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The Great Canadian Gas Race

Northern gas rush proves timely for power generators.
Fortnightly Magazine - May 1 2002

generator prior to acquiring the production assets. "I don't know of anybody that has the same model as ours," Allard says. "There are some companies that have some gas reserves, but I don't think there's anybody who is an independent power company that has gone out and made the decision to buy gas reserves like us."

With its big stake in E&P, Calpine keeps a close eye on both gas commodity prices and other companies proposing gas-fired power projects. "I think over time, the right amount of gas-fired generation will be built based on the economics, and gas prices will give the signals from time to time about when it is competitive to build gas plants and when it's competitive to look at other types of generation," Allard says.

If there's strong economic growth in the next couple of years, Allard foresees a situation where old power plants will need to be replaced. "The conditions will be ripe again for a constrained electricity system where there is a real requirement for new capacity," he says.

Another component of Calpine's strategy is acquiring gas reserves in proximity to their plants. "Where we can, we will build power plants close to gas reserves," Allard says. "We think that offers us a security if there are pipeline constraints or other types of constraints."

In terms of producing gas with easy access to pipelines, the Foothills area in the southwestern section of Alberta poses a dilemma for the industry. On the positive side, the Foothills area provides the gas industry the potential for large reserves and lies adjacent to a very active area of conventional exploration and development. More important, the southern half of the Foothills is already tied into the North American gas market.

On the flip side, serious environmental concerns surround production in the region, Woronuk says. "It's much riskier than the Cretaceous," he explains. "While the pay is a lot bigger, the actual risk and economic result of the sour gas of the Foothills can be more expensive."

The location of gas in the Scotian Shelf also makes it attractive. Much of the gas produced off the East Coast of Canada will be earmarked to provide fuel for new power plants proposed for the northeastern United States. The promise of demand from U.S. end-users has made the East Coast an attractive investment for major oil and gas companies and large integrated companies.

Location, Location, Location

One of those major East Coast players, PanCanadian, has had good luck with its Deep Panuke discovery. "It's still a very young basin," LeBlanc says. "There hasn't been a lot of exploration there."

Volumes from the Deep Panuke reservoir are scheduled to begin coming online in late 2004 and will travel through an expanded Maritimes and Northeast Pipeline (M&N) system to markets in the Maritimes provinces and generators in New England and New York.

The Deep Panuke reservoir is estimated to contain about 1 Tcf of recoverable natural gas. Initial production from Deep Panuke is expected to total 400 million cfd. The estimated operations phase of the project