February 19, 2014

Who’s sitting on a fracking fortune?

No, in the title to this article, I’m not swearing, although if you were ever a fan of the television show, Battlestar Galactica, you might think otherwise.

The adjective “frakking” (i.e., spelled slightly differently) was often inserted into the dialogue on that sci-fi series to convey what might be termed an excess of emotion.

Rather, “fracking” in the context of this article is shorthand for hydraulic fracturing and it refers to a relatively new technology that permits horizontal as well as vertical drilling. Water, sand and chemicals are pumped underground to break up shale rock, releasing natural gas and oil.

Given that fracking has dramatically changed the North American energy scene, it seems advisable to learn more about where increased exploration activity is taking place and the names of the major development sites.

This will require the use of some terms more familiar to petroleum geologists. For the lay person, two points of confusion immediately arise.

First, when referring to shale gas and oil exploration, there are “basins” and then there are “formations”. The former are much bigger than the latter. Additionally, companies describe their leases as situated in “plays” or “fields”.

Second, formations can be stacked on top of each other — in other words, at various depths. Deposits can be relatively shallow or progressively deeper. For example, there are other plays both above and below the giant Marcellus field in the eastern U.S.

Last fall, the U.S. Energy Information Administration (EIA) released a report summarizing fracking around the world. While many nations have shale gas deposits, only three are presently proceeding with commercial development — the U.S., Canada and China.

China’s inclusion in this grouping is a bit of a stretch. Chinese shale gas production accounts for less than 1% of that nation’s total output. The share is sure to rise in the years ahead, since China is judged to have possibly the largest accessible shale gas reserves in the world.

U.S. shale gas production as a proportion of total output in 2012 was 39%. In Canada, the comparable figure was 15%.

A brief review of U.S. activity is warranted before discussing the status of fracking in Canada.

The best-known site south of the border is the Bakken field, based mainly in North Dakota, although there are significant portions that also extend into Montana and Saskatchewan.

Bakken also touches the southwest corner of Manitoba.

Almost as prominent is the Barnett field in northern Texas, touching on Oklahoma. It’s easily accessible from Dallas-Fort Worth.

A short swing of the lasso away is the Eagle Ford formation, running south of Austin and San Antonio down to Mexico.

Extending from New York to Kentucky is the enormous Marcellus reserve, passing through Pennsylvania and part of Ohio on the way, and including all of West Virginia.

Below most of the portion of Michigan that appears like a gloved hand on a map is the Antrim field.

There are also scattered basins and formations in the western U.S., although they haven’t gained as much public attention as the foregoing.

Where’s the action in Canada? There are two primary sites in the Atlantic Region, Horton Bluff in Nova Scotia and Frederick Brook in New Brunswick.

SNW Resource’s exploratory drilling in New Brunswick was halted last summer when activists and aboriginals blocked roadway passage to the site. The dispute over who has final say on the land near Rexton, north of Moncton, appears to have a lot more potential for conflict.

In Quebec, there’s the promising Utica play, running from Montreal to Quebec City on the south side of the St. Lawrence River. Calgary-based Talisman Energy is the company most closely identified with this opportunity, although that’s a word with a hollow ring these days.

The ruling Parti Quebecois (PQ) government, which has close ties to the environmental movement, has ordered a halt to fracking activity in the province. Moreover, the PQ has expressed its determination that there will be no further “fracking” as long as it is in power.

At the same time, the PQ has endorsed construction of a $1-billion-plus cement plant in the Gaspe region, leading to an obvious question. How is that decision to be reconciled with the fact that in the industrial sector, cement plants leave some of the largest carbon footprints?

Southern Ontario is touched by two of the bigger U.S. plays: Marcellus extends northward from New York into the base of the province; and Michigan’s Antrim field has an outer boundary near Sarnia. Once it crosses the border, it’s known as the Kettle Point Formation.

Residents in the Collingwood/Blue Mountain resort region of the province may be surprised to learn they’re going about their daily routines on top of extraordinary shale gas riches.

Bakken’s peripheral presence in Manitoba and Saskatchewan has already been mentioned.

Alberta has stand-alone reserves of shale gas in the Duvernay play in the centre of the province.

Otherwise, its “fracking” assets are shared with British Columbia.

Northeastern B.C. is where much of Canada’s shale-rock energy is currently being produced. If all goes according to plan, this will provide additional reserves of gas (i.e., beyond conventional sources) for Premier Christy Clark’s proposed world-scale LNG facilities on the Pacific Coast near Kitimat.

Furthest north is the Muskwa shale deposit in the Horn River Basin, which seeps into the Yukon and Northwest Territories as well.

Near the centre of the border that B.C. shares with Alberta is the highly-regarded Montney field.

Before I take off my geologist’s hat, there’s another interesting observation to be made.

When you delve into the subject of natural gas exploration, there is often a discussion of “dry” versus “wet”.

Dry gas, although it may contain some methane, is mostly just a gas.

Wet gas contains other substances such as ethane and butane. Those other ingredients, known as natural gas liquids (NGLs), can be separated out in a process called “cracking”.

In turn, ethane is refined into ethylene and polyethylene, the building blocks of plastics.

Deposits containing wet gas are considered to be more valuable than those with only dry gas.

For more articles by Alex Carrick on the Canadian and U.S. economies, please see his market insights. Mr. Carrick also has an economics blog.

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