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The Enbridge oil terminal in Hardisty, Alta.
The Enbridge oil terminal in Hardisty, Alta.

Enbridge taps into growing shale gas market Add to ...

Enbridge Inc. is surveying producers of natural gas liquids to determine whether they want to ship to Chicago from the northeastern United States as the redrawing of North America's energy picks up speed.

Enbridge is gauging industry interest in a Marcellus Shale pipeline in a bid to determine whether commodity producers want a pipeline, and how large it should be. Enbridge wants to build a liquids pipeline from the southern part of the burgeoning Marcellus play in Pennsylvania and West Virginia to Chicago, a major processing hub for products such as ethane, butane and propane.

Calgary-based Enbridge wants to fill the excess liquids capacity at its Aux Sable processing facility near Chicago. Aux Sable handles natural gas and liquids from northeastern British Columbia, as well as liquids from other sources.

For natural gas producers in the Marcellus, having an outlet to strip off and ship away liquids from the gas (methane) could be a boon.

The Enbridge proposal is part of major re-composition of energy flows in North America, as what some are calling "the shale gas revolution" changes long-standing connections. One primary vein transports natural gas and liquids from B.C. and Alberta linked over thousands of kilometres - a costly process - to heat homes in the Midwest and Ontario.

Expansion of the Marcellus and similar sources of gas and liquids across North America faces a significant environmental debate, not unlike that around the oil sands. The key question is the threat to sources of water for large cities in the Marcellus region, because production of shale gas and liquids involves many large subsurface explosions to unlock the commodity, bombs that can disturb aquifers.

Earlier this month, Enbridge rival TransCanada Corp. and Spectra Energy Corp.'s Union Gas closed a so-called "open season" (no results were disclosed) that sought preliminary commitments from natural gas producers to move the commodity from the northern Marcellus shale in New York state into Ontario. This gas would compete with gas from Alberta and B.C., which for decades has been connected to Ontario by the TransCanada system built in the 1950s.

"It's definitely disputing old relationships," said Vincent Lauerman, president of Geopolitics Central, an energy consultancy in Calgary. "I'm not calling it the shale gas revolution for nothing."

Enbridge's proposal for the Marcellus liquids pipeline follows a similar preliminary deal between pipeline company Buckeye Partners LP and Calgary-based Nova Chemicals Corp. That deal looks at building a liquids link from the Marcellus in Pennsylvania to be used as a feedstock at Nova's petrochemicals facility in Sarnia, Ont.

While the redrawing of the continent's energy map doesn't look great for Alberta and B.C., large shale-gas discoveries in the two provinces don't necessarily need to be sold to Eastern customers. It could displace existing Western U.S. gas production and also might be exported to Asia, with a $3-billion export facility in northeastern B.C. under development.

Until three or four years ago, industry leaders were convinced North America faced a massive shortage of natural gas. Improvements in subsurface fracturing - setting off multiple underground explosions to open fissures in rock - unlocked the resource trapped in tight rock, previously believed to be inaccessible at a reasonable price.

ENBRIDGE (ENB)

Close: $48.70, up 22¢

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U.S. shale gas facts

Shale gas is natural gas, largely methane, produced and stored in shale formations a mile or more underground in many of the lower 48 American states.

The "big four" U.S. shale plays are the Barnett in Texas, currently the most productive with 50 per cent of total U.S. shale gas output; the Haynesville in Louisiana/Texas; the Fayetteville in Arkansas; and the Marcellus in Pennsylvania and surrounding states.

The Marcellus is likely to become the biggest producer of shale gas, according to Chesapeake Energy Corp., the second-largest U.S. producer of natural gas overall.

The Marcellus could contain as much as 489 trillion cubic feet of gas, according to Terry Engelder, a Penn State University geoscientist. Its value is enhanced by the high quality of its gas and the fact that it is close to the major U.S. Northeast market, keeping transmission costs relatively low. More than 800 Marcellus wells have been drilled in Pennsylvania since 2005, most of them in 2009.

Energy companies are expected to apply for 5,200 Pennsylvania drilling permits in 2010, about triple the number in 2009.

In all, shale reserves are estimated to contain enough gas to meet total U.S. demand for 30 years.

Reuters

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