The Economics of Developing Canadian Arctic Gas

In the remote Canadian Arctic, exploration for oil and gas is costing $300 to $400 million a year. Thus far, the most significant discoveries have been of natural gas. Examined here are the costs and potential results of exploring in the area and the wellhead prices required to justify the efforts. The wellhead prices are translated into prices in the markets that would logically receive such gas. Introduction The existence of petroleum in Canada's North has been known since 1798, when Alexander Mackenzie recorded the presence of oil seeps along the banks of the great river that bears his name, near the present site of Norman Wells. About the turn of the century, other explorers recorded the discovery of oil and gas seepages along the north shore of Great Slave Lake, and near Fort Good Hope, down-river from Fort Norman. In 1920, a subsidiary of Imperial Oil Ltd. drilled the discovery well of the Norman Wells oil field and Canada's North became, in fact, an oil-producing region. Except for a flurry of development and production in the early 1940's, brought about by the unique demands of World War II, exploration activity in the North remained at a low ebb until recent years. The harsh climate, remoteness, lack of communications, high costs, and attractions of risk capital to more amenable regions resulted in a long period during which only limited exploration activity was conducted. Forecasts of supply and demand for Canadian oil and gas demonstrate that substantial new reserves must be developed during the next 10 to 20 years to satisfy the needs of our expanding domestic markets and the requirements for exports to the U. S. As a result, exploration is expanding into the frontier regions and a large exploratory play is now in progress in Canada's Arctic region. Major gas discoveries have been made in two widely separated Arctic areas (Fig. 1). The more southerly region is in the Mackenzie Delta on the Arctic mainland, some 325 miles east of the Alaska North Slope discoveries at Prudhoe Bay. The other Arctic discoveries have been made in the Sverdrup basin in the central part of the Canadian Arctic Islands. Since the principal discoveries to date have been of natural gas, the following analysis examines the cost and potential results of this exploration in terms of wellhead prices required to justify the efforts being made. Mackenzie Delta - Geology and Potential The Mackenzie Delta portion of the Beaufort basin (Fig. 2) is a geographical and structural entity delineated by the Richardson Mountains and the Aklavik Range on the west and the Tuktoyaktuk Peninsula - Caribou Hills escarpment to the east, Peninsula - Caribou Hills escarpment to the east, both lineaments converging to an apex in the Point Separation area. The Mackenzie Delta is comparable in many respects with the U. S. Gulf Coast and the West African Niger Basins, and consists of a thick succession of Mesozoic and Cenozoic sedimentary rocks developed upon the northern continental margin of North America. The sequence overlies older Paleozoic sedimentary rocks that within the basin are Paleozoic sedimentary rocks that within the basin are deeply buried but at the southern margin are exposed within a complex structural element, the Aklavik Arch (Fig. 3). JPT P. 1199