ERCB says 691 natural gas wells in oilsands area must be shut in

Alberta’s energy regulator says nearly 700 natural gas wells in the province’s north must be shut in because they pose a risk to future oilsands recovery.

CALGARY — Alberta’s energy regulator says nearly 700 natural gas wells in the province’s north must be shut in because they pose a risk to future oilsands recovery.

Three oilsands companies — Sunshine Oilsands, Athabasca Oil Sands (TSX:ATH) and Total E&P Canada — applied to the Energy Resources Conservation Board to have the wells shut down.

The Alberta regulator said late Tuesday it had ordered the shutdown of 691 natural gas wells in the Athabasca area because they pose a “significant risk” to oilsands operations in the area, about 100 kilometres northwest of Fort McMurray.

“Gas production from these wells may put bitumen recovery at risk,” the regulator said in a statement.

“The geological formations in question contain natural gas that is in contact with potentially recoverable bitumen. When this gas is extracted, there is a drop in pressure that may impact bitumen recovery operations that employ extraction methods like steam-assisted gravity drainage.”

Under steam assisted, or SAGD, technology, oilsands companies pipe steam underground to melt thick tar-like oilsands deposits.

The oil is then collected through a second pipeline and pumped to the surface.

Most of the new oilsands developments being developed in northern Alberta are SAGD projects, which are less costly and faster to build than traditional bitumen mines.

Tuesday’s ruling comes after hearings that began in 2009 and reflect a gas over bitumen debate that is unique to Alberta and affects a number of producers of both oilsands bitumen and natural gas.

The problem in the industry occurs when natural gas pools are found above bitumen reservoirs.

Depletion of the gas pool causes lower pressure in the zone above the bitumen, making it more difficult to recover. When steam is injected, it can escape into the depleted gas pool, requiring significantly more steam and increasing the operating costs of the project.

Since expansion of the oilsands is the key energy export policy in Alberta, keeping such projects moving ahead is critical to the province’s future economic growth.

Most of the affected gas wells belong to Canadian Natural Resources Ltd. (TSX:CNQ) and Perpetual Energy Inc (TSX:PMT).

Canadian Natural is one of Canada’s largest energy companies and a major oilsands operator of the Horizon project.

The Alberta regulator estimates the wells produce 46 million cubic feet of natural gas a day in total.