Tight Oil and Shale Gas Innovation Roadmap May 8, 2017 ACKNOWLEDGEMENTS This report was prepared by a team under the leadership and editing of Marc Godin and PTAC Petroleum Technology Alliance Canada. The project sponsored by Natural Resources Canada and Alberta Innovates. Report sections were authored by New Paradigm Engineering, Third Bay, the Saskatchewan Research Council, and Cap-Op Energy, particularly Bruce Peachey, Roland Park, Jana Vander Kloet, Roberta Wasylishen, Keith Minnich, Petro Nakutnyy, Peng Luo, Ian Kuwahara, Kristie Martin and Marc Godin. The authors and contributors wish to express their appreciation for the invaluable assistance, insight and comments received during the course of this work from representatives of Natural Resources Canada, and Alberta Innovates, particularly Candice Paton, Kate Wilson and David Ryan, as well as members of the following PTAC industry-government committees: Air Research Planning Committee, Technology for Emissions Reductions and Eco-Efficiency Committee, Water Innovation Planning Committee, and Tight Oil and Shale Gas Innovation Network Steering Committee. We would also like to acknowledge the Government of Alberta regarding earlier play-based assessments related to technology challenges and opportunities in Duvernay and Cardium shale gas and tight oil regions as being catalysts for the development of this report. DISCLAIMER Alberta Innovates and Her Majesty the Queen in right of Alberta, Natural Resources Canada and PTAC Petroleum Technology Alliance Canada make no warranty, express or implied, nor assume any legal liability or responsibility for the accuracy, completeness, or usefulness of any information contained in this publication, nor that use thereof infringe on privately owned rights. The views and opinions of the authors expressed herein do not necessarily reflect those of Alberta Innovates or Her Majesty the Queen in right of Alberta, Natural Resources Canada or PTAC Petroleum Technology Alliance Canada. The directors, officers, employees, agents and consultants of Alberta Innovates and the Government of Alberta, Natural Resources Canada and PTAC Petroleum Technology Alliance Canada are exempted, excluded and absolved from all liability for damage or injury, howsoever caused, to any person in connection with or arising out of the use by that person for any purpose of this publication or its contents. 2 TOGIN ROADMAP | PTAC 2017 EXECUTIVE SUMMARY Background Production from tight and shale oil and gas resources has surged in North America due to new multistage hydraulic fracturing technologies, and this development has profound implications for Canada. In Alberta, light oil production has increased due to contributions from tight zones in formations such as the Cardium and Viking; in addition, significant growth could take place in the Montney and Duvernay formations if development at a large scale is found to be economic. In Saskatchewan, tight oil production from the Bakken formation has been significant. In British Columbia, prolific production of shale gas, particularly from the Montney formation, has created new opportunities for export of Liquefied Natural Gas (LNG). While hydraulic fracturing has been deployed successfully by many operators in several regions, it has raised concerns about environmental impact, particularly concerning water management, greenhouse gas (GHG and air emissions, social impact from truck traffic and industrial activity, and the possibility of triggering earthquakes. As a result, the technology has been subject to regulatory reviews in several jurisdictions nationally and internationally. Thus, it is of high value for industry and government to study challenges and opportunities from the increasing production of tight and shale oil and gas from hydraulic fracturing, and understand the role that innovation could play in addressing them. Purpose and Scope The purpose of the Tight Oil and Shale Gas Innovation Roadmap (the “Roadmap”) is to provide knowledge for industry, government and academia to address current and anticipated research and technology challenges and opportunities related to the development by multistage hydraulic fracturing of unconventional tight and shale oil and gas resources. The outcome will be to deepen the understanding of the potential for scientific research and technology development to provide solutions in this industrial sector, and to propose an initial blueprint for future technology investments. The Roadmap is not focused on any specific company or play, and recognizes that individual producers and service companies have an excellent understanding of technology challenges and opportunities related to their business. It does not enter the realm of government policy and regulatory frameworks, and acknowledges that several government organizations may have studied internally technology gaps and possible futures. The Roadmap is focused on issues directly related to hydraulic fracturing technology. As such, challenges, gaps and opportunities that apply generally to conventional oil and gas activities are only briefly mentioned, if at all. One such area is well integrity and the potential occurrence of wellbore leakage, which is analysed in reports from the Council of Canadian Academies and of the Canadian Gas Migration Society and will be the topic of a future technology roadmap by Natural Resources Canada. PTAC formed and facilitated the Tight Oil and Gas Innovation Network (TOGIN) with participation from industry, government, and academia to guide and support the development of the Roadmap. TOGIN held 19 committee meetings and three workshops over a 12 month period. A summary of TOGIN activities is found in Appendix A. TOGIN ROADMAP | PTAC 2017 3 The Roadmap is a conceptual document that: Provides an introductory technical primer on hydraulic fracturing technology (Appendix B); Describes the opportunity in Western Canada through a review of major geological formations and petroleum plays (Section 2); Addresses the major challenges and opportunities that face the widespread deployment of the technology in Western Canada: o Sustainable production (Section 3) o Water management and treatment (Section 4) o GHG and air emissions management (Section 5); Analyses industry needs and challenges in a matrix of gaps that are addressable with new research and technology development (Section 6); Identifies potential future directions for technology investments (Section 7). Geological Formations and Petroleum Plays in Western Canada Multistage hydraulic fracturing is being applied to an ever growing number of formations and plays in Western Canada and around the world. These formations range from very deep thermogenic gas production from “over-mature” shale formations, which were rarely drilled in the past, to relatively shallow “tight” extensions of conventional oil reservoirs that have been under production for over 60 years from the permeable zones. Alberta has the greatest number of relevant plays. These are often overlying formations with some plays containing 10 or more conventional and unconventional oil, gas, or even coal formations under the same area of land, making development complex. Many of these layers may also have different mineral rights owners, ultimate production potential, ecological settings, and a wide variation in the amount of geological information available about them. Saskatchewan has fewer gas plays, but has conventional and unconventional oil plays in the southern part of the province, some of which overlap and some of which are found in analogous formations in Alberta and Manitoba, and in neighboring U.S. states. Unconventional resources plays in northeastern British Columbia are under development primarily for natural gas production and LNG exports, with some plays extending into the Yukon and the Northwest Territories. While the basic hydraulic fracturing technology being used is similar for all these resources, the characteristics of the formations require significantly different development patterns, input resources, and application methods, and, as a result, the needs, gaps and solutions may differ significantly between formations. Formation depth is a key parameter for cost. Deeper wells, which are typically required to reach shale formations, can be significantly more expensive. Formation thickness and areal uniformity drive the magnitude of the opportunity, and shape the approach to development, with thick, aerially extensive shale formations offering the greater amount of in place resources. In general, deep shales are being developed with big long wells and large wellpads in order to generate economies of scale. By contrast, the shallow tight zones of conventional reservoirs are challenged with geological heterogeneity and are being developed on a smaller local scale. Production technology and economic returns are also greatly dependent on whether the targeted resource is dry gas, wet gas (gas with light hydrocarbon liquids), condensate or oil. In addition, the reservoir locations range from farmland with good access to services to very remote areas only accessible seasonally. The availability of services affects the type of 4 TOGIN ROADMAP | PTAC 2017 technology that can be reliably and economically deployed. Finally, the presence of transportation infrastructure impacts the pace, scale and economics of development. For example, the Saskatchewan Bakken would benefit from more pipeline availability, and the B.C. gas shales are still waiting for the first LNG export terminal.