Nova Scotia’s offshore natural gas industry is facing two significant closures. After almost 40 years of high hopes and actual production, the Sable Offshore Energy Project (SOEP) is running out of gas. Decommissioning Canada’s first offshore natural gas development project is now officially under way.
Although the end of the project is in sight – all 22 wells are expected to be plugged by 2020 – the now admittedly mature project will continue to make economic ripples for the Nova Scotia government and local businesses. Decommissioning is no small task. Earlier this year, Halifax-based ExxonMobil Canada Ltd., which heads up the five-company consortium that owns SOEP, hosted a suppliers’ forum for companies to uncover how they could benefit from the closure of the natural gas field, which covers 200 square kilometres southeast of Halifax.
After much hoopla and a few false starts, Sable’s field began producing in late 1999. There were two phases to the project, which has amounted to more than $2.7 billion being spent in Nova Scotia since construction began. Production never met its original estimate of 3.2 trillion cubic feet of recoverable reserves, coming in at slightly more than half that amount because recovery proved more difficult than anticipated. Still, capital costs for the project hit an estimated $3 billion, with almost $2 billion in royalties flowing into government coffers. Annual operating expenditures ranged between $150 million and $200 million.
Now, SOEP wants to go out on a high note. That means both hiring local (a common refrain) and ensuring high environmental standards (another common refrain). Decommissioning requires physically removing seven offshore platforms in five fields and hauling them to a demolition yard. The pipelines will be left behind, flushed and filled with water.
Apparently, the decommissioned SOEP infrastructure will not be alone in the Atlantic Ocean for long. Calgary-based Encana Corp. reported it plans to close its Deep Panuke natural gas project. Production in Deep Panuke began in 2013 and was to continue for 13 years. The company, however, has put out formal calls to plug its five subsea wells; Encana states that process is in the latter phases and the wells are likely to be capped by 2021.
Whether these events are business as usual or a harbinger of an economic downturn to come is unclear. The Nova Scotia Department of Energy remains upbeat. It points to Calgary-based Shell Canada Ltd. as an example of ongoing interest in the province’s offshore fields. In 2011, Shell Canada was awarded four deepwater parcels for a combined work expenditure bid of $970 million. Subsequently, the company was awarded four more parcels, resulting in a combined work commitment of more than $1 billion. But now, Shell will seal two exploration wells.
These events may be the nature of the sector, as some inside experts contend. Nova Scotia’s government, for its part, is counting on new developments to bolster the energy sector. Hope, if not gas, springs eternal.
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