Alberta NGL Extraction Conventions Prepared for: EUB Inquiry into NGL Extraction Matters Application No. 1513726 Calgary, Alberta November 2007 07GC-2020-05 1117 Macleod Trail S.E. Calgary, Alberta T2G 2M8 4295 San Felipe, Suite 350 Houston, Texas 77027 Tel: (403) 234-4299 Fax: (403) 261-4631 Tel: (713) 627-8282 Fax: (713) 627-9034 E-mail: [email protected] E-mail: [email protected] Toll Free 1-800-853-6252 ext.299 Toll Free 1-888-736-5780 RESTRICTIONS This Report is not intended for general circulation or publication, nor is it to be reproduced or used for any purpose other than for the EUB NGL Extraction Convention Proceeding without prior written permission in each specific instance. Ziff Energy does not assume any responsibility or liability for losses as a result of the circulation, publication, reproduction, or use of this report contrary to the provisions of this paragraph. Ziff Energy expressly disclaims all responsibility for, and liability in respect of, all loss and/or damage howsoever caused, including consequential, economic, direct or indirect loss, to any party who relies on the information contained in the Report. ALBERTA NGL EXTRACTION CONVENTIONS TABLE OF CONTENTS Section Page 1. INTRODUCTION.................................................................................................... 1-1 2. EXECUTIVE SUMMARY........................................................................................ 2-1 2.1 NGL Extraction Conventions on Alberta Pipelines versus Other Jurisdictions................................................................................................. 2-1 2.2 Natural Gas Outlook.................................................................................... 2-3 2.3 NGL Outlook................................................................................................ 2-4 3. EXISTING NGL EXTRACTION CONVENTIONS ON ALBERTA PIPELINES........ 3-1 3.1 NOVA Gas Transmission Ltd. (“NGTL”)....................................................... 3-2 3.1.1 Provisions in NGTL Tariffs Related to NGL Extraction...................... 3-2 3.1.2 Current NGTL NGL Extraction Convention....................................... 3-2 3.1.3 NGTL Design Policy with respect to NGL Recovery......................... 3-3 3.2 ATCO Pipelines (“AP”)................................................................................. 3-4 3.2.1 Provisions in Atco Pipeline’s Tariffs Related to NGL Extraction........ 3-4 3.3 AltaGas Utilities ........................................................................................... 3-5 3.4 Alliance Pipelines/Aux Sable Canada North Sable Extraction Plant............ 3-7 3.5 Foothills Pipelines........................................................................................ 3-8 3.6 Rural Gas Co-Ops and Municipally Owned Systems................................... 3-9 4. APPROACHES IN OTHER JURISDICTIONS........................................................ 4-1 4.1 British Columbia (BC).................................................................................. 4-1 4.2 Saskatchewan ............................................................................................. 4-4 4.3 Manitoba...................................................................................................... 4-6 4.4 Nova Scotia................................................................................................. 4-6 4.5 Newfoundland.............................................................................................. 4-8 4.6 United States............................................................................................... 4-9 4.6.1 Location of U.S. Straddle Plants....................................................... 4-9 4.6.2 Ownership of Straddle Plants.......................................................... 4-11 4.6.3 Regulation of Straddle Plants and NGL Rights............................... 4-11 4.6.4 State or Federal Policy Regarding Rights to NGLs in the Common Stream............................................................................. 4-12 4.6.5 Commercial Arrangements for Straddle Plants and NGLs.............. 4-12 4.6.6 Legal Decisions Pertaining to NGL Rights...................................... 4-14 4.6.7 Interstate Natural Gas Pipelines Demand Specific Gas Quality Guidelines....................................................................................... 4-15 4.7 Foreign Jurisdictions.................................................................................. 4-17 5. ALBERTA NATURAL GAS RESERVES, SUPPLY, AND DEMAND.......................5-1 5.1 How Alberta Gas Fits Into North American Gas Supply...............................5-1 5.1.1 Overview ...........................................................................................5-1 5.1.2 Alberta Size of the Gas Pie ...............................................................5-1 5.2 Natural Gas Resources................................................................................5-2 5.2.1 Western Canada ...............................................................................5-2 5.2.2 Alberta...............................................................................................5-3 5.3 Natural Gas Production Forecast Procedure................................................5-4 5.3.1 Total Alberta Natural Gas Supply......................................................5-5 5.4 Alberta Gas Demand..................................................................................5-11 5.4.1 Summary of Alberta Gas Demand...................................................5-12 5.4.2 Gas Demand Tabulation..................................................................5-13 5.4.3 Residential and Commercial Gas Demand......................................5-14 5.4.4 Gas for Power Generation...............................................................5-15 5.4.5 Industrial Gas Demand....................................................................5-16 5.4.6 Pipeline Fuel/Plant Fuel...................................................................5-16 5.4.7 Alberta Oilsands Natural Gas Demand............................................5-17 5.4.8 Oil Sands Assumptions...................................................................5-17 5.4.9 Impact of Technology Improvements...............................................5-19 5.4.10 Nuclear Energy as a Substitute for Natural Gas..............................5-20 5.5 Off Gas from Oilsands Operations.............................................................5-20 5.6 Alberta Natural Gas Supply Available for NGL Extraction..........................5-22 5.7 Appendix A.................................................................................................5-25 5.7.1 Solution Gas....................................................................................5-25 5.7.2 Gas Well Forecast Methodology .....................................................5-25 5.7.3 Gas Well Completions Outlook........................................................5-26 5.7.4 New Gas Well Productivity..............................................................5-27 5.7.5 Declines Rates................................................................................5-28 5.7.6 Tight Gas Overview.........................................................................5-29 5.7.7 Tight Gas Regions...........................................................................5-30 5.7.8 Tight Gas Production Outlook .........................................................5-31 5.7.9 Coalbed Methane Parameters.........................................................5-32 5.7.10 Coalbed Methane Production Outlook.............................................5-33 5.7.11 Shale Gas Overview........................................................................5-34 5.7.12 Alaska and Mackenzie Delta...........................................................5-35 5.7.13 Gas Hydrates Overview...................................................................5-37 6. ALBERTA NGL RESERVES, SUPPLY, AND DEMAND.........................................6-1 6.1 Introduction..................................................................................................6-1 6.1.1 NGL Production Outlook for Alberta..................................................6-2 6.2 Alberta NGL Reserves.................................................................................6-8 6.3 Alberta NGL Supply Forecasts.....................................................................6-8 6.3.1 Assumptions......................................................................................6-8 6.3.2 Alberta NGL Supply from the Border Straddle Plants......................6-10 6.3.3 Alberta NGLs from the intra-Alberta Straddle Plants.......................6-16 6.3.4 NGLs from the Alberta Field Gas Processing Plants in Alberta ...... 6-18 6.3.5 NGLs from Oil Refinery and Oil Sands Operations......................... 6-22 6.3.6 NGLs Imported to Alberta (Diluent Imports in the Future)............... 6-24 6.4 Alberta NGL Demand Forecast.................................................................. 6-25 6.4.1 Alberta Natural Gas Liquids Infrastructure...................................... 6-25 6.4.2 Use of Natural Gas Liquids............................................................. 6-25 6.4.3 Alberta Petrochemical Industry....................................................... 6-25 6.4.4 NGL Marketing Hubs....................................................................... 6-26 6.5 Alberta NGL Demand................................................................................. 6-27 6.6 Alberta Ethane Supply vs. Demand to 2028.............................................. 6-29 6.7 Alberta Propane Supply vs. Demand to 2028............................................ 6-31 6.8 Alberta Butane Supply vs. Demand to 2028.............................................. 6-33 6.9 Alberta Pentanes Plus Supply vs. Demand to 2028 .................................. 6-35 7. REVIEW OF SUBMISSIONS BY INQUIRY PARTICIPANTS................................. 7-1 7.1 Natural Gas Supply Forecasts..................................................................... 7-2 7.1.1 Nova Chemicals................................................................................ 7-2 7.1.2 NGTL and Straddle Plant Group....................................................... 7-2 7.1.3 Ziff Energy Comments...................................................................... 7-2 7.2 NGL Ownership........................................................................................... 7-4 7.2.1 ATCO Pipelines (“AP”)...................................................................... 7-4 7.2.2 ConocoPhillips.................................................................................. 7-4 7.2.3 Imperial/EMC.................................................................................... 7-4 7.2.4 Keyera Energy.................................................................................. 7-4 7.2.5 Straddle Plant Group......................................................................... 7-4 7.2.6 Western Export Group (“WEG”)........................................................ 7-5 7.2.7 Ziff Energy Comments...................................................................... 7-5 7.3 Perceived or Real Inequities of the Current Convention.............................. 7-7 7.3.1 ATCO Pipelines.................................................................................7-7 7.3.2 ConocoPhillips.................................................................................. 7-7 7.3.3 EnCana............................................................................................. 7-7 7.3.4 Imperial/EMC.................................................................................... 7-7 7.3.5 IGCAA............................................................................................... 7-7 7.3.6 Keyera Energy.................................................................................. 7-7 7.3.7 Nova Chemicals................................................................................ 7-8 7.3.8 NGTL ................................................................................................ 7-8 7.3.9 Pembina Pipelines............................................................................ 7-8 7.3.10 Shell.................................................................................................. 7-8 7.3.11 SPG .................................................................................................. 7-8 7.3.12 State of Alaska.................................................................................. 7-8 7.3.13 WEG ................................................................................................. 7-8 7.3.14 Ziff Energy Comments...................................................................... 7-9 7.4 Need to Change the Convention to Attract Northern and Upstream Gas to Alberta................................................................................................... 7-10 7.4.1 ConocoPhillips................................................................................7-10 7.4.2 Imperial/EMC.................................................................................. 7-10 7.4.3 Keyera.............................................................................................7-10 7.4.4 Nova Chemicals..............................................................................7-10 7.4.5 NGTL...............................................................................................7-11 7.4.6 Pembina Pipelines...........................................................................7-11 7.4.7 Shell................................................................................................7-11 7.4.8 SPG.................................................................................................7-11 7.4.9 State of Alaska (“Alaska or the SOA”).............................................7-11 7.4.10 WEG................................................................................................7-12 7.4.11 Ziff Energy Comments.....................................................................7-12 7.5 Impact on the NIT Market and Alberta Gas Prices by Changing the Convention.................................................................................................7-14 7.5.1 ConocoPhillips.................................................................................7-14 7.5.2 EnCana...........................................................................................7-14 7.5.3 Imperial/EMC...................................................................................7-14 7.5.4 IGCAA.............................................................................................7-14 7.5.5 Nova Chemicals..............................................................................7-14 7.5.6 NGTL...............................................................................................7-14 7.5.7 Pembina Pipelines...........................................................................7-14 7.5.8 Shell................................................................................................7-15 7.5.9 SPG.................................................................................................7-15 7.5.10 Tenaska...........................................................................................7-15 7.5.11 WEG................................................................................................7-15 7.5.12 Ziff Energy Comments.....................................................................7-15 7.6 Preferred Convention for Allocation of NGL Extraction Rights...................7-17 7.6.1 ConocoPhillips.................................................................................7-17 7.6.2 EnCana...........................................................................................7-17 7.6.3 Imperial/EMC...................................................................................7-17 7.6.4 Industrial Gas Consumer’s Association of Alberta (IGCAA)............7-17 7.6.5 Keyera Energy.................................................................................7-17 7.6.6 Nova Chemicals..............................................................................7-17 7.6.7 NGTL...............................................................................................7-18 7.6.8 Pembina Pipelines...........................................................................7-18 7.6.9 Shell Companies (“Shell”)................................................................7-18 7.6.10 State of Alaska (Alaska)..................................................................7-18 7.6.11 Straddle Plant Group.......................................................................7-19 7.6.12 Taylor NGL......................................................................................7-19 7.6.13 Tenaska...........................................................................................7-19 7.6.14 WEG................................................................................................7-19 7.6.15 Ziff Energy Comments.....................................................................7-20 7.7 Impact on Stakeholders if Extraction Conventions are Changed, and Implementation of New Convention ....................................................7-23 7.7.1 ATCO Pipelines...............................................................................7-23 7.7.2 ConocoPhillips.................................................................................7-23 7.7.3 Imperial/EMC...................................................................................7-23 7.7.4 IGCAA.............................................................................................7-24 7.7.5 Nova Chemicals..............................................................................7-24 7.7.6 Pembina Pipelines.......................................................................... 7-24 7.7.7 Shell................................................................................................ 7-24 7.7.8 SPG ................................................................................................ 7-25 7.7.9 WEG ............................................................................................... 7-25 7.7.10 Ziff Energy Comments on Stakeholder Impacts from Implementing a New Convention.................................................... 7-26 7.8 Application of the Same NGL Extraction Convention Across all EUB Regulated Pipelines................................................................................... 7-28 7.8.1 ATCO Pipelines...............................................................................7-28 7.8.2 Aux Sable Alliance Pipelines........................................................... 7-28 7.8.3 Canadian Chemical Producer’s Association (“CCPA”).................... 7-28 7.8.4 Keyera Energy................................................................................ 7-28 7.8.5 Shell................................................................................................ 7-28 7.8.6 Ziff Energy Comments.................................................................... 7-28 7.9 Criteria, Public Interest and Processes for Evaluating Sidestreaming and Co-Streaming Projects........................................................................ 7-30 7.9.1 Imperial/EMC.................................................................................. 7-30 7.9.2 Keyera Energy................................................................................ 7-30 7.9.3 Nova Chemicals.............................................................................. 7-30 7.9.4 Pembina Pipelines.......................................................................... 7-31 7.9.5 Shell................................................................................................ 7-31 7.9.6 SPG ................................................................................................ 7-31 7.9.7 Taylor NGL...................................................................................... 7-32 7.9.8 Ziff Energy Comments.................................................................... 7-32 7.10 Streaming of Lean Gas to Specific Markets to Maximize NGL Extraction................................................................................................... 7-34 7.10.1 AltaGas........................................................................................... 7-34 7.10.2 AP................................................................................................... 7-34 7.10.3 CAPP.............................................................................................. 7-34 7.10.4 CCPA.............................................................................................. 7-34 7.10.5 ConocoPhillips................................................................................7-34 7.10.6 EnCana........................................................................................... 7-34 7.10.7 Imperial/EMC.................................................................................. 7-35 7.10.8 IGCAA............................................................................................. 7-35 7.10.9 Nova Chemicals.............................................................................. 7-35 7.10.10 NGTL.......................................................................................... 7-35 7.10.11 Provident Energy and InterPipeline Fund (“Provident/IPF”) ....... 7-35 7.10.12 Shell........................................................................................... 7-35 7.10.13 SPG............................................................................................ 7-36 7.10.14 Taylor......................................................................................... 7-36 7.10.15 Ziff Energy Comments................................................................ 7-36 8. ALTERNATIVE MEANS TO RESOLVE ISSUES................................................... 8-1 8.1 Criteria to Assess Alternative Approaches to Resolve Issues...................... 8-1 8.2 Review of Alternative Approaches............................................................... 8-2 8.2.1 Review of Alternative Conventions to Account For and Allocate NGL Extraction Rights to NGLs in the Common Stream of Alberta Regulated Pipelines..............................................................8-2 8.2.2 Consideration of Changing the Convention to Attract Alaska Gas....................................................................................................8-5 8.2.3 Other Reasons to Change to a Receipt Point Convention.................8-6 8.2.4 If a Receipt Point Model is Adopted, What Form Should it Take?.....8-7 8.2.5 Timing for Implementation and Transition to a New Convention, if a New Convention is Adopted ........................................................8-8 8.2.6 If a New Convention is Adopted on NGTL, Should it be Applied to all EUB Regulated Pipelines?........................................................8-8 8.2.7 How Could Transition Costs and Other Costs Associated with Changing the Convention be Handled...............................................8-9 8.2.8 Sidestream Plants.............................................................................8-9 8.2.9 Co-stream Plants.............................................................................8-10 8.2.10 Lean Gas Streaming to End Use Markets to Increase NGL Recovery.........................................................................................8-12 9. APPENDICES.........................................................................................................9-1 9.1 Appendix 1 – EUB RFP................................................................................9-1 9.2 Appendix 2 – Summary of Participant’s Letters of Intervention....................9-7 9.3 Appendix 3 – NGTL Annual Plan Excerpts ................................................9-11 9.4 Appendix 4 – NGTL Tariff Excerpts............................................................9-17 9.5 Appendix 5 – ATCO Pipelines Tariff Excerpts............................................9-47 9.6 Appendix 6 – AltaGas Utilities Inc. Tariff Excerpts.....................................9-49 9.7 Appendix 7 – Alliance Pipeline Tariff Excerpts...........................................9-57 9.8 Appendix 8 – Aux Sable Canada Fact Sheet.............................................9-61 9.9 Appendix 9 – Foothills Pipe Lines Tariff Excerpts......................................9-67 9.10 Appendix 10 – Westcoast Energy Inc. Tariff Excerpts ...............................9-77 9.11 Appendix 11 – BC Energy Plan Excerpt.....................................................9-81 9.12 Appendix 12 – TransGas Posted Heating Values for August, 2007 (MJ/m³).......................................................................................................9-83 9.13 Appendix 13 - TransGas Tariff Excerpts....................................................9-91 9.14 Appendix 14 – Nova Scotia Energy Strategy Report Excerpt.....................9-93 9.15 Appendix 15 – EIA Report on Natural Gas Processing..............................9-97 9.16 Appendix 16 – White Paper on Liquid Hydrocarbon Drop Out.................9-109 9.17 Appendix 17 – Texas Administrative Code for Natural Gas Transportation Standards and Code of Conduct......................................9-139 9.18 Appendix 18 – Tennessee Gas Pipeline Tariff Excerpts..........................9-143 9.19 Appendix 19 – Southern Natural Gas Company Tariff Excerpts..............9-145 9.20 Appendix 20 – Illustrative Gas Production Terminology...........................9-163 9.21 Appendix 21 – Glossary of Terms............................................................9-165 9.22 Appendix 22 – Overview of Ziff Energy....................................................9-171 EUB Inquiry into NGL Extraction Matters Application No. 1513726 Alberta NGL Extraction Conventions 1-1 1 1. INTRODUCTION 2 3 In June 2007, the Alberta Energy and Utilities Board (“EUB” or “Board”) made a request for 4 proposals (“RFP”) for an expert report on issues related to an Inquiry into the Review of Alberta 5 Natural Gas Liquid (“NGL”) Extraction Conventions, EUB Application Number 1513726 6 (the “Inquiry”). Appendix 1 includes a copy of the RFP. Ziff Energy Group responded to the RFP 7 and was selected as the expert. The deliverables of the RFP include: 8 9 1. Review of existing NGL contraction conventions, related tariffs and practices on 10 regulated Alberta pipelines including NGTL, ATCO Pipelines and AltaGas Utilities 11 Inc., as well as proposed conventions and practices for the proposed Aux Sable 12 Canada Ltd. North Sable Extraction Plant –Fort Saskatchewan. 13 14 2. Analysis of decisions or approaches used by other relevant jurisdictions for NGL 15 recovery from main transmission pipelines. 16 17 3. Review of reserve, supply and demand forecasts of natural gas and NGLs provided by 18 Inquiry participants (“Participants”), to provide the Board a comprehensive view of 1, 19 10 and 20 year forecasts of Alberta NGL supply and demand by component. The 20 consultant is to comment on forecasts provided by participants, identify omissions or 21 inappropriate assumptions, and supplement these forecasts to address gaps and 22 concerns. 23 24 4. Review of evidence provided by the Participants to submit information requests (IRs) 25 to provide greater clarity, understanding and to address information gaps. 26 27 5. Analysis of each Participant’s direct evidence, information responses and rebuttal 28 evidence, including comments on strengths and weaknesses of each of the 29 Participant’s positions where the Participant’s evidence is in significant conflict. 30 31 6. Identification and assessment of one or more possible alternative approaches or 32 modifications to those proposed by the Participants to address the matters before the 33 Inquiry and that meet the overall Alberta public interest. The consultant is to assess 34 the benefits, limitations, and market impacts of the alternatives. 35 36 7. Prepare and submit a report which includes the preceding items, respond to IRs from 37 Participants on the report, and appear at the Inquiry for cross-examination by the 38 Participants. 39 40 49 parties registered as interested parties to the Inquiry with almost all indicating they expected to be 41 active participants. The EUB provided a procedural schedule and final list of issues to be addressed 42 in the Inquiry in correspondence to the interested parties dated July 6, 2007. Appendix 2 provides a 43 summary of Ziff Energy’s understanding of participant’s comments provided in their letters of 44 interest. 45 1-2 Alberta NGL Extraction Conventions EUB Inquiry into NGL Extraction Matters Application No. 1513726 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 This page intentionally left blank. 22 23 24 25 26 27 28 29 30 31 32 33