AltaGas Ltd. has received final regulatory approval for its $235-million Gordondale natural gas plant in northwestern Alberta, opening new processing capacity for liquids-rich gas developers in the Montney region.
The 120 million cubic feet per day plant will come equipped to strip liquids from the gas stream, enabling producers to cash in on a lucrative byproduct despite low natural gas pricing.
The Gordondale plant, located northwest of Grande Prairie, will take advantage of a growing demand for processing facilities and infrastructure, said Randy Toone, co-president of gas, on Wednesday.
"We are focusing a lot of our efforts in that region and Gordondale is a big step for us into that," Toone said. "We do see significant need for processing capacity in that area and a need for liquid removal capability because everyone is focusing on getting value for their liquids."
Liquids -pentane, propane and butane -are extracted from natural gas streams. The commodity currently is trading around 80 per cent of oil prices, providing high netbacks to producers to offset poor natural gas prices.
The Gordondale two-phased expansion ties in AltaGas's 25 mmcf per day Pouce Coupe facility, allowing production from the plant to come on stream by mid-2011.
The Gordondale plant will come on line fully by late 2012.
It will be nearly 10 times larger than AltaGas's other processing plants in the Montney, reflecting the rapid pace of development in one of the hottest plays in North America.
The formation extends diagonally from northeastern British Columbia into the Peace River arch of northwest Alberta. Analysts peg the formation as potentially one of the largest economically viable resource plays in North America, with an estimated 50 trillion to 700 trillion cubic feet of natural gas reserves.
Despite the intense interest in the Montney, the area remains short on processing capacity, said Bill Gwozd, vice-president of gas services with Ziff Energy Group.
"This is a chicken and egg situation," Gwozd said. "If you have the gas coming on and if it lasts for a long period of time, you would need more processing capacity."
The group is researching the economics of natural gas plants in the Montney, and estimates production from the B.C. portion alone will triple within the next decade.
One of the challenges for producers is the question of who will be funding infrastructure builds and expansions, Gwozd noted.
"It becomes very frustrating for the operators because you can't overbuild capacity because people might not show up," he said.
Major oil and gas producers such as Shell Canada and Talisman Energy have interests in the region, along with intermediates and juniors such as Birchcliff Energy and Progress Energy, which scooped land for cheap before the play exploded.
Progress recently penned a $1.1-billion deal with Malaysia's Petronas to develop its B.C. Montney and explore liquefied natural gas options.
AltaGas announced the Gordondale project last fall on securing a long-term contract with natural gas giant Encana Corp., and is actively negotiating commercial terms with other producers in the area, Toone said.
Details of the Encana deal remain confidential, but he confirmed it underpinned much of the project.