As production declines in Alberta and British Columbia’s conventional-gas plays, Canadian pipelines are seeking new opportunities for their excess capacity. And one target is the red-hot Bakken oil-shale play in North Dakota and Saskatchewan.

Alliance Pipeline’s vice president and chief development officer, Jim Goldmann, notes that while conventional production is waning in Canada, unconventional-gas

production in British Columbia is rising, so overall production is expected to level out. But also shifting the supply and demand picture is an uptick in demand for natural gas to fuel boilers in the oil-sands regions. As production levels off and more gas is used internally, the rate of natural gas transported to the U.S. is not expected to return to historic levels.

In coming years, gas supply out of Canada into the U.S. could fall to a low of 8 billion cubic feet per day. With out-of-area capacity to the U.S. a hefty 16 billion cubic feet, there is ample room in the pipes.

Alliance, for one, is eager to fill up on its way through the Bakken play. The pipeline, which stretches from British Columbia through Alberta, Saskatchewan, and North Dakota to Joliet, Illinois, has 2,400 miles of 36-in. pipe and capacity of 1.6 billion cubic feet per day, with 1.3 billion contracted.

The headwaters of production for Alliance are found in the Montney shale-gas play of British Columbia—a growing supply basin with plenty of rich gas. “We’re uniquely suited for that, because we can take the gas as wet in our pipeline as we need to.”

The Montney produces rich, sweet gas from tight sands and shales. There is little infrastructure in place as yet, according to Goldmann. Recently, the play was yielding 600 million cubic feet per day, and it is expected to reach 1.5- to 2 billion per day by 2015 to 2020.

The Montney was once the province of small-caps based in Canada. But Duvernay Oil Corp. sold out to Shell in mid-2008 for some $4 billion in a deal that was widely viewed as making a strong statement about the play’s powerful potential. “Every smaller company has had that in their windshield since then,” notes Goldmann. Other producers active in the Montney are Canadian Natural Resources, Talisman and Encana, among others.

Horn River shale development has slowed, but Goldmann still expects it to produce as much as the Montney between now and 2020. Holding the play’s development back is its remote location, expensive infrastructure, and dry-gas characteristics, along with high CO2. “We see it going to boilers and also to Kitimat (an LNG export terminal on the West Coast of Canada).

The demand forecast for natural gas in Alberta is for significant gains only from oil sands, from about 4 billion cubic feet per day in 2010 to more than 5 billion daily in 2020.

With natural gas prices in the basement, the Montney and Horn River shale plays are operating on the margin. When factoring in NGLs, the Montney is economic at between $3 and $4, says Goldmann. “We’re using $3.90 as our price deck.”

Then there is the Bakken. “The Bakken is a heroic field that is coming on nicely,” says Goldmann. Production from 16 counties hosting the play is projected to soar from about 300,000 barrels of oil per day in 2010 to nearly 630,000 barrels of oil per day by 2020. It is oil-driven, so gas is a by-product. Analysts estimate that total Bakken reserves will reach 4 billion barrels of oil, 1.85 trillion cubic feet of gas, and 148,000 million barrels of natural gas liquids (NGLs), with an estimated reserve life of 22 years. The gas-to-oil ratio in the play is one thousand cubic feet to one barrel of oil.

While it is just a part of the value chain for pipelines such as Alliance, the Bakken is a major new source of supply at 600 million cubic feet of gas per day by 2020. Also taking production from the oily shale is Northern Border.

“Our first connection is with EOG via the Pecan Pipeline, in North Dakota,” says Goldmann. Alliance struck a deal in February 2010 to take up to 80 million cubic feet of gas per day on Pecan’s 12-inch-diameter, 76-mile Prairie Rose Pipeline, which interconnects with the Alliance line near Bantry in Mountrail County. Estimated capacity is more than 100 million cubic feet per day. Pecan North Dakota is a wholly owned subsidiary of EOG Resources. The pipeline began deliveries into Alliance in April 2010.

Alliance has a gas tariff quality waiver allowing up to 1,500 Btu gas, so it can take a significant amount of propane and butane. “The gas is 1,500 Btu at 114 degrees, so it’s very hot stuff,” he says. “They knock the condensates out and ship the contents of the y grade to Alliance and on to Chicago.”

With the waiver, producers can deliver entrained NGLs, saving conditioning and transport costs. And the pipeline is looking for opportunities to expand. “Alliance will consider building laterals to you,” says Goldmann.

“We would like to see more lateral pipelines running west into the Williston Basin on Alliance, more lateral lines and receipt points, and more domestic business. We had been an import pipeline only until Pecan was put in, and I think we can take away more of these NGLs and natural gas from the Bakken development.”

The fractionation plant that Alliance connects to in Chicago is “a world-class facility,” according to Goldmann, that is tied into markets with Midwest netback arrangements. To transport NGLs on Alliance is much cheaper than putting it in a tank car, he adds. The liquids extraction facility in Chicago, Aux Sable, straddles the Alliance pipeline, which in Chicago interconnects with seven other lines as well.

“Chicago is developing into a significant market hub, and with the new shale-gas revolution, the city has become only more strategic,” says Goldmann. The company is working to leverage interconnections of its header with downstream markets and other pipes by offering new services, including park and loan and wheeling.

Goldmann believes producers can realize better netbacks by transporting on Alliance. “They can go through midstream companies, or build their own lines, or go to a shallow-cut condensate plant and then on to Chicago.

“We offer a one-pipe solution for natural gas and NGLs, so companies can avoid the capital and operating expenses of field processing, avoid C2 through C4 specific transport (these are transmitted on Alliance with C1 under one tariff, commingled in a dense gas phase, rather than in separate pipelines or pipelines and tank cars) and deliver to Chicago rather than just Ventura or Conway.

"We were a bit slow to get our message out initially,” says Goldmann. “But after the deal with Pecan Pipeline, it’s opened our eyes to the opportunities."