Panuke
Much is being made about the Deep Panuke gas field. From the Canadian Press:
HALIFAX - The Nova Scotia and federal governments granted their official sanction to Encana's Deep Panuke offshore project Wednesday, marking yet another milestone in the proposal's development.Premier Rodney MacDonald, who made the announcement at an oil and gas conference in Halifax, said offshore development in Nova Scotia is surging forward.
"There is a new momentum building in our offshore," MacDonald told the crowd at the Onshore/Offshore Technology Association of Nova Scotia.
"(It is) a momentum that will bring economic benefit to our region and jobs for our people."
Well, maybe.
I interviewed Larry Hughes of the Energy Research Group at Dalhousie University a while back (for this article), and we discussed Nova Scotia's offshore resources at some length. Hughes was sceptical--to put it mildly--that offshore development would amount to much, and might not happen at all.
Hughes pointed out that although initial offshore hopes were high-- potential production of the first drilling effort, Sable Island, was pegged at 3.2 trillion cubic feet (TCF)-- the actual production of the Sable Island field was a disappointing 2 TCF. That field consists of two "tiers" of three fields each, north and south of the island. Production from the first tier peaked in November, 2001, with diminishing returns ever since. As for the second tier, ExxonMobile recognized that the potential was overhyped and consequently downgraded its operations-- only two of the three fields have even been drilled. And production from Sable Island will peter out completely, to nothing at all, in the next few years.
Back in the day, says Hughes, there was talk of Nova Scotia becoming an energy superpower like Newfoundland, with upwards of 10 TCF of gas moving through the province. But only about 1 TCF of gas has actually flowed, and now the biggest source of offshore revenue comes not from royalties but rather from the forfeiture of drilling licences. And, according to Jim Meek in today's Chronicle-Herald
not a single exploratory well was drilled offshore Nova Scotia this year, and none is definitely planned for 2008 either... I'll add that no new licences have been issued in Nova Scotia since 2004.
As for the Deep Panuke field, even before drilling its first well, EnCana has already reduced its forecast production by 20 percent, to less than 1 TCF.
The provincial government has fallen over itself chasing gas revenues. They've lowered the charges for new exploratory wells and have streamlined the environmental review for drilling projects.
But now that Deep Panuke has been fully approved, it's still an open question whether the project will proceed. The next line in the CP story:
EnCana has yet to approve the $700 million natural gas project.
The project now goes before the EnCana board of directors, which will weigh the capital costs in context of the rest of its operations.
"Do you really think EnCana will spend $700 million for less than 1 TCF?" Hughes asked me. "I don't think it's likely. They'll spend that money in the Rockies for conventional drilling, and get much more return."
