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Monetizing Labrador Shelf Gas – Group Project

Monetizing Labrador Shelf Gas – Group Project. Master Oil and Gas Studies Memorial University December 16, 2004. By: Lloyd Button Randy Hiscock Penny Norman Luis Serrano. Purpose. Technical and economic feasibility of commercializing stranded gas development offshore Labrador .

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Monetizing Labrador Shelf Gas – Group Project

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  1. Monetizing Labrador Shelf Gas – Group Project Master Oil and Gas Studies Memorial University December 16, 2004 By: Lloyd Button Randy Hiscock Penny Norman Luis Serrano

  2. Purpose • Technical and economic feasibility of commercializing stranded gas development offshore Labrador

  3. World Energy Demand Trends Demand warrants serious consideration for Province’s future economic growth

  4. Field Locations

  5. RESERVOIR Geology Labrador Shelf Stratigraphic Chart Labrador Shelf Cross-section Hopedale Area Source: CNOPB

  6. Resources Potential Resources Discovered Resources

  7. Exploration History Labrador Shelf Significant Discoveries

  8. Methods for Transportation • Gas gathering and transmission via pipeline. • Volume reduction (liquefaction (LNG) or compression (CNG)) followed by marine transportation. • Conversion to other products by changing from methane molecule (GTL) followed by marine transportation; and • Conversion to other energy forms such as electric power and transmission via subsea cable.

  9. Production Volume verses Distance to Market

  10. Process Facilities • CNG is the most viable method of transporting gas from Labrador • The processing and conditioning will depend on CNG requirements ( most likely they will have the same as pipelines) • Requirements will depend on the flow rate, composition, temperature, and pressure of the produced gas and the components/impurities

  11. Main Processing Considerations • Remove water vapor to avoid the hydrate formation and corrosion • Removal of solids • Removal of gas condensate • No H2S or CO2 • Heating Required

  12. Options Considered • Floating production storage offloading (FPSO) with CNG tankers; • Caisson / Island - CNG tanker; and • Concrete gravity based structure (GBS) - CNG shuttle tanker

  13. Option 1: FPSO-CNG Wells Drilled from separate MODU

  14. Option 2: Caisson/Island-CNG

  15. Option 3: GBS-CNG

  16. Economic Analysis Assumptions • Field Size • Base Case: 2.3 TCF (Bjarni North field) • High: 5.0 TCF • Low: 1.5 TCF • Price • Base Case of $US 4.30 / MCF • High: $US 5.45 / MCF • Low: $US 3.20 / MCF. • Economic sensitivities • Royalties: 5% & 10%, • CAPEX: high and low models • Exploration risk assumed to be zero • Operational down time assumed to be the same for all three assessed options (100 days/year)

  17. Economic Analysis - Results • FPSO – CNG gave most favorable economic based on: • Cashflow • NPV discounted at 10% & 15% • ATROR • GBS-CNG produced marginally more attractive economics vs. Caisson/Island-CNG

  18. Economic Analysis - Findings • Only FPSO-CNG is feasible with gas prices of $US 5.00 / MCF or less • Other options require 4.0 TCF or higher and / or the significant higher gas prices

  19. Economic Analysis - Sensitivities • Development costs (most sensitive) • Pricing • Reserve Size

  20. Results

  21. Economic Analysis - Royalty • Royalty of 5% and 10% had modest sensitivity impact • However, base reserve and price, 5% and 10% royalty result in marginal to sub-marginal economics • Given political sensitivity with foregoing royalty revenue, other revenue methods must be considered

  22. Other Revenue Sources • [Randy any ideas??] • Confirm higher reserves (exploration) • Higher Prices likely

  23. Benchmarking Source: IHS Energy

  24. Fiscal System Benchmarking • Benchmarked with the following countries: • Netherlands • Ireland • Norway • Trinidad • Alaska • Canada – Nova Scotia

  25. Benchmarking Recommendations(1) • Pricing tied to NE US price and linkage to price of competitor fuels • No domestic market obligation or export restrictions (i.e. lack of infrastructure, small dispersed population - no local market) • Consider State involvement for direct marketing of its share

  26. Benchmarking Recommendations(2) • Local content quota, with focus on Labrador people, in the issuance for future exploration licenses and SDL’s. • Province must be innovative and flexible in making new gas legislation to promote exploration. • Gas fiscal terms and tax incentives need to balance restricted operating environment with accrued economic value

  27. Significant Discovery License (SDL) • Issued by CNOPB • SDL have no prescribed date for expire • No economic trigger for operator to move forward when market conditions allow • No requirements for company to periodically revisit economics if pricing environment changes

  28. SDL - Recommendation • Requirements should be designed to place onus on operators to revisit the economics on a bi-annual basis • The trigger could be when the gas price exceeds a specific threshold

  29. Market Analysis – NE US

  30. Justification for NE US Market • Reserve Size • Proximity to NE US • US gas pricing (vs Europe pricing) • Low local domestic consumption

  31. Local Benefits • The people of Labrador should be the ones who benefit most • Best opportunities in marine transportation • Particular emphasis should be on training in marine sector • Other opportunities at the offshore facility and onshore support

  32. Local Labour Content Overall Project

  33. Local Labour Content Drilling

  34. Local Labour Content Facilities Construction

  35. Local Labour Content Facilities Installation

  36. Local Labour Content Transportation

  37. Local Labour Content Management

  38. Local (Labrador) Stakeholders • The Innu Nation • The Labrador Inuit Association • Labrador Métis Nation • The Newfoundland and Labrador Association of Municipalities • Individual Communities on the south Labrador Coast not included above • Labour Organizations (collective agreements)

  39. Adjacency Principle • People of Labrador should have first chance for the competitive supply of labour and services • Members of the Innu Nation and Labrador Inuit Association • Members of Labrador Métis Nation. • Other residences of Labrador who are members of collective bargaining agencies • Other residences of the Province of Newfoundland and Labrador.

  40. Diversity • In addition to First Nations people, commitment to provide fair and equal opportunities should be given to: • Women • People with disabilities • Other visible minorities

  41. Local Contracts • Onshore base including Port Development and infrastructure (buildings, roads, utilities etc) • Temporary Services for Port Development • Environmental Monitoring • Onshore site surveying • Helicopter Transportation • Others

  42. Corporate Social Responsibility • Centre for Marine CNG in Harsh Environments • Co-ordinated Training Plan for Labrador • Centre for Marine Training • Quebec/Labrador North St. Lawrence Road • Scholarships

  43. QHSE - Policy • Protection of workers • Protection of environment • Desirable quality • Modest Profit

  44. QHSE • Design of QHSE Process • Loss Avoidance vs Max Profits • Human Element • Investor/Owners • Management • Workforce

  45. QHSE – System Integration • “Us and Them” Gap • Demonstrative actions (physical behaviour) • Communications (face to face meetings, focus groups, personal written notices, a vehicle for “bottom up” communications as well as “top down) • Consistent reactions to all incidents • Regular follow-up and closeout • Safety training and drills

  46. Environment Impact - Exploration • Reported effects in mammals • Reported effects in fish • Seismic guns deployment (determine environmental effects, horizontal Vs downward) • Other means of exploration and data acquisition are less harmful to environment (electrical surveys, gravity, magnetic, satellite, etc.)

  47. Environment Impact - Drilling • Drilling fluids • Impacts water column and seafloor differently • Reduce light penetration • Decrease in sea life • biological changes in fish larvae • Technology and advances in drilling fluids can reduce impact

  48. Environment Impact - Drilling • Drilling Cuttings • Impact is proportional to solids discharge • The fate of the drilling cuttings piles depends on thickness, ocean condition, conditions of discharge and fluids retention on cuttings • Estimate1-2 years for initiation of recovery after discharge has stopped • Limits for discharge imposed by law

  49. Environment Impact - Production • Most significant contaminant is the produced water • Produced water is composed of dispersed oil and dissolved organic compounds, metals, including aromatic compounds, organic acids, phenols, inorganic compounds, and also of chemicals added in the production/separation line. • Its chemical composition varies over a wide range and depends on attributes of the reservoir’s geology. • The produced water and any other discharge are closely monitored to minimize adverse effects

  50. Environment Impact – De-comissioning • Disposal in deep waters can impact sea life • May be considered for an artificial reef • Removal and dismantling of the installation is an option

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