into existing wellbores, keeping costs down and testing shales that we know are there.”

Nexen isn’t very active in the Liard yet.

“While we will be working in the nearterm to further define the resource at Liard through drilling, testing and lease earning activity, the primary focus of our shale gas business in northeastern B.C. is to advance development in the Horn River Basin,” said Nexen spokesperson Patti Lewis.

Paramount Resources is also exploring the basin.

As for Apache, Spitzer explained that they are essentially waiting for production to be economical.

“The timeline is highly contingent on the price of gas and how the LNG (liquefied natural gas) possibilities are coming along,” said Spitzer. “Either one of those need to be positive for us to be able to start drilling in a bigger way.”

Apache is the lead proponent of the Kitimat LNG export project that also involves EOG Resources and Encana.

Initial plans had that facility online in 2015, but that may not occur until as late as 2017 at this point.

“Airplanes always leave late, rarely do they leave early,” said Bill Gwozd, vice president of gas services with energy sector consulting firm Ziff Energy Group, who testified on behalf of Apache during the National Energy Board (NEB) review of their export license application for Kitimat LNG. “So, trying to leave early here would be tough,” he added.

Gwozd has a clear idea of the factors necessary to get the Liard up and running.

“To make it commercially success-

ful,” he explained, “we need to find an industrial that lives right beside that well that’s going to consume a billion cubic feet of gas. The only one I can think of is gas to liquid. So, if we encourage, let’s say, the folks from South Africa, the Sasol team, to open up a shop and build a gas to diesel in that Liard Basin, that would certainly bring those gas wells on right away. That’s one approach.”

Interestingly, Talisman Energy has recently opted out of a plan to build a gas-to-liquids (GTL) facility with Sasol alongside their Farrell Creek operations in the Montney tight gas play near Hudson’s Hope, B.C. “The second approach,” Gwozd continued, “we can find power. Just generate a whole bunch of power, just like the folks did in Newfoundland, build a bunch of wires, and transport it down to California. A long ways to go. A long ways to go. Going to have a lot of power loss. It may never get that far. That doesn’t quite work.

“Another option would be to convert it to ethanol… for gasoline additives.,” he added.

The problem with that idea is that Canada doesn’t require much ethanol.

“And perhaps the last alternative,” said Gwozd, “is to liquefy it on the west coast and then put it in a big row boat, cruise ship, and ship it over to Asia.

“Any country is fine providing they’re paying the equivalent of world oil price for the energy. Canadians would find that quite nice to chew on.”

Even if Kitimat LNG is online in 2016, that is still a long four years for the Liard Basin to wait for what will likely be the first LNG project to move forward, as it is thought that the LNG Canada joint venture led by Shell Canada may not be exporting product until 2019.

“So, we have to do what the Manitoba premier did [and] set up prayer service in the [legislature],” said Gwozd. “And

in that case he prayed for rain for the drought. Here we have to pray for expedited pipeline service, expedited LNG liquefying service.

“Four years is a long ways to wait,” he added. “That’s over 1000 days of penance.”

Gwozd believes that Liard likely has to wait its turn after the Montney formation, which will be feeding LNG Canada from Shell’s Groundbirch operations and a potential LNG project led by Petronas from lands they have acquired from Progress Energy, and the Horn River Basin, which will be feeding Kitimat LNG from resources held

by Apache, EOG and Encana, as well as another potential LNG project involving Nexen and their partners INPEX Corporation.

That could be a very long wait.

“I think Apache, EOG and Encana have their eyes set on 0.7 bcf (billion cubic feet) a day for their initial plant, with expansion to 1.4 bcf per day, with potential beyond that,” said Gwozd.

That is an average of about 0.25 bcf to 0.5 bcf per day for each company. If the daily requirement is 0.5 bcf and the company has a 40 mmcf resource, they only need twelve wells, according to Gwozd.

“Then you need a repair program to keep the wells flowing every year,” he added.

“So,” said Gwozd, “you have four years to get twelve boomers in place. I don’t think it’s unreasonable to do that in six months to nine months. So, they have less than a year’s work to do over four years. So, I think they’ll probably park that first well and say, ‘Aha! We have the potential to do this, let’s just go find the market for it, and we’ll get it all going.’

“Essentially, the well in Liard is what I would call a diamond in the rough. It still needs work before it has value.”

That course of action may seem reasonable for a major producer with a diverse portfolio, but it likely doesn’t work for a junior company with a stake in the

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AUGUST 31, 2012

Liard Basin.

“Being a small company in a big boy’s sandbox means stake your claim, put a flag on it and say you own the toy, and wait for a big boy to come along and buy you,” said Gwozd.

Gwozd added that “any little boy that’s playing up in a big boy sandbox is just waiting to sell out” because “they don’t have the capital to spend $0.5 billion on an LNG facility up front.”

Essentially, that diamond in the rough will never become a real diamond in the hands of the juniors.

“It looks like it’s got a big value,” said Gwozd, “but you’ve got to transport it, you’ve got to chill it, you got to liquefy it, you’ve got to do a lot of things to it to increase it’s value. Take that diamond in the rough and upgrade it.

“It’s going to take a lot of work,” he added, suggesting that that work is best left to the major players that have the capability.

The other issue at play is the fact that there is a lot of pressure for natural gas producers to strike while LNG prices in Asia are in the $17 per million British thermal units (mmBtu) range reported by the Federal Energy Regulatory Commission in July, a far cry from the $3 or less being paid in North America.

“From a price standpoint, there’s really only two options in my mind,” Spitzer said of Liard Basin production. “One is you get a higher North American gas price, which makes it economic to produce into the North American market.”

PIPELINE NEWS NORTH •

17

That isn’t likely considering the huge volumes of shale gas currently being produced in the United States. “[LNG] will come down to companies making their deal terms and making sure that they’ve got a good enough deal to make the economics,” Spitzer continued. “So, either the LNG price has to be good enough to make the economics or the North American market.”

There are other challenges facing Liard Basin production beyond the matThe Liard Basin in remote northeast B.C. Natural gas production isn’t yet economical for ter of the price, too.

“I think the challenges are companies with land in the region. photO COURTESY OF ministry of energy and mines similar to what we’ve expe“There should always be options,” he said. rienced in the Horn River “What if the world price of oil fell… to $50 a barrel?” he in the sense that you’re at the end of the pipeline and continued. “Well, it was down there maybe four years ago. you’re in a part of the world that doesn’t have an enorAnd if it slipped to that price, LNG projects dry up, because mous amount of well control and oil and gas history,” the price that they get is a world oil price and that may not said Spitzer. make the economic cut off for them to do LNG. Ultimately, Gwozd believes that all the options – not just “That’s a big risk.”

LNG – should be explored.

Calgary Economic Development planning energy sector trade mission to Australia james waterman Pipeline News North Amid all the talk of Australian oil and gas companies stealing Canadian workers and the race between the two countries to be the first to supply China and other Asian countries with energy in the form of oil and liquefied natural gas (LNG), Calgary Economic Development (CED) is embarking on an intriguing plan.

They are organizing a trade mission to Australia.

“The ultimate goal is to open markets for Calgary and Alberta-based companies to be able to start doing business in Australia,” explained John Hankins, Vice President of Investment and Trade with CED. CED is hoping to bring ten to fifteen companies working in the unconventional 34550

gas business when they visit Australia on October 14-23.

“Some of the companies that we’re currently attracting are the companies that have been looking at Australia and haven’t yet gone, that have been going down to Australia, and others that have actually started to make a presence there and see this as a way to be able to help lift their presence there,” Hankins added.

Although Canada and Australia are competing with one another, Hankins believes there is a good fit for Canadian companies doing business in the land down under.

“There’s certainly similarities between Canada and Australia,” he said. “We’re both Commonwealth countries. Speak the same language. Large geographic space, but a very small population. And both very rich in natural resources.

“Australia … is booming on the energy side,” he added, continuing to list the similarities. “And, therefore, we want to be getting in there as soon as possible.

It’s a market that we’ve been looking at for a while. And we’ve just had enough companies now say to us, ‘You know what? If you did a mission to Australia, we’d be interested.’”

Hankins also suggested that there is a need in Australia for expertise that Albertan companies are very capable of providing in order for that country to realize its LNG aspirations.

That offers economic benefits to Canada.

“There’s a trade opportunity here,” said Hankins. “A chance for Calgary companies to expand. And if we can keep the Calgary companies expanding, with their head office here in Calgary, then that’s a

really good thing for us.”

The other question is if it makes sense to be dispatching Canadian workers to another country when the workforce is already stretched to the limit.

“There’s definitely a tight labour concern in the energy sector,” Hankins admitted, noting that he was hearing the same story during a recent visit to the United Kingdom.

“I think Australia is actively coming into Calgary,” he continued. “We have our own campaign. We’ve actually targeted Europe and other parts of the [United States] where we see being able to meet some of our labour needs.

“There’s technologies that Calgary companies have that are required in Australia. And if we have that expertise, then I think we can actually supply that demand out of Calgary.”

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special feature inTEGRITY COMES FIRST Canadian pipeline industry sets its sights on safety

Construction of TransCanada’s Keystone pipeline. The company is just one member of a Canadian Energy Pipeline Association (CEPA) that is now launching a new campaign to improve safety and public relations throughout the pipeline industry in Canada. photO COURTESY OF TRANSCANADA

james waterman Pipeline News North The Canadian pipeline industry hasn’t had an easy time lately proving to the public that they can do their business safely and reliably, but they are certainly up to the challenge.

And it has been a challenging year.

The industry has seen high profile oil leaks in Alberta, high profile opposition to heavy oil transportation projects and a high profile indictment of Enbridge’s response to the Marshall, Michigan oil spill by the National Transportation Safety Board (NTSB) in the United States.

“Certainly, Marshall represents a dark period in our company’s history,” said Enbridge spokesperson Todd Nogier.

“I think that’s pretty clear,” he continued. “But we vowed after that incident to make changes. And it was clear to us that some mistakes were made and we needed to improve.”

The NTSB characterized Enbridge as Keystone Kops for their response to that pipeline leak, which had oil spilling into the Kalamazoo River for seventeen hours.

Enbridge’s response to that report included introducing new technology such as their state of the art control room in Edmonton, Alberta.

“We also changed some processes to ensure that we were addressing those concerns and that we were getting better,” said Nogier. “And so we’ve done that. We knew that the NTSB report was going to highlight issues that needed addressing. And we felt that it was important for us to strive to address those.”

The company believes that their response to another pipeline leak in Wisconsin this summer is proof that the new measures they have implemented are already working.

“The drop in pressure was detected by our systems … almost immediately,” said Nogier. “And then our people

and our processes reacted very quickly and shut down the line within a few short minutes and isolated the line within a few short minutes. So, essentially, that mitigated the amount of oil that would be released, and then following that we … launched our emergency response.

And we had considerable equipment and considerable manpower on the scene and cleaning up the affected area within a few short hours.

“It was a release,” he continued. “And clearly we’re working detecting anomalies in our lines to detect these before they become releases. We’re committing considerable resources to that. But when a release happens, we detect it quickly, and we respond quickly.

“And so Wisconsin did show that we have successfully addressed some of the issues that were identified by the NTSB, particularly around leak detection and emergency response.”

The NTSB report also inspired Enbridge to reassess and alter their plan for their Northern Gateway pipeline to transport oil sands bitumen to Kitimat for export to Asia and California, a project that is facing considerable objection in British Columbia.

“We have to recognize that Northern Gateway is a bit of a unique case,” said Nogier. “It is going through an area within Canada that doesn’t have a lot of energy infrastructure. And so we’re really working toward consulting with the people of that area to ensure that we can do everything that we can – that we do do everything that we can – to address what concerns they might have.

And we have heard a number of concerns expressed to us through our consultation efforts and through the JRP (Joint Review Panel) process as well, specifically around remote areas and around sensitive habitats.

“And so we had already planned a state of the art pipeline,” he continued. “It has all the latest technologies and processes to ensure safety. But we had heard

through our consultation and through the JRP process that there continued to be concerns. And so we thought that we would make what we thought was already a safe project even safer by implementing a number of measures.”

Those measures include increasing the wall thickness of the pipelines, especially where it would cross tributaries of the Fraser, Skeena and Kitimat rivers.

“We’ve increased the number of remotely operated isolation valves,” Nogier added. “And so, essentially, that action would increase the number of isolation valves in B.C. by 50 per cent. And we’ve also pledged to increase the frequency of our in-line inspection surveys across the entire pipeline system by a minimum of 50 per cent over and above current standards.”

Enbridge also now intends to install a dual leak detection system, which is basically a doubling-up of the original leak detection system.

“We decided to take that full system and then duplicate it,” Nogier explained. “Two different manufacturers so that you have a little bit of a … technological insurance policy, essentially.

“And then we’ve also pledged to staff our pump stations in remote locations on a 24/7 basis,” he continued.

“And that would heighten security of the pump stations.

It would quicken the response time to abnormal conditions. You would have greater onsite monitoring. These staff members would have the opportunity to go up and down the right-of-way to do physical inspections.

“All these pump stations are also remotely operated or remotely controlled, but having an extra set of eyes and ears on scene, we think, would heighten these measures.”

Those additions to the plan would cost about $400 million to $500 million.

Still, Enbridge is struggling to gain public support or approval for Northern Gateway, according to the results of an Angus Reid poll conducted this summer.

The poll shows that 59 per cent of British Columbians oppose Northern Gateway, although only 35 per cent oppose the project completely, while 24 per cent oppose the project with reservations.

It also indicated that about half of British Columbians could still change their minds.

“This is a marathon,” said Nogier. “It’s not a sprint. We don’t have to see those numbers rise over night. We can continue to address concerns of British Columbians, continue to speak and to dialogue with British Columbians, and continue the good work that we’re doing. We’re doing a tremendous amount of work by way of consultation in northern B.C. and elsewhere.

“Actually, it’s now a conversation that really spans the country in many ways. And we have to continue that work to ensure that … we are understanding people’s concerns and, where we can, addressing those concerns, and … ensuring that people have a full understanding of all of the safety and environmental protection measures we’re [planning] to put it in Northern Gateway. And … that people understand that there are economic benefits to the project.

“There is a benefit to the country as a whole by opening up other markets in the Asia-Pacific. And that’s very important. But there are benefits that would flow through to communities, to Aboriginal groups in communities, to the provinces and to the country.”

According to this most recent poll, a greater number of British Columbians are becoming better informed about proposals to transport heavy oil across their province by pipeline, as suggested by the finding that 71 per cent of British Columbians are following news stories on the matter either “moderately closely” or “very closely.”

AUGUST 31, 2012

Still, that hasn’t translated into a greater number of British Columbians who have made up their minds about the projects.

“I think it’s a complex issue,” said Nogier. “I think people are getting a sense that there is a strategic importance of having a diversity of markets for our energy resources. I think people are getting an understanding of the importance of that.

“But they’re also wanting to ensure that our energy infrastructure is safe and that we’ll operate it in an environmentally sustainable way. And so it’s a matter of continuing to have that dialogue so we understand … where people’s concerns lie and how we can address those concerns, and they can understand how we’re working to mitigate risk and to ensure safety.”

“That’s not entirely surprising,” said Nathan Lemphers, discussing the apparent difficulty that many British Columbians have when it comes to taking a position on heavy oil pipelines in their province.

Lemphers is a senior policy analyst dealing with oil sands issues at the Pembina Institute.

“That’s the mushy middle that is open to hearing both sides of the debate and wanting to have more balanced information out there before they make up their minds,” he continued.

“And that’s typical of Canadian politics.

And you’re seeing it play out here for the Northern Gateway Pipeline. And what this does is underline the need for better information to the public, both from the government and from the pipeline industry as well. From Enbridge. And showing that they do have the proper resources and engineering in place that can prevent or mitigate these types of spills that may be happening.”

“We’ve been tracking this for some time and we’ve seen similar things,” added Kinder Morgan spokesperson Lexa Hobenshield, also addressing the idea that British Columbians have had trouble making a decision about projects like Northern Gateway and Kinder Morgan’s proposed Trans Mountain Expansion (TMX) that would also increase transportation of oil sands bitumen to the West Coast for export to Asia-Pacific markets.

“Actually, we did a poll just recently on awareness and familiarity,” she continued, “and we found that more than half were aware of our proposal, and most

had at least a general understanding of it.

“The threat to our beautiful place to live is the top concern,” she concluded.

The most recent Angus Reid poll also featured questions about TMX. The results are quite similar to those regarding Northern Gateway, suggesting that 50 per cent of British Columbians oppose TMX, but that group is split evenly between those who oppose it completely and those who oppose it with reservations.

“It’s actually quite close in numbers to what we’ve seen through our research,” said Hobenshield. “Our research has indicated an opportunity to provide some additional information … in order to have an informed discussion.”

Now the Canadian Energy Pipeline Association (CEPA) is working to address those public opinion problems with the launch of a new programs designed to improve practices in terms of safety and reliability industry-wide and improve how the industry publicizes it successes in that area.

“Integrity First strategy is fundamentally about the whole pipeline industry being able to advance best practices that matter most for safety,” said Brenda Kenny, CEPA President.

“And it’s built on the same concepts as have been used in other big industries like Responsible Care in the chemicals industry and Forest Certification in forestry,” she continued.

“These management system approaches that are based in risk management are fundamental to safety. And each of our companies does actively use management systems for risk today.

“In fact, the National Energy Board (NEB) audits those same management system programs to assure itself that good risk management is in place. And also, for quite some time, we have, as an industry, shared best practices and developed approaches to advance safety at an industry level. But this just makes it more explicit and more systematic.”

It isn’t exactly a new strategy for CEPA, but they decided that this was an ideal time to step up their efforts.

“I don’t think it’s clear to the public,” said Kenny, “because we have not done a good job explaining what we do to safeguard public interest. And also we recognize the need to be much more transparent. We owe that to the public.

Transparency involves both an under-

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Construction of Kinder Morgan’s Anchor Loop Pipeline in British Columbia. A recent Angus Reid poll shows that many British Columbians remain undecided about the company’s Trans Mountain Expansion project, indicating a need for the industry to improve the way it communicates with the public. photO COURTESY OF KINDER MORGAN

standing of what an industry is about and also the actual performance results. We will, as part of Integrity First, be much better equipped to report on facts that matter to people such as rate of incidents and other safety factors, including environmental performance.

“These things often take a little while to get ramped up,” she added. “And we had already – particularly in 2012 – solidified the approach in a much more certain and concrete way. And we felt that it was important to communicate to the public what we were doing. And it also is really a critical framework to be able to explain some of the key components about safety that we will be coming forward with in the near future.

“The Integrity First program addresses everything from best practices in emergency response to … issues such as pipeline integrity management. And we think that a solid framework approach will give us a much clearer way to develop best practices and to communicate those.”

Recent events concerning Enbridge demonstrated the need to launch the program as well, particularly considering the NEB response to the NTSB report regarding the Marshall, Michigan oil spill.

Following the release of that NTSB report, Gaetan Caron, Chair and CEO of

the NEB, issued a public letter concerning pipeline safety in Canada.

“Given recent events,” Caron said in his letter, “it is important that Canadians understand how we hold companies accountable for public safety and protection of the environment and take swift and appropriate action when they do not.

“The [NEB] takes a proactive approach to preventing spills and releases, with the ultimate goal of seeing none at all. We require pipeline companies to anticipate, prevent, manage and mitigate potentially dangerous conditions associated with their pipelines.”

The letter continued to explain that the NEB regularly performs inspections, audits and investigations to ensure that pipeline companies are complying with regulations, including about 25 such activities per year concerning Enbridge’s operations.

“The NEB imposed two precautionary pressure restrictions on Enbridge pipelines, one in 2010 and another in 2011, which remain in effect,” said Caron.

“When the NEB identifies deficiencies in a company’s systems, projects or programs, we require the company to immediately implement changes to correct those deficiencies or to develop a continued pg 26

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industry news going through a dry spell Natural gas producers make do during northeast B.C. drought james waterman Pipeline News North Northeast British Columbia has seen the sort of dry spell that only happens once every twenty years this summer.

That is the professional view of Alan Chapman, a hydrologist with the BC Oil and Gas Commission (OGC), and a man who knows a thing or two about matters pertaining to water and the oil and gas producing regions of the province.

His assessment of the dry conditions in those parts of B.C. led the OGC to first issue a bulletin on July 26 asking companies with short-term water withdraw approvals issued by the regulator to use water prudently due to low rates of flow in certain watercourses such as the Kiskatinaw, Moberly and Fontas Rivers. That bulletin was followed by a directive released on August 3 alerting the industry of a suspension of short-term water use in northeast B.C. “We do track the conditions across northeast B.C. fairly carefully,” said Chapman, indicating that that is part of their responsibility as the agency that grants shortterm water use approvals under the Water Act. “Halfway through July, we were aware that there hadn’t been a lot of rainfall, basically from after those big storms went through about the first week of June,” Chapman continued. “Very, very little rainfall since then.

So, we were monitoring those water levels and determined that they were falling.

“We weren’t seeing any rain in the weather forecasts. And that’s what then triggered us to put that advisory out to industry, just giving them that alert that rivers are falling, conditions are dry, be aware of that, and use water prudently.

“It’s just part of our responsibility to industry to give them information that we’re aware of that might affect their operations.”

Chapman explained that water levels continued to drop rapidly after they issued the first bulletin, prompting the OGC to suspend water withdrawals from certain watercourses completely.

Companies were still permitted to use water from the Peace, Halfway, Pine, Sikanni Chief and Muskwa Rivers and Williston and Dinosaur Lakes, as well as their dugouts.

“Temperatures went up, which is really the big thing,” said Chapman, discussing the declining water levels between July 26 and August 3.

Those temperatures were approaching 30 degrees Celsius some days.

“And we were seeing some of the rivers drop now very rapidly, especially things like the Moberly and the Kiskatinaw,” he continued. “And during that same time, I was able to get some recent flow measurements from about

nine gauges up in the Horn River Basin. And that then gave us a better ability to understand what the flow conditions were up in that far northern part of northeast B.C.” What they saw were rivers experiencing low flow of the type that only occurs one year out of twenty, resulting from a winter where the region only received 70 per cent of normal snowfall at best and a spring and summer where Fort St. John and Fort Nelson have received just 30 to 40 per cent of normal rainfall.

Consequently, several rivers have been flowing at only 10 to 40 per cent of their normal rate.

At the time of the July 26 bulletin released by the OGC, the Kiskatinaw River was experiencing its second or third lowest flow for that date in the 54 years for which records are available, flowing at only 0.35 cubic metres per second. Similarly, the 3.75 cubic metre per second flow rate of the Moberly River was its second lowest for that date in the past 32 years.

Both rivers were flowing at lower rates than they were during the dry summer of 2010.

Additionally, the 12.4 cubic metres per second flow rate of Fontas River was the lowest for that date that watercourse has seen in 20 years, according to the bulletin.

“It’s at a point where we need to intervene and we need to suspend industry use of water in those portions of northeast B.C. where the rivers [are] at that extremely low level,” Chapman continued.

The suspension has had little impact on the almost thirty companies that collectively hold 1,200 water withdrawal permits in northeast B.C. A number of those producers anticipated the restrictions on water use and made their plans for the summer months accordingly.

“The announcement is not totally unexpected,” said David Haugen, vice president of engineering with Quicksilver Resources, who hold four short-term water use permits for the Lower Petitot River, a tributary of the Liard River.

“We typically line up our water a few months in advance in terms of where and how we will meet our needs,” said Encana spokesperson Jay Averill. “So, that’s why, in the short term, this directive won’t affect us too much.”

Also, Encana isn’t presently conducting a great deal of completions operations, which require considerable water.

“For our part, what we’re doing right now to meet our current water needs is using water from dugouts, and we also recycle an amount of water to reuse in our operations,” Averill added. “We’re also fortunate because we’re able to tap into an underground water source – saline water – which is non-potable water.”

Shell Canada has been able to continue their operations in the Montney natural gas play without drawing

water from the Kiskatinaw River.

“Right now we’re not seeing any impact to our operations,” said spokesperson Stephen Doolan. “We are able to still utilize water from dugouts, and if necessary, withdraw some water from the Peace River.”

“In terms of companies that are doing well completions, where they tend to need larger volumes of water, there’s probably a dozen that I’m aware of,” said Chapman, noting that the majority of those producers have sufficient resources in their dugouts.

“And so the suspension is not affecting their operations,” he added. “There are a couple of companies that don’t have sufficient water in storage that do need access to water and so we’re working with them very closely to look at the specific needs and then where they can access water.

“There’s usually enough flexibility and alternative sources of water.”

Chapman explained that companies will often go back to the calculator when planning their activities during a water shortage.

“One of the things that occurs is, when we do run into this water shortage situation, the companies will take sort of sharper pencil and they’ll say, ‘Well, this is where we’re at right now. Here’s how many wells we’ve got left to complete and how many stages. And here’s what our flowback is looking like that we’re reusing. And here’s how much we’ve got in storage.’

“And they will come to us and say, ‘Our approval is for 200,000 cubic metres of water, but we’ve done a finer

The Peace River was still running high this August despite extreme dry conditions in northeast B.C. that prompted the Oil and Gas Commission to suspend water withdrawals from other watercourses such as the nearby Kiskatinaw River. The restrictions didn’t have a significant impact on industry operations in the region.

JAMES WATERMAN photOS

AUGUST 31, 2012

calculation based on exactly where we’re at right now, and we think we can get by with 50,000.’ And so then we’re working with them to look for sources of water where they can get them,” said Chapman.

The Fort Nelson First Nation (FNFN) has expressed concerns to the OGC about how those alternate sources of water are chosen and the fact that they seem to be making exceptions to the water use restrictions in certain cases.

During a flyover of their territory, FNFN Lands Department staff noticed that one producer company was withdrawing water from a surface water source other than those mentioned in the August 3 directive from the OGC as watercourses from which water withdrawals were still permitted.

“We didn’t see any dugouts that they would be taking water from,” said Julia O’Shannassy, a water resources engineer working with FNFN on water use and management issues in their territory.

“My only thought is that they were taking it directly from the nearby watercourse,” she added.

Consequently, FNFN sent a letter to the OGC’s Commissioner and CEO Paul Jeakins – dated August 14 and signed

by Chief Kathi Dickie – outlining their concerns about water use in their territory during the drought.

The letter concluded with a request for OGC to suspend all water withdrawals within FNFN territory as long as the drought persists.

O’Shannassy was not impressed with the response from the OGC, which simply stated that they wouldn’t be issuing new permits during the water use suspension and that they would continue to monitor the situation closely.

“They just reiterated what was in their bulletin,” she said. “They didn’t really say anything new in their response. So, I was kind of disappointed that there was no new information or no new plan going forward.

The situation’s not getting any better. There doesn’t seem to be significant amounts of precipitation in the forecast. The situation’s only going to continue getting worse.”

O’Shannassy feels there should be a point where the OGC simply says that there isn’t any water available for use in northeast B.C. However, O’Shannassy also knows that a few producers have told the OGC that they still need to withdraw water from

restricted watercourses, using newly taken flow measurements to support their case, and those requests have been granted.

“Which is actually very concerning to [FNFN],” she said, adding that many members of that community have told her that they have never seen such low water levels in the rivers in their territory.

“The Snake River is very, very, very, very low right now,” said O’Shannassy.

That prompted FNFN to send a second letter to the Ministry of Forests, Lands and Natural Resource Operations (FLNRO), which grants licenses to producers for long-term water withdrawal.

“And the issue there is that they have not suspended water withdrawals at all,” said O’Shannassy. “All they’ve issued is a request to conserve. That’s all they have done. There has been no request to minimize withdrawals. No request to cease withdrawals from any of their license holders. So, there is still potentially a lot of water being withdrawn.

“Granted,” she continued, “some of those are very hard to stop because they’re things like drinking water for the town of Fort Nelson. Some of the other ones, there definitely could be limits placed on them to not tax some of these watersheds.

“I think this is where Fort Nelson has an issue – OGC has indicated that we are in a low water situation right now and they have ceased to a certain extent most of their withdrawals, and the Ministry of Forests, Lands and Natural Resource Operations does not seem to be acting at all in a similar manner.”

The overarching issue from an industry perspective is that water is required for completions operations, which must continue without interruption after they have begun without causing a very costly headache for the producer.

“I understand that it’s difficult for them in certain situations,” O’Shannassy admitted.

“OGC has not suspended the use of water out of dugouts,” she continued.

“So, dugouts are still an option. However, the problem is there is nothing filling the dugouts now because we haven’t rain. Or any significant amount of rain.”

Chapman was optimistic about weather forecasts calling for rain and cooler weather during his interview with Pipeline News North on August 8. The region has received a smattering of that weather since that date, but it is difficult to predict

how much is necessary to return water levels and flow rates to normal.

“It depends how widespread the rain is and how long it lasts,” said Chapman.

“But we’re going to be looking for ten to twenty millimeters of rain and above, I think, to see any notable effect on the rivers. And it needs to be fairly widespread.

“The kind of summer rain systems that you get up in the Peace,” he continued, “they’re called convective storms. They tend to be those thunderstorm kind of [events]. And they tend to be really hit or miss. You get rain in one area and a kilometre away it’s dry. So, what we’re looking for is a frontal kind of system.

And that’s where the front will affect big wide areas and will bring rain consistently throughout all the watersheds.”

O’Shannassy indicated that the need for that rain is becoming desperate.

“People are noticing the muskeg drying out,” she said.

“At the end of the day, yes, I understand that some of these operations do need to continue,” she added, “but they need to look at other options, whether it’s trucking water in from sources that are maybe not seeing as great an impact right now.

“And I think the big issue as well is there’s a lot of decisions being made with very little data for most of northeastern B.C.” O’Shannassy is encouraged by the work being done by Geoscience BC to map the water resources in the Montney and Horn River Basin natural gas plays, as well as the hydrologic modeling work being done by the OGC, but she also believes the industry should be accepting a greater responsibility for acquiring that data.

“Geoscience BC is just scratching the surface,” she said, noting that it will likely be a couple years until the hydrometric stations that they have recently installed in the northeast yield any useful data.

O’Shannassy feels there should be greater pressure on industry use alternative water sources, including recycled flowback or produced water.

“It’s really disappointing, actually, that, in general, there has been no encouragement or push for these companies to reuse and recycle any of their produced water,” she said.

“Many of these operations are relying strictly on surface water because it is so

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inexpensive and so widely available and it’s being permitted regularly. So, I think we really should be looking at options for reuse and recycle more than they are now, because in other provinces this is absolutely not acceptable, to be using surface water as the number one option.”

An industry-led study exploring the limits of reusing flowback and produced water for hydraulic fracturing has recently been completed.

Companies such as Encana and Apache are also actively using saline water from deep underground aquifers.

“Stream flow in northeast B.C. is highly variable,” said Chapman. “It varies across the seasons. Very low flow in the winter.

High flow in the spring. And then, in years like this, where you get a month of no rain and then warm air, rivers can fall very rapidly. So, lots of variability.”

That indicates to producers that they need a variety of water sources for their operations, including saline water and recycled water.

Chapman sees that happening.

“It just says that companies do need to be aware of the natural variability and the potential for there to be seasonal problems of access to water and to have sufficient contingencies in their operations [so] that their needs aren’t affected.”

Chapman isn’t worried about the water supply in northeast B.C. either.

“There is a lot of water,” he said. “So, there’s no shortage of water in northeast B.C. And the ministry (FLNRO), which does water licensing, and the Commission (OGC), which does the short term water use approvals, is very careful with the approvals or licenses that are issued to ensure that the supply can meet the demand with there being no impact on the environment.”

However, conditions this year constitute an extreme case of drought, the sort that only happens once in twenty years.

Interestingly, the drought of 2010 was of the same magnitude.

“The record droughts in the Okanagan were 1929, ’30 and ’31,” said Chapman.

“Three years in a row. And ever since then, there’s never been another drought like that. So, they sometimes do occur in these cycles. But it’s a rare event. And in an average year – close to an average year – there can be way more water.

“Maybe a little bit less water than average, but this year is very extreme.”

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community Shell’s new offices a LEED Silver certified sustainable building cont’d from pg 9 activities several months prior to this office opening,” he continued. “There’s weeks upon weeks of installing IT, some of the systems, and also desks and chairs, which take a lot longer than you realize.”

Reid promised that Tetrault and his staff would be moving into their new office on July 9 and he was true to his word.

The contractor is also proud of the quality of the new building, which is situated in a subdivision that is also home to new offices belonging to CNRL and Talisman Energy.

It will soon be the home of the new BC Oil and Gas Commission (OGC) offices, too.

“I put building scheme restrictions on all those properties,” said Reid, adding that those restrictions are more stringent than those imposed by the City.

“These are going to represent the new investment in Fort St. John,” he continued. “They’re going to raise the level of… confidence of investing in our community.”

Shell’s new office is a Leadership in Energy and Environmental Design (LEED) certified building.

“LEED Silver,” said Reid.

“It’s a grade of sustainable buildings,” he continued.

“And they have LEED Bronze, LEED Silver, Gold and Platinum.”

The system is used throughout North America.

“That’s a challenge in the north,” Reid said of attaining LEED Silver status. “Because if this building was plunked in the south, it would be a LEED Gold building.

Because there’s certain things up here that you cannot get, like a transit system that delivers people every fifteen minutes to your door.”

A key factor in achieving that LEED Silver rank was the fact that the building did surpass expectations in terms of energy efficiency, boasting thermal ratings of R41 for the walls, R52 for the roof and R8 for all the glass.

“It’s going to cost very little to operate this building with respect to energy,” said Reid.

Construction of the new building consisted of 90 per cent local talent.

“Most of the money stayed in the community,” said Reid.

However, there has been a bit of controversy concerning the actual local benefits of Shell’s new Fort St. John presence because the building is located outside of city limits, meaning that property taxes won’t be paid to the City of Fort St. John.

“It’s a question of leasing what was available at the time,” said Auger.

“We have a real estate group that does nothing but look at offices,” Tetrault added.

“From upstream business to the downstream business, whether that’s gas stations or offices,” he continued.

“We did look at a variety of different locations before we landed on this one.”

Tetrault stressed that Shell did not deliberately try to build their new office outside the city.

“We looked to be in the city and we couldn’t find anything suitable at the time,” he said. “And so that’s the reasoning behind [it].

“Although this is a nice location,” he continued, “being away from the city from a people perspective also means that we’re that much farther away from paths, for instance. So, I can bike most of the way to this office, and the remainder is on the road.

“We didn’t take the decision lightly. We looked initially in the city and then we had to come out here. And besides the taxes, we looked at a variety of different things as well. And this was the best fit.”

Reid obviously believes the location, coupled with the quality of the building, will be to the long-term benefit of Fort St. John.

“They’re all brand new buildings,” he explained. “And

Shell Canada presented $100,000 donations to both the Fort St. John Hospital Foundation (top) and the Dawson Creek Hospital Foundation during the grand opening ceremony for their new office in Fort St. John.

JAMES WATERMAN photOS

they all have building scheme restrictions on them so, when you’re coming in from the airport, it’s impressive.

They’re all nice, new, modern style buildings that Fort St. John can be proud of.

“They’re all good quality buildings that are going to last a long time,” he added.

Auger emphasized the benefits to Shell that comes with the location as well.

“It’s on the way to the airport,” he said. “It’s quite convenient. So, for us, for staging operations, it’s quite central. You can [easily] get to all our facilities.”

Additionally, Shell used their grand opening barbecue to provide support for the local SPCA and their favourite cause, the United Way. The event also featured donations of $100,000 each to the hospital foundations in Fort St. John and Dawson Creek.

“I am so pleased to do that on behalf of the company,” said Auger.

“We try to create a building that will allow us to meet our business needs, which means growing the business,” said Tetrault. “By growing the business, we’re trying to hire local talent, and at times we also have to bring

in talent from outside. And some of this talent might live in different parts of the world – it could be Alberta – and they come and they join us here to work on our assets.

It means now that we’ve got somebody who wasn’t here before. And that is putting pressure on the hospitals.

“We’ve heard that from the hospital themselves and other folks in the community,” he continued. “So, these two donations are a way to help give back. Although it won’t completely alleviate the pressure on the hospitals, but if we help them purchase equipment, it helps them potentially be more effective in delivering the services.

“And so that’s the rationale behind it, is that we know that we’re having this impact, and we want to try to alleviate that and mitigate that risk by providing equipment.

“If I went to the hospital tomorrow, I’d like to know that the industry as a whole, and the growth that it’s seeing, isn’t putting pressure so that I can’t get looked after as well.”

“You can have a lot of other things in life,” Auger concluded, “but if you don’t have your health and your safety, you really don’t have much.”

industry news

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CERI: Canada must move on oil and LNG export projects now cont’d from pg 4 “What we can suggest is that, because of the remoteness of northeast B.C., those peoples working there need hotels, they need camps, they need restaurants, they need leisure activities and all that kind of stuff. So, they’ll be spending money there, which then affects all of your indirect and induced impacts.”

Howard noted, however, that CERI is very confident in its numbers, particularly when it comes to supply from the oil sands and the Horn River Basin, because they are based on recent history in those resource plays.

“As far as the pipelines are concerned,” he said, “we don’t have a lot of recent history on pipelines. So, that’s based on the applications themselves, which theoretically should be in good shape.

The assumption we make – and we’re not shying away from it – but the assumption we make is that the market for the product is open.

“So, that means that if oil pipelines get built, the market will be there to take the product. If the LNG terminal gets built, the market will be there to take the product.

And that’s an assumption we’ve made.

We can’t quantify whether that is a good or bad assumption.”

Apart from the remarkable benefits to B.C., one of the most intriguing aspects of the study is the suggestion of economic benefits to Ontario and the role of the oil and gas industry in resurrecting that province’s struggling manufacturing sector.

It has been hard to relay that message to those in Ontario who aren’t directly affected by those developments.

“It’s a difficult message to get across,” said Howard.

“We can, from an economic modeling point of view, suggest that there’s a benefit to the Ontario economy in the context of x-billion dollars,” he continued. “But to the guy on the street: what does it mean to me? Well, difficult to answer that question. But the point I can make – and I’m very delicate about this – is B.C. and Alberta’s economies, because of the energy, are net contributors to the equalization program, which means that money will flow into Ontario, more money will flow into Quebec and more money will flow into the Atlantic

Although the oil sands are in Alberta, the extracted bitumen could prove to be black gold for British Columbia thanks to pipelines that would carry that product to the west coast, according to a recent Canadian Energy Research Institute (CERI) report.. photO COURTESY OF SUNCOR ENERGY

provinces.”

Howard suggested that the reports indicate a level of urgency for these projects.

“If we do not get a new pipeline to either an existing market or a new market, [than] our production is going to plateau, we won’t be able to move any more crude, and then, in fact, oil sands developments – future developments – will actually slow down,” he said.

Now, there are suggestions that rail can handle some of this and I absolutely agree with that,” he added.

However, trains can’t realistically handle the volumes that would be transported by TMX and Northern Gateway.

“One train car will handle 600 barrels,” said Howard. “One unit train will carry 60,000 barrels. So, that means you need nine trains a day going from Point A to Point B to match the pipeline and nine trains returning to Point A just to keep that system running.

“That means you’re going to have one

train going either east or west, every hour, crossing one point on the earth.

And if that point happens to be downtown Hinton, Alberta, I’m not sure they’re going to want that.”

There is also a sense of urgency on the natural gas and LNG side of the equation.

Recently, the North American natural gas price has consistently been below $3 per thousand cubic feet (mcf), which simply isn’t economical for companies working in the remote northeast corner of B.C. “Producers can’t make money at that,” said Howard. “So, the urgency there is, if you do not build the pipelines, the wells, the Kitimat terminal, the shipping, that gas will be stranded gas, and locked in until price recovers. Is that next year? I doubt it. Five years from now? Maybe.”

The problem is that producers still need to secure markets for their natural gas.

“The producers want a long-term contract to build that thing,” said Howard, referring to Kitimat LNG. “And the market

is saying, ‘Well, we don’t want to sign a long-term contract. We might be able to go five years, but we’re not going to sign a 20 year contract.’ They have to come together on that.

“The second sensitive issue is, right now, as we stand here, LNG is partially linked to crude oil pricing,” he continued.

“Hence the reason why, in Japan, last winter, gas sold at [about $15/mcf], and then in North America it was at $3. There is a suspicion that the market would like to see that situation become decoupled, in which case LNG would be sold as an arbitrage commodity on the high seas, which theoretically would bring the price down. And that causes a problem for the Kitimat terminal. Because you’ve got, depending on what you want to believe as a forecast, somewhere between $4 and $6 net back benefit.

“And if the market price in China becomes decoupled from oil and starts to slip, well, then that net benefit will start to disappear on you.”

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industry news Expert: CNOOC’s acquisition of Nexen should be welcome news to Canadian government cont’d from pg 5 but it remains to be seen whether or not you will ultimately have a liberalization of politics as well.”

Anderson suggested that concerns about such deals should not only exist in the U.S. in Canada, but that China also has to tread lightly as it continues to grow its economic ties to western democracies.

“They know they’re on a bit of a powder keg and they have to be really careful with the way this all gets managed,” he said. “Otherwise, the folks in the Communist Party are going to be done.”

Anderson noted that the risk to the Communist Party in China is explained by an idea known as modernization theory.

“The idea is that you have this initial opening in terms of economics,” he said. “And, ultimately, in order to have an open economic system, you have to have the free flow of information, and that includes political information. And so what kind of restrictions can you permanently maintain on the flow of information before it ultimately opens the politics as well.

According to Anderson, the decision will likely be made in favour of CNOOC because Nexen is not a large Canadian company on the scale of Encana or Canadian Natural Resources.

“Another reason I think the Harper crowd is not going to stand in the way of this is one is that Nexen is not doing so well and it could use the little boost,” he added.

Besides, the federal government likely isn’t as concerned with the origin of the investment money going into the oil sands as they are about the trickle down effects to other Canadian industries, not to mention the benefits of shipping that oil to Asian markets.

“I don’t think they care whether it’s ExxonMobil or

The acquisition of Nexen would give CNOOC access to Alberta oil and British Columbia shale gas, hot commodities in energy-hungry China. photO COURESTY OF DAVE OLECKO, NEXEN

Imperial Oil doing things up there or if it’s CNOOC,” said Anderson.

“Whenever you get CNOOC investing in Nexen, it suddenly makes people a little bit nervous. I mean, if it was a French company or a British company, nobody would bat an eyelash. But it’s a Chinese company and so everybody gets a little bit excited about it,” he said.

Yet the owners of the company have no bearing on how the company will operate when on Canadian soil.

“But all of that said, they’re going to have to operate under Canadian law. So, it’s not as if there’s going to be a conduit across the Pacific to China. I mean, they’re going to have to operate under the same rules that BP or ExxonMobil or any other foreign multinational in Canada have to operate under,” he said.

“In some ways there’s not that much cause for concern as long as they’re not breaking the law in Canada.”

CLEAN ENERGY B.C. government gives the green light to natural gas power generation to support LNG projects james waterman Pipeline News North Natural gas has been given the green stamp of approval by the government of British Columbia.

Following up on promises made by Premier Christy Clark in June that B.C.’s Clean Energy Act would be updated to address the use of natural gas for power generation, Minister of Energy and Mines Rich Coleman announced on July 24 that the legislation will now allow the use of that provincially abundant resource to power liquefied natural gas (LNG) export facilities.

That possibility has been a hot topic of conversation since February, when Clark told Pipeline News North that all the power generated by BC Hydro’s controversial Site C hydroelectric project could be used by the first phase of LNG Canada, a joint

venture between Shell Canada, Korea Gas Corporation (KOGAS), Mitsubishi Corporation and PetroChina Company to move northeast B.C. natural gas to the west coast for export as LNG. Coleman followed up on those remarks during the Fort St. John Energy Expo in May by suggesting that natural gas could be used to power LNG facilities.

That is now official.

“It’s an important signal to the Canadian industry and the international investment community that B.C. is serious about finding a way to get its resources to market,” said Geoff Morrision, BC operations manager with the Canadian Association of Petroleum Producers (CAPP).

“It’s very positive,” he added. “There was some question about how the industry could find sufficient energy supply for all the projects being proposed. And so this brings some clarity and some cer-

tainty around those questions.”

A statement from the government following the announcement indicated that natural gas would be part of the energy mix available to LNG projects, which would also include renewable energy sources such as wind and hydro.

The 93 per cent clean energy target remains intact for all power generation, not specifically for LNG export facilities.

The concern has been that burning natural gas to produce electricity would compromise greenhouse gas emissions targets set by the provincial government, but they appear confident that emissions standards for natural gas power generation plants will be strict enough that the impact will be minimal.

“The regulation as it’s set is very specific around promoting the export of natural gas,” said Morrison. “Does it initiate a wider conversation about the role

of natural gas in electricity generation in BC? Perhaps.

“You need to think about the emissions targets in a global context,” he continued. “And so if you can help achieve a reduction globally, the trade off in B.C. is worthwhile.”

Although the decision has been made with LNG exports in mind, broadening domestic markets for B.C. natural gas is also welcome news to Canadian producers, according to Morrison.

“CAPP supports expanding those domestic markets as well,” he said. “So, whether it’s for vehicles or for electricity development, CAPP thinks natural gas plays an important part [and] should be part of the energy mix.

“CAPP believes that natural gas is a clean source of electricity,” he concluded, “and it can be part of that green mix in the BC context.”

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THE ROLLERCOASTER RIDE Service sector stays steady through the ups and downs of the oil and gas industry Life in the oil and gas services sector isn’t always a smooth ride.

It can be as bumpy as some of the gravel roads those crews must travel to reach the well sites where they do their business every day in western Canada.

The numbers noted by the Petroleum Services Association of Canada (PSAC) in the third quarter update to their drilling activity forecast – which was released on July 30 – are evidence of that fact.

“We went into this year – when we did our forecast for 2012 – fairly optimistic, thinking 15,100 wells,” said Mark Salkeld, President and CEO of PSAC. “And then, over the course of the year, we, along with everybody else, watched gas prices drop and drop and drop and drop. And what that’s done [is] it’s affected a few things from a PSAC perspective.”

Their initial forecast of 15,100 rig released wells in 2012 was changed to 13,150 wells April, which still marked a three per cent increase over 2011 activity. As of the end of July, PSAC was only forecasting 12,500 wells for 2012, a decrease of 650 wells from their April forecast, not to mention a three per cent decrease in activity compared to 2011.

The July update was based on an average natural gas price of just CDN$2.50 per thousand cubic fee (mcf) and an average crude oil price of US$90 per barrel.

Dry natural gas producing regions are being hit particularly hard.

“The producers that were invested heavily in land for drilling dry gas, everything tightened up, and it’s a real rough scenario out there for them,” said Salkeld.

That has had an impact on PSAC member companies that provide slickline services.

“Because that’s predominantly a gas related kind of activity, especially when there was different rules in place with isolating formations and stuff,” Salkeld added.

A number of service companies have reacted by shifting their focus toward oil and liquids-rich gas projects.

“We’ve been holding our own,” said Salkeld.

“It’s not the boom,” he continued, “but it’s definitely not the bust.”

Salkeld remarked that there are PSAC member companies that are still looking for new employees numbering in the thousands, even despite these tough times for natural gas prices.

“Drilling rigs are quiet. Service rigs are going steady,” he said.

“It’s definitely scaled back,” he added, “but we’re not rolling up the sidewalks or shutting the doors. It’s still pretty active out there.”

The complication is that the shift to liquids-rich gas exploration and development in response to low natural gas prices – along with the efficiency of horizontal drilling and hydraulic fracturing – is already resulting in a glut of natural gas liquids (NGL) that could drive those prices down as well.

“Everybody’s going to be keeping an eye on them,” said Salkeld.

Additionally, there are presently no signs of a great recovery for dry gas prices.

“Dry gas dried up,” he added, noting that natural gas is still being produced in association with NGL and oil.

Natural gas storage is at capacity, too.

“I think this time last year they were 62 or 63 per cent capacity,” said Salkeld. “And now they’re up into the nineties.”

Consumption in North America isn’t considerable enough to alleviate that logjam any time soon.

“There’s some drought in the [Unites States] and a bit in eastern Canada that could affect consumption, but there’s no major indicator,” said Salkeld.

The result has been the emphasis on securing new trading partners for Canadian petroleum resources.

“So, there’s lots of interest in the Northern Gateway pipeline to get the product from Canada – not just Alberta, but from western Canada – offshore,” Salkeld.

“And get it to… where it’s in demand and top dollar’s being paid for it.”

The most discussed option for natural gas is exporting it to Asia in the form of liquefied natural gas (LNG).

“We’ve got competition,” Salkeld admitting, addressing other efforts in the U.S. and Australia to ship LNG to Asian markets. “There’s no doubt about it. But you know what? That’s still a very strong, developing economy over there.

I mean, we’re talking billions of people that want we have in North America. So, I think that the demand between China and India alone could keep us busy in the U.S., Canada and Australia. Not a problem.

“There will be trade.”

Regardless, the service sector is staying busy.

“We are still drilling,” said Salkeld.

However, activity is projected to be very uneven across Canada.

Rig activity is expected to increase the most in Manitoba, where the well count will increase by fourteen per cent over 2011 to 663 wells.

Activity isn’t Saskatchewan isn’t expected to change markedly.

A decline in well count is expected in both Alberta and British Columbia.

Alberta could see wells drilled drop by four per cent compared to 2011, amounting to 7,795 wells for 2012, while the B.C. count will drop by an incredible 22 per cent over 2011 to a total of 485.

The difference been Manitoba and B.C. is the difference between developing light oil in the former, which is economical in the present price environment, and developing dry natural gas in the latter, which isn’t economical currently.

“Our service companies are relatively busy on the hydraulic fracturing side,” said Salkeld, adding that recent seismic activity and land sales are good indicators that those companies will remain busy.

“The other thing that’s interesting,” he continued, “is that … oil wells require far more maintenance on average than a gas well.”

Salkeld explained that a service rig crew can keep a natural gas well productive throughout its lifetime with only three visits to the site at most, but an oil well requires as many as eight visits to keep the product flowing.

“Just because we’re drilling more oil wells, there’s more requirements for service rigs going forward,” he said.

“And then just activity in general,” he added. “I mean, there’s manufacturing, the rigs are working, there’s hydraulic fracturing, directional drilling. Pretty much all the services.

“We’re still crying for people.”

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special feature CEPA: The Canadian pipeline industry has operated safely for almost sixty years cont’d from pg 19 corrective action plan for NEB approval,” he continued.

“It is important to note that we aim to prevent incidents from occurring in the first place and we will take all available actions at our disposal to protect the environment and the public. The NEB may revoke authorizations, impose safety orders that restrict operations, issue stopwork orders and monetary penalties as well as pursue criminal prosecution.”

After reviewing the NTSB report on the Marshall, Michigan spill, Caron stated that the NEB would be performing safety audits of Enbridge’s facilities, including a two day audit of their control room in Edmonton on August 8-9.

The NTSB report will also now be submitted as evidence before the JRP reviewing Northern Gateway.

“The NEB has decided to … conduct a review of our control centre operations sort of in response to the NTSB report of a few weeks ago,” said Nogier.

“We’ve cooperated fully and will cooperate fully with all regulatory oversight of our operations,” he added. “We welcome the NEB’s review. We understand that the public’s interest in safe operations of pipelines is paramount and we share that point of view. And therefore we’re open and willing to have the NEB look at all operations with respect to the control centre.”

Enbridge has a high level of confidence in that control centre.

“The NEB indicated prior to the review … that they wanted to take a look at the control centre operations just to see for themselves that we have made improvements and that we’ve followed through on the commitments we’ve made to improve our operations in the control centre,” said Nogier.

“We’ve built a new control centre,” he continued. “And it opened in January of this year. It’s a state of the art centre. And so we would look forward to the opportunity to show them all of what we’ve put in place there. We’ve got a new leak detection system. We’ve added additional flow meters.

“We’ve doubled the number of employees and contractors dedicated to leak detection and pipeline control.

So, we’ve put some resources to bear to really address concerns of the control centre. And we were happy to review that with the NEB.” “Any kind of report and regulatory action points to the very important ongoing need for regulators to address issues or questions they may have regarding any company,” said Kenny. “And the Integrity First program compliments that very well. The heightened public interest on pipeline matters means that we really do owe it to the public to be much more clear about what we’re doing.

“It’s been largely an out of sight, out of mind endeavor,” she continued, referring to the work the pipeline industry has done during its almost 60 years of existence in Canada.

“And for many years that seemed, as an industry, the right thing [to do], because our job was simply to get on with delivering energy safely,” she said. “Now that people are curious and interested, I think it is important for us to be able to communicate effectively. And that’s one part of Integrity First.”

The oil and gas industry, through initiatives led by the Canadian Association of Petroleum Producers (CAPP), has done a good job of combating negative public perceptions in recent years by responding to incidents or concerns by developing new practices and technologies that are subsequently made public.

That is the sort of model CEPA would like to follow.

“I think we’ve been doing it behind the scenes for many decades,” said Kenny. “And now we recognize that

The Canadian pipeline industry is constantly developing new practices and technologies to improve its safety and reliablity recording. photO COURTESY OF TRANSCANADA

it’s important to share that with people. So, certainly that is the sort of thing people can expect to see.”

Kenny added that incidents have always been learning opportunities that have helped the industry grow.

“For many decades, you will have seen improvements on standards, improvement on practices, improvements on technology, directed to the learning that can come from ongoing operations,” she said.

“We do have 50 or 60 years of solid history in how we develop practices and also how those are set down in standards and regulations. None of that changes, but I would say that it becomes even more systematic and therefore more rigorous, and also more transparent.”

Hobenshield noted that there have been great advances throughout the history of the pipeline industry that are well worth promoting.

A significant technological breakthrough was the introduction of internal inspection tools.

“When our pipeline was constructed in the 1950’s – 1952 and 1953 – that type of technology did not exist,” said Hobenshield. “And now we run internal inspection tools on a five to seven year timeline. And that knowledge and information and the data that comes back is really important in maintaining the integrity of our pipelines.”

Kinder Morgan has made a number of changes to their own processes since a 2007 incident concerning their pipeline in Burnaby, B.C. “One of those changes is we have a department now that is called our Pipeline Protection Department,” said Hobenshield.

“It’s 18 people,” she continued. “And they are solely dedicated to ensuring that the pipeline remains safe. So, it’s things like public awareness programs. It’s things like marking the pipelines. It’s things like … aerial and ground patrols. We’ve really stepped that up.

“So, the industry takes that seriously. And, certainly, what I’ve seen inside Kinder Morgan is we take that very seriously. And it’s a really important part. And not only is it important to us, but it is expected by our regulator, the National Energy Board.”

Kinder Morgan also won an environmental award for their performance when twinning a section of pipeline through a national and a provincial park in Alberta and B.C. five years ago.

Nogier suggested that the new Integrity First strategy can be important in terms advancing those sorts of best

practices across the industry.

“We think that it’s very important to all be involved – all the pipeline operators and through our associations – be involved in doing whatever we can to increase safety and safe operation of our pipelines,” he said.

“We also think that there’s a role that our associations can play with respect to educating the public on … what an important role [pipelines] play in our lives. And what the actual record is of pipelines. I mean, any one spill is one spill too many. But we’re working really hard, and committing considerable resources, to improving. And we think that we are improving.”

Kenny emphasized that Integrity First isn’t simply a public relations exercise, but a program focused on real improvements in pipeline safety.

“By being more systematic at the industry level on safety, not just individual companies as the case today, but more systematic at the industry level, we can also be more systematic in reporting to the public our results and in explaining key components of safety that they care about,” said Kenny.

“Right now,” she continued, “the fundamental safety issue is, in fact, one of public confidence. We have in Canada one of the very safest pipeline networks in the entire world. And that’s a good thing. But we do have a goal of zero incidents. And we need to work hard to get to that.

“We also … have a concern in the minds of the public with respect to pipeline safety. We need to tackle both of those in parallel so that people can come to terms with where we really are at in pipeline safety, which is, in fact, world leaders.”

As part of the first stages of Integrity First, CEPA has formed a pair of special task forces to determine if existing strategies in the same arena are already sufficient.

“Because we already have quite a bit of work underway and we need to be able to complete that work,” said Kenny, adding that CEPA isn’t about to shy away from doing additional work if necessary.

“We are, at this point in time, redoubling efforts to assess our strategies and make sure that they’re meeting the needs of both the public and our members in terms of their commitment to safety,” she continued.

“And then the next step will be to move those plans forward and to complete the pieces that are nearing completion, which are the ones that … we [will] be reporting on in the fall.”

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rising high

Energy sector salaries expected to grow again BROCK CAMPBELL Pipeline News North Energy industry salaries going up, bucking the trend found in the rest of British Columbia where paycheques are below the national average.

A skilled-labour shortage being experienced among some of northeast B.C.’s key industries is said to be the cause behind above-average salary increases, according to a recent salary projection report released this week by the management-consulting firm Hay Group.

The study suggests that oil and gas wages are estimated to be a full percent above the projected national average.

The firm estimates that oil and gas salaries will increase nationally by 3.9 per cent in 2013, followed by mining at 3.6 per cent; significantly higher than the 2.9

per cent increase to be seen across all public and private sector jobs.

These forecasts “are more of a reflection of the demand for skills” and competition for skilled talent, rather than an indication of “boom times,” according to the report.

“We have to be careful that it’s not thought that provinces are having an economic boom, because overall we’re having a global recession,” said Tracy Bosch, principal of Hay Group.

“You can look at it simplistically to say that because there is oil and gas in Alberta, for example, the province is booming, but it’s not necessarily the case,” said Bosch.

“The reason why oil and gas, and mining, demand those higher salaries and why they have the higher increases is because of the particular skill set that they

need to do the particular type of industries that they have. There is a shortage of talent in that area.”

“The reality is that because of those industries there is a lot of competition for skilled talent, and they are having to offer higher wages to protect that talent pool.”

A viewpoint shared by at least one company operating out of the Peace Region.

“Salaries are a reflection of supply and demand,” said David Urquhart, human resources team lead for Encana Corporation. “There is currently a lot of competition for talent in the oil and gas sector.”

He said that demand for workers in Alberta and northeast B.C. is being driven by three major factors. The first is robust oil sands activity. Secondly, historically low natural gas prices have many companies shifting resources to focus on

natural gas liquids, which is creating a lot of activity in the sector. Finally B.C.’s recent international investment in the oil and natural gas industry means that companies are working with significant capital and fulfilling agreements that are helping drive activity in natural gas development, which is true for Encana.

“So while we may not classify it as a “boom,” sustained activity in oil and natural gas development to meet a growing global energy demand is creating a lot of job opportunities in oil and gas, and that is reflected in the salary forecasts.”

Bosch added that wage increases for skilled-worker positions in the leading resource industries has a “roll-on effect” for all other job titles related to the industry, such as administrative or finance employcontinued pg 28

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industry news the fracks are alright Fracking risk ‘negligible’ according to industry study james waterman Pipeline News North There is very little risk from the use of hydraulic fracturing for extracting shale gas, according to a new study.

Responding to public concerns about the use of hydraulic fracturing for extracting shale gas, the western Canadian oil and gas industry has undertaken a scientific study to examine the potential risks of the practice.

“Tremendous natural gas resource potential has been identified in shale basins in Western Canada,” said Scott Hillier of ConocoPhillips, part of the team leading the project, which was funded by the Science and Community Environmental Knowledge Fund (SCEK) and the Alberta Upstream Petroleum Research Fund (AUPRF) and managed by the Petroleum Technology Alliance Canada (PTAC).

“Producing natural gas from these areas has become economically feasible principally due to technological advancements in horizontal drilling, innovative earth imaging and the use of hydraulic fracturing,” he continued.

“While hydraulic fracturing of oil and gas wells has been safely used since the 1950’s, there has been limited scientific evaluation of the potential risks to the environment.”

A key concern for both the public and industry is the protection of drinking water from contamination related to fracturing activities.

The project team conducted a technological assessment of the current fracturing methods, as well as research into pathways available to fracturing fluids during injection, in preparation for examining the potential risks.

They also analyzed the chemicals used for fracturing and examined incident reports related to fracturing.

Finally, surveys of best management practices, geological reviews of shale gas basins in Canada and present regulations were also performed.

The work resulted in a report titled The Modern Practices of Hydraulic Fracturing: A Focus on Canadian Resources.

“The report examines the risk of groundwater contamination from hydraulic fracturing and presents the results of a highly technical analysis in layman’s terms,” said Hillier.

“The report details the research conducted by ALL Consulting that demonstrates the risk of groundwater contamination from hydraulic fracturing is negligible, and that the promise of clean, abundant energy from shale gas can be realized,” he added.

“The study was conducted so more knowledge regard-

A recent study conducted to address public concerns about hydraulic fracturing has shown that the pratice is safe from a human and environmental health perspective. photO COURTESY OF DAVE OLECKO, NEXEN

ing hydraulic fracturing and the risks associated with the practice could be available for both regulators and the public.”

The study was conducted from March 2011 to June 2012.

“In order to assess the potential risks to groundwater associated with hydraulic fracturing, the researchers identified and analyzed the pathways through which contamination could theoretically occur,” said Hillier.

The pathways included vertical fracturing that occur naturally or during fracturing, poor well construction and migration of fracturing fluids.

“The analysis in this report considered only the subsurface pathways that would potentially result from the hydraulic fracturing operations, and not those events that may occur in other phases of oil and gas development,” said Hillier.

“Analysis of each of these pathways demonstrates that it is highly improbable that fracture fluids or reservoir fluids would migrate from the production zone to a

fresh water source as a result of hydraulic fracturing,” he added.

The pathways were examined based on public concerns.

“Many public concerns have been voiced in the media,” said Hillier. “And these concerns were recognized as part of the study’s scope development. Information was also solicited from oil and natural gas operators and the study’s proponents as to the issues and concerns they felt need further analysis.”

The scope of the project was designed to address the majority of issues related to fracturing and groundwater contamination as expressed by the public and the industry regulators.

“Companies need to plan and collect as much data as possible about their site conditions and then implement the practices best suited for those conditions to reduce the incidents where mitigation might be required,” said Hillier, discussing the key learnings from the project.

“The first and best approach is prevention.”

Worker shortage driving wage increase cont’d from pg 27 ment, in effect increasing wages to those areas tied to the industry.

Administrative assistants can make up to $42,000 a year in the petroleum services industry, and professional engineers, depending on occupation, experience and responsibility, can make $215,000, according to Careers in Oil and Gas’ website.

Drill operators can earn anywhere from $27 to $42 an hour.

It is wage increases in major resource sectors that buoy salary averages of Alberta (3.6 per cent), Newfoundland

(3.4 per cent) and Saskatchewan (3.2 per cent) above the national average; but unlike its resource-rich peers British Columbia is projected to only see a 2.7 per cent average increase next year, on par with provinces such as Ontario, Manitoba and Quebec.

“So where as our [B.C.’s] resource industry includes some mining, as does theirs, but we still have a lot of forestry in our resource sector, it’s the difference between oil and gas versus forestry.”

Bosch explained that while B.C., in particularly the northeast, may be thriving with oil and gas, and mining, the rest of the province is still heavily dependent on

forestry, an industry where wage increases are projected to be below national average.

Bosch said Canada’s forestry sector will likely see a 2.4 per cent increase in comparison to the much higher projections of 3.9 in oil and gas.

“So that’s the difference is the dominance of oil and gas in Alberta, Saskatchewan and Newfoundland.”

Sectors with the lowest projections in Canada are healthcare at two per cent, media at 2.2 per cent and government and telecommunications both at 2.3 per cent.

“I would say that these projections are

an indication of overall conservative approach to managing compensation, you can see that in the fact that the increases are lower than they have been, you can also see it in the fact that they are more consistent than they have been, so overall I think the projections are an indication that employers are being conservative in the way that they approach compensation in this uncertain economy,” said Bosch.

“Where we have pockets where there are employers that are having to compete for scarce skilled talent such as Alberta, Saskatchewan, and Newfoundland, we’re seeing some higher increases in those sectors within the province.”

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highs and lows Alberta offers high wages and low unemployment thanks to the oil patch

Probably the least surprising data to flow forth from the calculators at Statistics Canada this summer is the fact that Alberta enjoys the lowest unemployment rate among all provinces in addition to being home to the nation’s highest paid industry sector: oil and gas.

The unemployment rate in Alberta this July was 4.6 per cent.

“Unchanged from the month before,” said Darrell Winwood, spokesperson for Alberta Enterprise and Advanced Education.

Winwood added that 45,700 new jobs have been created in the province since July, 2011. The labour pool also grew by 4,900 people in July, a number that includes new Albertans and individuals such as students or women returning from maternity leave rejoining the workforce.

During the first quarter of 2012, Alberta has seen an influx of 13,396 people through interprovincial migration and 8,671 people through international migration.

“It’s a sign that … our economy’s very strong,” said Winwood.

The province is certainly led by the oil and gas industry, which, along with mining and quarrying, enjoys the highest average weekly earnings at $1791.45.

Another high-earning sector, averaging $1,133.09 per week, is also help drive down unemployment in Alberta.

“Certainly, one of our biggest gains last month was in the construction sector,” said Winwood.

Despite the high wages that can be earned in the oil and gas industry, not to mention all the discussion of workforce shortages for that sector, there were still 103,000 unemployed Albertans in July.

“Labour shortages and skill shortages,” said Cheryl Knight, executive director and CEO of the Petroleum Human Resources Council. “So, there’s not necessarily a match between labour available in the form of people that are unemployed and the skills that we need.”

That also helps explain the growing workforce of new Albertans from other provinces and other countries.

“Generally speaking,” Knight continued, “we’ve not only got labour shortages, we’ve got skill shortages. And so that means that most employers are looking at a variety of ways and a variety of locations to attract people from. And so I think the oil and gas industry is, on the whole, spreading the net further, and that refers to further within Canada, and also outside of Canada. And I would say that those numbers are reflective of that hiring behaviour.

“I can just say for sure that there isn’t an Alberta employer that wouldn’t hire an Albertan that was qualified first,” she added. “And it’s cheaper. Retention is likely to be better, because you’re presumably hiring a person that already lives in the province or the locale. So, it is not likely reflective of a preference to hire

people outside of Canada or outside of Alberta. It’s more in my opinion reflective of a mismatch between skills and needs.”

That may also speak to the existence of an education and training gap.

“The education system, I would say, does their best to stay on top of industry needs, but there’s always a lag when you’re looking at program development,” Knight explained.

“And what happens is, usually, education and industry [are] in the same cycle.

Industry is growing and has increased activity and is hiring more. And education is responding at the same time. So, unfortunately, it would be most desirable if education was countercyclical.

“Education programs should be augmented to meet future needs. But, really, the system tends to respond to the current labour environment. It’s a big catch-up game.”

The cyclicality of the oil and gas industry can also cause problems as far as funding for education and training that could benefit the sector down the road.

“When industry is peaking,” said Knight, “revenue to government is higher and budgets allow better funding. And the contrary is also true. But when you look at the time it takes to develop and graduate students, we should be almost building up a capacity in downturn times to prepare for when industry needs people the most.

“The funding piece is difficult because governments have to allocate their budget based on revenue,” she added. “The only thing that they can do is use rainy day funds.”

The industry is trying to combat that problem by providing greater clarity in terms of labour requirements before the immediate need arises.

“Our labour market information helps provide information to say, okay, here’s today’s needs, but also here’s the needs of the next five to ten year period,” said Knight. “And industry is also trying to be more explicit about long-term needs. So, that at least provides the information that educators need to make the business case.”

Winwood noted that the provincial government also compiles long-term labour forecasts.

“We know that there are some sectors specifically with pressures that are occurring right now,” he said. “We know there are some areas like skilled trades that are under various pressures. But, overall, our unemployment rate in Alberta is still balanced. Mitigating labour pressure is a responsibility that we share with industry.

We have a variety of different strategies that are currently in place that help us enhance the hiring of under-represented Albertans, such as Aboriginal people, youth and mature workers. And we’re always looking to help increase our amount of skilled workers.”

Knight suggested that the education and training issues aren’t simply a problem with the education system, but

are also related to the interests of people entering the workforce.

“And people tend to react to information they know today,” she said. “We really need to do be more explicit to the workforce about tomorrow’s needs so that people can start to pursue programs, not necessarily in upturns, but have the confidence to pursue a particular program when maybe activity might be down a bit.”

High industry wages and low unemployment have been beneficial to areas such as Grande Prairie and the Regional Municipality of Wood Buffalo, but the disparity between high wage earners and low wage earners does create challenges for local businesses and governments.

For example, the average weekly wage in accommodation and food services is just $366.63, while the average weekly wage in retail trade is $536.89.

Those sectors are essential to thriving cities like Grande Prairie and Fort McMurray.

“It’s beneficial in a number of ways,” said Emmanuel Makia, Social Planning Supervisor with the Community Services Department in Wood Buffalo.

“First of all,” he continued, “it’s attracted a large workforce here. So, you would note the population of Wood Buffalo – Fort McMurray, especially – has doubled over the last ten years, between 2000 and 2010. Stats Canada data confirms that. And the doubling of our population … correlated with the rate of investment in the oil and gas industry.

“As more projects came to exist … during that period in time, so there was the need for more workers and skilled labour.

And so there were a lot of people coming from across Canada and the world to Wood Buffalo. That remains true at this point in time. And I think the … changing demographics and the influx of skilled continued pg 30 R001243767

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careers

High wages and low unemployment offer benefits and challenges to oil and gas producing regions

cont’d from pg 29 workers has helped boost the economy here and has made this a very vibrant city.

“The diversity of the population is one of its strong points.”

Dan Pearcy, CEO of the Grande Prairie and District Chamber of Commerce, has a similar view of the benefits for his city.

“Basically, we have a very vibrant economy that’s going on within the Grande Prairie area,” said Pearcy.

“Oil and gas in particular is doing very well in the province,” he added. “Our area is particularly a gas market. And we’re still seeing fairly high activity within the gas industry. So, that creates a pretty vibrant community. There’s people working. The economy’s rolling along quite well.”

However, Pearcy noted that the success of the natural gas industry in his region has created difficulties for some businesses that pay lower wages as far as retaining their employees.

“That’s the nature of life in business,” he said. “Supply and demand.”

Makia pointed to the greater social implications of wage disparity in Wood Buffalo, particularly the housing issue.

“Housing, like any other micro-economy, is driven by macro-economic variables,” said Makia. “And so housing prices here are quite high. And because the housing is high, the housing stock, especially the housing stock for affordable housing and social housing, is still being developed to get to par with the needs of the community. And because the housing stock is really the foundation upon which the low income earners here in Wood Buffalo would be able to access housing, it’s a bit challenging at this point in time.

“Housing is always the number one social issue when we do community consultations,” he continued. “And it’s the number one issue both for the high income earners and for the low income earners, because the high income earners don’t want to pay that much and the low income earners are struggling to pay or would have to resort to affordable or social housing that is available to them.”

Makia admits that high wages in the oil and gas sector have driven up the cost of living in Wood Buffalo.

“And it’s not just the high income,” he said. “It’s the associated incentives that

the oil and gas industry is able to provide to attract the skilled workforce that other sectors like the hospitality, the non-profit sector [are] not able to provide.”

A result is the movement of workers from low wage sectors to high wage sectors.

“Those who are here, once they’re able to develop the requisite skills to enter the oil and gas sector, they would usually do so, which is to the detriment of the other sectors that help sustain our social infrastructure,” said Makia.

So, the challenge for Wood Buffalo is keeping people working in those other sectors.

“It is a problem that requires a collective effort from all sectors,” said Makia. “And so we have continued to work with other sectors to see how we can mitigate the impacts. Because that’s really what we are talking about. We’re talking about the social and economic impacts of oil and gas development. And so to mitigate the impacts, including the impacts of affordability issues that those in some sectors face as far as meeting their housing needs … we have the Housing First program.

“That program is meant to help really those who are homeless,” Makia explained.

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There is also the Wood Buffalo Housing and Development Corporation. “[It] was created to basically increase the stock of affordable and social housing in Wood Buffalo,” said Makia.

The oil and gas industry in the region has played a significant role in making those programs possible.

“The social service infrastructure, it’s also being developed due to very deliberate investment from the oil and gas sector, as well the municipal government,” said Makia. “[It is an] understanding from the oil and gas sector that, because they are driving the migration of people to Fort McMurray, they need to be able to sustain those individuals and families who move here,” he continued.

“And in order to do so, you need to create opportunities for them to experience a good quality of life.”

Makia remarked that there is still a lot of work to do in the area of social and services, which will require further investment.

“However,” he said, “there has been a lot of investment to bring that social infrastructure up to par to help build a good quality of life here in Wood Buffalo for the people who come here.”

AUGUST 31, 2012

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