Encana is continuing to drive toward a natural gas-powered future with plans to build a liquefied natural gas (LNG) plant with Ferus LNG near Grande Prairie, Alberta.
The LNG fuel to be produced at the facility will be of the quality necessary for high-horsepower engines used extensively in nearby oil and natural gas plays such as the busy Montney formation in northeast British Columbia and the emerging Duvernay formation in northwest Alberta, both of which are hot commodities thanks to their liquids-rich natural gas reservoirs.
Applications for the LNG include drilling rigs, pressure pumping services and transportation.
"We're very early-stage in many of the markets for using natural gas in transportation," said David Hill, Encana's vice president of natural gas economy operations.
"So, we're looking at areas where we can bring not only the fuel to the market and the solutions for fueling, but also some of the market to the plant."
Encana has been active in the Montney near Dawson Creek for some time. They also announced a joint venture with PetroChina subsidiary Phoenix Duvernay Gas to develop their assets in the Duvernay on Dec. 13, just four days prior to announcing that they would be constructing the LNG plant.
Their present and future activity in those plays - as well as the activity of other industry players in that region - played an important role in their decision to build the LNG plant and locate it near Grande Prairie.
"We look at the [exploration and production] industry as really a jumpstart to using natural gas in transportation," said Hill. "We kind of picked that area because of the activity for high horsepower, on-road, off-road - it's a nice geo-location where we can really base a plant up there. And also get access to gas right off of our system.
"Right now, there's no LNG production in Alberta," he added.
Hill noted that Ferus will be converting their truck fleet in the region to LNG when the plant is operational.
"And with that we'll be underpinning the plant as well as the investment in the infrastructure to fuel," he said.
That isn't the only reason behind Encana's decision to work with Ferus on the project, however.
"Both of us were looking at using natural gas in our operations," said Hill.
"Ferus is a long time supplier of cryogenic fluids to the industry through liquid nitrogen and liquid CO2 (carbon dioxide)," he added.
Ferus also has a history as an LNG supplier that has provided fuel for hydraulic fracturing operations.
"They're very experienced in transporting cryogenic fluids," Hill continued. "As well as getting out to location, which is really important."
That is partly because transporting fuel to drilling sites often involves off-road travel, which is significant considering plans to create a mobile fuel storage and dispensing system alongside the new plant.
Hill explained that a permanent fueling station requires a great deal of capital to build and a great deal of business to make profitable. A permanent station can cost as much as $3 million, while mobile fuelling can cost less than $1 million.
"Mobile fuellers are very profitable," he added. "They also provide the fleets the flexibility to move."
That has considerable value when a producer company's drilling program changes during the year.
"We don't like them to [change], but sometimes they do," said Hill. "By having a mobile fueling solution as the fleet moves from a basin or an area of a field to another, we can move the fueling with them. And it really provides a lot of flexibility.
"It also provides a lower capital cost to get a fleet started, to test this in a pilot project," he added.
Encana brings similar experience transporting cryogenic fluids to the partnership, particularly as the fuel supplier for the largest LNG truck fleet in North America, which is operated by Heckmann Corporation, the company that provides water to Encana for their Haynesville shale gas operations in Louisiana.
"We [also] bring some market to the table," Hill added.
Initially, the plant will produce 190,000 litres of LNG per day, but Hill explained that it is being built with expansion in mind because they expect the LNG market in the region to continue to grow.
"We see this as very integral into our vision of integrating natural gas into our operations," said Hill.
Encana is already using compressed natural gas (CNG) for their light duty truck fleet and encouraging their service providers to convert to natural gas for their vehicles.
"Throughout North America, we have about 51 per cent of our drilling rigs today using natural gas," Hill continued.
About 30 per cent of their drilling rigs used natural gas in 2011.
"Before, we were just using field gas - gas being produced in the field - and we were tapping into the lines and bringing them over to the location as we did our resource play hub, where we do pad drilling and do multiple wells from a pad," said Hill.
"Having LNG in the market in that area provides us the flexibility to continue to use natural gas as we move into liquids-rich plays," he continued.
"We don't have to go back to diesel."
Encana also hopes to expand on a pilot project conducted in the Horn River Basin shale gas play of northeast B.C. where they were using natural gas for pressure pumping services.
"That really gets us excited when we finally focus in on the high horsepower market," said Hill.
"And this has many layers."
By using natural gas for drilling and pressure pumping, Encana reduces their costs and the negative environmental impact of their operations. The company sees the same effect when they and their service providers use natural gas for transportation fuel.
"Then we look a little further beyond this," said Hill.
"Thinking about the rail industry, we are railing sand, pipe, condensate and oil across North America," he continued. "Think about all the rail going on right now for oil - there's a tremendous amount of railing happening."
Encana has been working with CN on a pilot project testing natural gas as a fuel for their locomotives.
"We can lower our cost and the railroads can lower their operating cost as well," Hill said of using natural gas for rail transportation.
"As a shipper on a railroad, we're paying a diesel surcharge," he continued. "If we can take that diesel surcharge off, then all of a sudden everybody gets more efficient."
Marine transportation is another potential market, but Hill believes that is farther down the road than some other applications.
Not all of these applications are directly tied to the new plant being built in Grande Prairie, but the project is one small part of those larger efforts to grow the market for natural gas at a time when the launch of an LNG export business meant to save the Canadian natural gas industry from low commodity prices is still at least five years away.
"LNG for export is a great [option] for the country as well as the producers to find new markets," said Hill. "But also when you look at other options for using natural gas, whether it's industrial uses, expanding the power generation market, transportation becomes a natural market that seems to have been neglected. When we look at it, we look at this market as very viable."
The question Hill is asking is: why aren't we using the domestically produced resource that is natural gas as a transportation fuel on a larger scale?
Hill suggests that its abundance in North America, lower cost and smaller carbon footprint make it an obvious choice for transportation fuel.
"I think we have overcome the supply challenge, which is evident in the cost of natural gas," he said, noting the gap between oil prices and natural gas prices.
"It's a very significant gap and all the forecasts from all the experts show that gap sustainable into the future," he added.
"Natural gas prices have actually gotten to be less volatile and appear to be maintaining a window of price. And the projections are very reasonable into the future compared to oil. But we need to work on projects like this to demonstrate to the market and to the fleets that this is viable and this is sustainable."
Hill doesn't think expanding the domestic market for natural gas will cause the domestic price to price significantly.
"The use of natural gas as a transportation fuel is also a long-term view," he explained. "It definitely requires a capital investment for infrastructure, a capital investment to convert the engines for the vehicles to natural gas."
Hill said that the North American transportation market currently uses about 150 million cubic feet (mcf) of natural gas per day. If every engine outside of airplanes converted to natural gas, North America would be using about 70 billion cubic feet (bcf) per day of natural gas for transportation.
The forecasts are only projecting a maximum natural gas use for transportation of only 5.0 bcf per day by 2025.
"We just have this option to pursue this market," said Hill. "Will it help stabilize the price? Sure. Any new demand is really going to help sure up the price because we have found so much supply. Will the prices spike? All the studies we've seen on LNG export and others show resiliency in the price not to spike because of the supply situation."
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