Encana prepares to close Deep Panuke offshore gas project

With Sable Project also winding down, Nova Scotia's offshore gas industry is in flux, and prices for consumer could rise as a result.

With Sable Project also winding down, Nova Scotia offshore gas industry in flux

Encana Corporation's Deep Panuke project drills for natural gas off the coast of Nova Scotia. (SBM Offshore)

Nova Scotia's offshore natural gas industry is about to take another hit, as Encana Corp. prepares to close its Deep Panuke project.

The Calgary-based energy producer published an expression of interest last month seeking companies to plug its five subsea wells. The request for bids closed June 8.

Encana spokesman Doug Hock said there's no set timeline for the project's closure, but the company aims to have the plugging work completed between 2019 and 2021.

"We are in the latter phases of the life of the project but ... we're operating on a seasonal basis to get the most value from the project," he said.

The Deep Panuke project is located about 250 kilometres southeast of Halifax.

Dead in the water?

With ExxonMobil's Sable Offshore Energy Project also winding down, the closures signal change for the province's natural gas sector.

Sandy MacMullin, the executive director of the provincial Energy Department's petroleum branch, said the two closures don't necessarily mean the sector is dead in the water.

The Deep Panuke gas field is about 250 kilometres southeast of Halifax on the Scotia shelf. (The Canadian Press)

"I think it's fair to say that right now we're probably looking at a windup of gas production in the short term," he said. 

"That being said, it's not absolute because there are always companies that are looking at offshore assets and looking where they can develop some undeveloped resources."

Deep Panuke beset by troubles

The Deep Panuke project has been plagued by problems since long before the gas began flowing. Originally, production was supposed to start in 2005, but it didn't begin until 2013. 

In 2003, Encana asked for a "time out" from the regulatory approval process because the company was no longer sure there was enough natural gas to make the project worthwhile. Crews had hit four dry wells over the previous two years. But later in 2003, the company drilled two successful wells and decided to go ahead with the project after all.

The Acergy Discovery hit the Deep Panuke natural gas platform in 2011. (CBC)

By October 2007, Deep Panuke had passed all the provincial and federal regulation requirements and the company set a goal of beginning production by 2010.

In 2011, a ship hit the platform. The start date was repeatedly delayed — first to 2011, then to 2012, then to 2013. In January 2013, a fire broke out in an electrical cabinet in the emergency switchboard room on the platform, and another fire hit the project in 2014.

Production finally started in late 2013, and Encana reaped huge profits from the project in early in 2014, thanks in part to high gas prices.

But by November 2014, Encana announced a planned shutdown to deal with water that was seeping into the gas reserve. By March 2015, it was announced that the project would yield at least 50 per cent less gas than originally thought, thanks to the water in the reservoir. Since then, it has only been operating seasonally.

Deep Panuke production 'disappointing'

Hock admits that Deep Panuke has encountered challenges, including the water problem. Asked whether production met expectations, he simply said, "projects evolve over time."

So, was the project worthwhile for Encana?

"It's generated cash flow for us, so it certainly has provided some value for us and will continue on in that manner," Hock said.

Encana has encountered many troubles with the Deep Panuke project since its inception. (The Canadian Press)

MacMullin is a bit more blunt.

"Sometimes you end up with nice surprises. Sometimes you end up with a surprise you weren't hoping for," he said.

"The test results from the wells were very, very positive. They had flowed a lot of gas without having to break too much sweat but there was always an underlying fear that — pardon the pun, but — water that sits under that gas column would potentially break through into the wells and end up with premature decline in gas production.

"It's fair to say it wasn't unexpected, but yeah, it's disappointing."

Sable project fared better

ExxonMobil expects a rig to arrive off Nova Scotia in late 2017 or early 2018 to begin plugging the wells at the Sable Offshore Energy Project, which has been producing gas since 1999 just off Sable Island. Production will continue while that work gets underway. ExxonMobil aims to start removing the offshore facilities in 2020, a company spokesman said.

The Sable Offshore Energy Project has generated almost $2 billion in royalties for the province of Nova Scotia over the project's lifespan. (Canada-Nova Scotia Offshore Petroleum Board)

MacMullin said the Sable Project was a success on several fronts, as it helped develop the market for natural gas in Atlantic Canada, showed that the area can produce gas for a lengthy period of time, generated royalties for the province of about $2 billion over its lifespan, and was "a really good employer."

Between Deep Panuke and the Sable Project, the province has received $149 million in revenues since 2010, including projected revenues for 2017-18.

Effect on consumers

Once gas stops flowing from Deep Panuke and the Sable Project, consumers could see a bump in prices.

Ray Ritcey, the CEO of the Maritimes Energy Association, a not-for-profit organization that represents businesses that provide goods and services to the energy industry, said that increase would likely be greater than 10 per cent.

"At some point if you do not replace the gas supply with locally produced gas supply, you're going to be replacing it with higher-priced gas supply.

Consumers of natural gas may see a price increase once Deep Panuke and the Sable Project are closed down.

"So for consumers of natural gas in the province, they are going to incur a higher cost for the product mainly because it has to move here from another location."

MacMullin agrees that the price will likely rise.

"It will affect it. Whether it's significant or not remains to be seen," he said. "The issue is going to be, is the cost of natural gas going to be so high that it's going to cause customers to switch to a different fuel?"