Regina– Several years ago the provincial government brought in new regulations, known as Directive S-10, with the intention dramatically reducing flaring of associated gas in Saskatchewan.
The three-year grandfather period for previously drilled wells ended on July 1, 2015.
To address these gas conservation requirements, there has been a substantial investment in new gas plant infrastructure, and more on the way. The total investment will be over a quarter billion dollars, at minimum, and much more if you include the construction of a deep-cut straddle plant near Viewfield that will remove ethane that would otherwise end up in every day usage in furnaces and barbecues. That ethane will join the Vantage system and be used in the Alberta petro-chemical industry.
On July 15 Pipeline News spoke to Doug MacKnight, the new acting assistant deputy minister, Petroleum and Natural Gas Division, with the Ministry of the Economy; Brad Wagner, acting director, Petroleum Development Branch; and Lindsay Jackiw, petroleum engineer, Petroleum Development Branch about the impact S-10 has had and will have. MacKnight answered most of the questions.
Pipeline News:July 1 was the day the Directive S-10 came into full effect. Can you explain what S-10 is, and what its significance is?
Doug MacKnight: It’s one of those documents that isn’t really easy to summarize as a statement. Needless to say, the goal of the S-10 directive and program is to encourage and support the capturing of the associated gasses being produced from wells in Saskatchewan. Obviously the main benefits of the program are reductions in all sorts of things associated with flaring and venting, not the least of which is environmental factors.
Overall, the directive is about waste in the sense that flaring off a valuable resource is not in our best interest as a province. The collateral issue with that is all the environmental things.
The program itself, what transpired on July 1, is the end of the phase-in period. The first phase looked at new wells coming in after July 1, 2012. On July 1, 2015, existing wells would fall under the program.
I want to make clear it’s not all wells that are producing associated gasses. The threshold is 900 cubic metres per day.
The S-10 directive we have in Saskatchewan is actually modelled on something in place in both Alberta and British Columbia. That measure is used in those jurisdictions as well. What we’re doing here, within the Saskatchewan context, is very similar to what’s been done in other jurisdictions.
P.N.: How did we get to this point?
MacKnight: The program itself has been in the works for many years.
Lindsay Jakiw: 2008-2009.
MacKnight: There was a government-industry committee set up to develop the directive. On that group was CAPP, the Canadian Association of Petroleum Producers; at the time the were called SEPAC (Small Explorers and Producers Association of Canada, now known as the Explorers and Producers Association of Canada, or EPAC); our ministry, the Ministry of Environment, TransGas and SaskPower.
Of course it makes sense to have TransGas at the table because, fundamentally, we’ve got issues related to pipes, with the associated gas.
Those agencies, along with us, looked at what was done in Alberta. They had a fairly successful program and developed something that we thought would work in the Saskatchewan context.
The first thing S-10 speaks to is asking companies to really look at the economics of capturing the gas as opposed to venting and flaring it, again, at that 900 cubic metre per day threshold. If it’s economic to do so, S-10 speaks to making sure that gas is captured. Where it’s not economic, it speaks to ways of reducing the flaring and venting, but it also requires companies to ensure they’re always testing the question: is there a business case to capture the gas?
Our role in that is to monitor the process companies are doing those evaluations, and where they’re doing the evaluation if it is economical to capture it.
P.N.: What are the impacts of enforcing more stringent gas conservation? We are aware of new gas plants at North Portal, Flat Lake, soon at Alameda, and expansion at Viewfield. The total investment is in the hundreds of millions of dollars. Is there more to come, or is this it?
MacKnight: I can’t speak to “the more to come” question, but I can speak to the preamble; what are the benefits? One of the benefits is we’re not wasting it. There’s value in there. These investments are based on being able to realize that value. The projects you said are all contributing to the solution, and based on sound economics. It’s tough times on pricing all around, but they’re making the investment.
P.N.: North Dakota now won’t let you drill a well unless you have an approved plan for dealing with associated gas. Do you think Saskatchewan will ever reach that point, or does it need to?
MacKnight: I think it’s a little premature to speculate on what we’re going to need going forward. We think S-10 is going to get us where we want to go. Obviously we’re going to have to evaluate that. Those kind of arbitrary measures are a bit challenging where the reality is there’s a lot of infrastructure, a lot of investment, to support those kinds of programs. That’s why our programs really focus on there being a business case.
P.N.: There have been some changes in the administration of the ministry. Can you explain what is going on?
MacKnight: The easiest way to understand it is we’ve separated the regulatory function from the development function. My new division is really all about licensing wells, licensing facilities, licensing pipelines and things like that. We really are solely focused on the business of regulation.
The development side of the ministry, the land tenure, the petroleum tenure, as well as the petroleum royalty and the taxation side is now with another division: Minerals, Lands and Resource Policy. We think that separation is healthy, in the sense they can focus on economic development and generating revenues from that. Our job is to focus solely on getting the regulatory business done.
It also aligns much better with the recently-introduced well levy, plus it helps us on the accounting side. When industry pays that levy, they know what they’re buying.
On top of that, though, is the establishment of the new office of sector lead, which Ed Dancsok is heading up. That’s to allow us to move much more quickly on these strategic priorities, so he can work full-time on advancing those big-ticket items that can advance the oil and gas industry.
I’m the acting ADM, as of June 25. Brad Wagner is the acting director of petroleum development.
On June 25, we had a reorganization within the ministry, a realignment of responsibilities and duties. Todd Han is no longer within the ministry. Ed (Dancsok) reports directly to the deputy (minister) on strategic priorities for the oil and gas sector. He’s an ADM equivalent.
Ed’s going to be looking down the road and getting some of the tough issues he was trying to work on on the side of his desk, the venting and flaring issue, and the gas issue in the southeast he’s looking at from an economic development perspective.
P.N.: Should the industry expect a change in direction in either policy or administration?
MacKnight: That’s a tough one. We have to be responsive to circumstances on the ground.
I can’t really say yes or no. All I can say is that our business, we’re going to make sure we’re engaged in discussions on any changes of policy. That’s our modus operandi for years now. We’ve developed programs for consultation, and that model works.
That’s the model we’ll be pursuing.
P.N.: In regards to the levy, Crescent Point has grown to the point where they’re producing a quarter of Saskatchewan’s oil, and Husky is pretty big as well. Between the two of them, you have two producers producing half of Saskatchewan’s oil, and 580 also-rans. Is that going to have some sort of impact for the larger companies when they ask for things? Will they have a lot of influence, since they’re paying the bill?
MacKnight:That’s an interesting question. The answer is we apply the acts and regulations as they exist. We look at the facts as they are brought forward to us. If the facts support the request, that’s what we act on as a regulator.
The truth of the matter is, when you have companies with large volumes of production and lots of wells, they have a lot more issues we have to attend to. They have concerns. In the sense they’re a major player, of course we’re going be listening to the things they have to say to us.
We are a science-based, fact- driven organization, and that’s the way an oil and gas regulator has to work.
The industry has changed quite significantly over five and ten years. It goes without saying, Saskatchewan is changing. The current price environment is going to bring more changes. Overall, your observations are sound, the Saskatchewan oilpatch has changed.
But from a regulatory standpoint, we still have the same types of issues. We have to worry about the safety of folks in the industry and the public at large. We have to worry about the environment, things like waste, such as the gas issue. And we have to worry about issues of fairness, because we have a lot of people operating in the patch.
That’s the bread and butter of the business of regulation. That’s what this division will do, and that’s what we’re focused on.
P.N.: Where are things at on fugitive gas emissions and inspections? Is the ministry carrying out previously announced plans of focussing inspections on sour sites?
MacKnight: We have folks out, actually this week, and going out into the next few weeks. We’re doing a sweep for high-risk locations, more particularly on the sour gas issue. The short answer is yes, we’re proceeding on that. Needless to say, that’s an absolute priority, the number one safety issue, and we’ve got to get after it from an enforcement standpoint.
The follow-up to that, in some cases we might have to act quickly to get it under control. In others, it’s just an order issue where we’re providing operators with a notice period.
Brad Wagner: Our branch, Petroleum Development Branch, has been carrying out inspections of oil and gas facilities. We’ve done two weeks so far in July. We’re going to do a third week in July, and we plan to do more inspections in August. We’ve focused our resources down in the southeast part of the province. We’ve brought in staff to help us contribute to the investigation there.
I think as it stands right now we’ve inspected around 10,000 sites so far this summer. The inspections are focused not solely on the problem of sour gas, that’s the primary focus, but they’re comprehensive as well. Any number of issues for compliance on site, whether its equipment spacing or whether the leases have adequate berms, proper signage – all those things are being investigated.
Again, the focus is on sour gas. As we generate a list of non-compliance at various sites, we send correspondence to the oil and gas companies to have things corrected. That’s probably it in a nutshell.
With respect to H2S issues, the investigations so far, we’ve found a number of sites where there are hydrogen sulphide odours. We’re treating those separately. Those issues we treat as a fairly serious issue because of course H2S is a poisonous gas. We know there have been problems in the southeast. Even in situations where there’s just odours present and not a dangerous concentration of hydrogen sulphide, we’re treating it fairly serious because it’s indicative of a problem that may get worse, with dangerous consequences for life and health.
Our inspections in August are going to focus more tightly on problem areas that have been problems in the past – problem areas of the southeast, some of the larger facilities.
This interview has been condensed for length.