AN INTEGRATED NORTHWEST CANADA ENERGY CORRIDOR AND MAJOR PIPELINE HUB

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1 AN INTEGRATED NORTHWEST CANADA ENERGY CORRIDOR AND MAJOR PIPELINE HUB Mike Priaro, P.Eng., Sept. 9, An integrated energy corridor could be created along the route of a proposed oil pipeline from the Alberta (AB) oil sands through hydroelectric power developments in the Peace River region of British Columbia (BC), and then on to proposed liquefied natural gas (LNG), oil, and natural gas liquids (NGL) marine terminals on Canada s west coast. An energy corridor from the oil sands near Fort McMurray AB through northern BC to the west coast port of Prince Rupert BC could contain Eagle Spirit Energy Holding Ltd s. proposed 2.0 million bbl/d Eagle Spirit oil pipeline, TransCanada Corp. s proposed Prince Rupert Gas Transmission (PRGT) pipeline, and a potential natural gas liquids pipeline. This would create a highly efficient energy corridor that would dramatically reduce the costs and the environmental footprint of energy development in northwestern Canada and provide vastly improved access to markets in the Pacific Rim. An integrated energy corridor offers many business, economic, and environmental incentives and benefits, as well as benefits to affected First Nations (aboriginal/indigenous peoples). Canada s Supreme Court has affirmed in a series of recent decisions many legal rights of First Nations for industrial and other developments on their traditional lands especially in BC where traditional native lands are in general not subject to treaties. The Prince Rupert area is sheltered and ice-free year-round with deep, natural harbours. It is widely regarded as the safest location for marine terminals on Canada s west coast. There are no significant hazards such as narrow channels to navigate, resulting in an unobstructed entry into the high seas and to the northern Pacific Great Circle shipping route which provides the shortest trade route between North America and markets in the Asia-Pacific region. Along with the Port of Vancouver BC, Prince Rupert is part of the Canadian government s Asia-Pacific Gateway Corridor and Initiative (APGCI) to connect ports, road, and rail connections across western Canada to the economic heartlands of North America. The Port of Prince Rupert offers the deepest natural harbour in North America; steadfast labour and community support; efficient and uncongested rail connection directly from the terminal to the North American Midwest; and significant capacity for growth.

2 Figure 1. Map showing the Asia-Pacific Gateway Corridor and Initiative. Source: Government of Canada. Clean Hydroelectric Power for the Oil Sands An integrated energy corridor would include electric transmission lines to supply low-carbon hydroelectric power from BC s Peace River region, and from Alberta hydroelectric projects, while facilitating greater penetration and use of renewable energy sources, as follows: 1. Westward to provide low-carbon hydroelectricity to power LNG liquefaction plants near Prince Rupert BC. 2. Regionally to field operations and facilities developing and producing immense shale gas, gas liquids, and oil resources in northeast BC and northwest AB. 3. Regionally to provide hydroelectric power to meet expanding residential, commercial and industrial demand. 4. Eastward back to the oilsands to provide low-carbon hydroelectric power to reduce GHG emissions by displacing some of the large volumes of natural gas used in the oilsands. An integrated energy corridor could also provide access points to store renewable, but intermittent, energy via the hydroelectric projects. There is also the potential to add value to Alberta s bitumen resources using low-carbon hydroelectric power by; partially-upgrading bitumen, eliminating the need for diluent, to add value and reduce the handling and transport costs of dilbit;

3 fully upgrading more bitumen to syncrude, or refining bitumen and batching products in pipelines to markets. These opportunities could be captured in Canada at significantly reduced GHG emissions relative to other countries by the increased use of low-carbon hydroelectric power. Additionally, large reservoirs of water behind hydropower dams could provide the reliable quantities of water necessary for shale gas frac ing operations with minimal affects on river flows during natural seasonal variations. Both BC Hydro s proposed Peace Region Electricity Supply (PRES) project and Alberta s ATCO Power s proposed North Montney Power Supply (NMPS) project were created to provide low-carbon electricity to be supplied from BC and Alberta transmission grids. Construction of a third dam and hydroelectric generating station on the Peace River in BC at Site C started in 2015 and will be completed in Hydroelectric power from Site C will provide 1,100 MW of capacity along with existing hydropower projects in BC s Peace River region currently totaling 3,424 MW. Figure 2. Location of under-construction Site C dam. Source; Amnesty International. In Alberta, ATCO Power says the Peace River could generate 1,500 MW of hydro-power while a minimally invasive run-of-river project on the Slave River could provide 1,800 MW with another 1,500 MW from a more traditional facility on the Athabasca River near Fort McMurray. Alberta s current electric power generating capacity from all sources is about 15, 000 MW.

4 Clean hydropower for use in the oilsands would have to compete with the 3.1 bcf/d of low-cost natural gas currently used to provide extraction steam, process heat, and co-generated electric power in oilsands operations. The natural gas that is displaced could be shipped to Prince Rupert and exported as LNG instead of being burned, adding value to natural gas and reducing global GHG emissions and air pollution where it is used instead of coal to generate electric power. Clean hydropower for the oil sands would also help reduce the 15-20% excess GHG emissions, on a well-towheel basis, of oil sands bitumen compared to the GHG emissions of the average basket of conventional crude feedstocks supplied to U.S. refineries. A Potential Natural Gas Liquids Pipeline Several recent export applications to Canada s National Energy Board (NEB) to export LPG (liquefied petroleum gas, i.e., propane and butanes) have been made recently: 1. The NEB recently approved Pembina NGL Corp. and Pembina Resources Services Canada application to export 86,000 bbl/d of LPG for a 25-year term from various export points in Canada. 2. AltaGas LPG s application to the NEB for a licence to export 40,000 bbl/d, of propane annually from a marine export terminal near Prince Rupert and from railway crossings in Alberta and British Columbia. The term of the licence is 25 years with a maximum total volume of million bbls. 3. Petrogas Energy Corp. application to the NEB on Mar. 16, 2016 to export 107,000 bbl/d, also for a 25- year term, from various export points in Canada. These are a result of the recent reversal of the Cochin liquefied petroleum gas (LPG propane and butanes) and NGL (condensates, or pentanes+) pipeline from Alberta to Windsor, Ontario (ON), which had imported some of the diluent required to export oilsands bitumen as dilbit. Since then, there have been occasions when propane has had negative value at producer outlets in Alberta because of the loss of market access. That is, some producers actually had to pay to have their propane removed. Furthermore, the availability of vast amounts of cheap ethane from the nearby wet Marcellus and Utica shale gas plays in the U.S. is also backing out Alberta ethane and propane exports currently batched down Enbridge's Line 5 to the petrochemical centre of Sarnia ON. A volume of 233,000 bbl/d easily achieves the economic threshold for an LPG pipeline especially if volumes of NGLs are added. Such a pipeline installed in the same right-of-way (ROW) and at the same time as a new natural gas line and a new oil line, would benefit from the savings of many billions in capital, operating costs, and pipeline tariffs. An Integrated Northwest Canada Energy/Transportation Corridor The concept of a northwest Canada integrated energy corridor could be expanded to include: 1. Fibre optic cables. 2. Connections between electric power transmission lines and other hydroelectric and clean energy sources. 3. Upgraded roads, highways, and railways that provide improved access to forestry, mining, recreation, and isolated settlements as well as to the multi-modal freight port of Prince Rupert BC. Running power lines and other services along the same ROW as the PRGT pipeline, Eagle Spirit pipeline, and an LPG/NGL pipeline would require a wide ROW but would dramatically reduce construction costs and

5 minimize the environmental footprint and wildlife habitat fragmentation when compared to the clearing and construction of multiple ROWs through the rugged Rocky Mountains and interior and coastal mountain ranges of British Columbia. There are five proposed gas pipelines through northern BC: Pacific Northern gas looping project, Pacific Trails pipeline, Spectra Energy pipeline, Coastal GasLink pipeline, and Prince Rupert Gas Transmission pipeline. All are routed south of the Williston Lake Reservoir formed by the W.A.C. Bennett dam on the Peace River. Figure 3. Detailed map of all proposed natural gas pipelines through northern B.C. Source: Ecotrust Canada. However, Eagle Spirit Energy Holdings Ltd. has obtained 95% of all First Nation approvals for an oil pipeline route north of Williston Lake, according to Calvin Helin, Chairman and President of Eagle Spirit Energy. Helin says First Nations approval of a natural gas pipeline, and by extension a propane/lpg/ngl/condensate pipeline, in the same ROW as the Eagle Spirit oil pipeline, is possible.

6 Figure 4. Map showing the proposed route of the Eagle Spirit oil pipeline. Source: Eagle Spirit Energy. The routing of the 2.0 million bpd Eagle Spirit oil pipeline from Fort McMurray to the Prince Rupert area would offer large efficiencies and cost reductions in manpower, operations, management, infrastructure and emergency spill response, as well as a reduced environmental footprint, if the oil, natural gas, and natural gas liquids pipelines all terminated together in the Prince Rupert area. The following table shows that the proposed 48-in. diameter Eagle Spirit oil pipeline has the capacity to match the total capacity of the three other pipeline proposals with only minor adjustments to operating parameters. PROPOSED PIPELINE CAPACITY bbl/day Energy East 1,100,000 Northern Gateway 525,000 Trans Mountain Expansion 590,000 TOTAL 2,215,000 Eagle Spirit 2,000,000 Table 1. Capacity of proposed oil pipelines. In addition to improving the economics of exploiting the oil sands by accessing higher netbacks in new markets and by reducing pipeline tariffs, it is anticipated that Eagle Spirit could draw volumes from Enbridge s 2,600,000 bbl/d Mainline which supplies large volumes of discounted crude to refineries in the U.S. Midwest and from the Trans Mountain expansion should it not obtain approval of the federal cabinet of Prime Minister Justin Trudeau.

7 A Northwest Canada Pipeline Hub This proposed northwest Canada energy corridor will provide multiple tie-in points to the existing TransCanada Corp. NOVA Gas Transmission Ltd. (NGTL) gas gathering system infrastructure in northeast BC and northwest AB. Figure 5. Map showing location of TransCanada Corp. s Alberta and BC gas gathering system, Source; TransCanada Corp. According to Russ Girling President and Chief Executive Officer, Our NGTL System is sitting on top of extensive natural gas supplies, making it well-positioned to unlock the resource and reliably and efficiently link it to growing markets, and, The system has been operating at capacity, and more capacity is needed in these key areas that support the growth of the prolific gas resource in the Western Sedimentary Basin.

8 Figure 6. Detailed map of TransCanada Corp. s NGTL system showing current expansion projects, Source; TransCanada Corp. TransCanada Corp. s subsidiary, NOVA Gas Transmission (NGTL) recently signed contracts for 2.7 Bcf/d of new firm natural gas transportation service that will require a $570 million system expansion for 2018.

9 Significant growth in unconventional natural gas supplies in northeastern BC and northwestern AB are the primary driver for these new contracts, coupled with continued growth in market demand, according to TransCanada. The 2018 expansion program will increase the overall investment on the NGTL beyond the already announced $7.5 billion of projects. About $2.8 billion worth of these projects have received regulatory approval, with $800 million under construction, and an additional $1.7 billion of facilities are under regulatory review, according to the company. The new expansion includes multiple projects that total 90 km of nominal 20- to 48-inch pipeline, one new compressor, about 35 new and expanded meter stations and other associated facilities. Subject to regulatory approvals, construction is expected to start in 2017, with all facilities expected to be in service in Spectra Energy and its partner, BG Group, propose to build an approximately 850-km. natural gas pipeline corridor from the Cypress area in NE BC to BG Group's proposed LNG export facility on Ridley Island, near Prince Rupert. Figure 7. Detailed map of Spectra Energy proposed Westcoast Connector Gas Transmission pipeline. Source; Spectra Energy. It may be possible to build one gas pipeline to accommodate volumes for both Spectra s Westcoast Connector Gas Transmission project to Ridley Island near Prince Rupert and TransCanada s proposed Prince Rupert Gas Transmission pipeline to Lelu Island at Port Edward near Prince Rupert - greatly reducing the cost and significantly enhancing the economic viability of each proposal.

10 Figure 8. Detailed map of TransCanada Corp. s proposed Prince Rupert Gas Transmission pipeline. Source; Spectra Energy. The concept of a major northwest Canada pipeline hub is indicated on the map below which shows Spectra Energy s existing gas pipeline to the BC Lower Mainland and the main shale oil and gas producing areas of NE BC and NW AB.

11 Figure 9. Concept of a northwest Canada pipeline hub. Source; Mike Priaro and Spectra Energy. A northwest energy corridor to Prince Rupert BC could also tie into the proposed 1,200-kilometre Mackenzie Valley natural gas pipeline transporting Arctic, Beaufort Sea, Mackenzie Delta, and Northwest Territories oil and gas resources to Canadian and U.S. markets via tie-in to TransCanada s existing NOVA gas gathering and transmission system in Alberta.

12 Figure 10. Map of proposed Mackenzie Valley pipeline (Northcentral Crossing pipeline will not be required with northwest energy corridor to west coast). Source; Mackenzie Valley Project. Along with the existing Keystone pipeline to the U.S. Gulf Coast, Enbridge s Mainline system to the U.S. Midwest and Gulf Coast, and the proposed Energy East pipeline to Canada s east coast, the result would be a major, inter-connected oil, natural gas and natural gas liquids pipeline network and hub that would efficiently tie together the vast hydrocarbon resources of northern and western Canada and provide flexibility of access to the best prices available on world markets. There would be major economic benefits to the province of British Columbia from the revenue from low-carbon hydroelectric power generation in the Peace River region, from the provision of adequate residential, commercial, and industrial power for increased development in northern BC, and from the reduction in GHG emissions of resource development.

13 The Hydrocarbon Resources of Northwest Canada Oil, natural gas liquids, and natural gas pipelines to LNG plants and marine terminals near Prince Rupert would encourage development of immense oilsands and shale gas, oil, and natural gas resources in northeast BC and northern Alberta as well as hydrocarbon resources in Canada s Northwest Territories, Yukon territory, the Mackenzie Delta, Beaufort Sea, and Arctic Islands. The following table details the immense hydrocarbon resources of northwest Canada. The table generally uses figures for in-place resources. The exceptions include figures for ultimate potential for Alberta s conventional gas and Coal Bed Methane (CBM) and figures for remaining proved reserves for conventional oil and gas. Compare the figure of 8,203 tcf for northwest Canada s natural gas resources with proved reserves of 6,906 tcf for the world in 2014 according to the U.S. EIA. U.S. proved reserves of natural gas in 2014 were 338 tcf. Note that at least another half-dozen prospective shale formations are less completely evaluated in Alberta, British Columbia, and Northwest Territories. And of course resource exploration and development in Canada s Northwest Territories, Yukon territory, Mackenzie Delta, Beaufort Sea, and Arctic Islands are in their infancy.

14 HYDROCARBON RESOURCES OF NORTHWEST CANADA Area Formation Natural gas Gas liquids Oil Source trillion cu. ft. billion bbl billion bbl Alberta Oilsands Surface n.d. n.d AER (1) mining In-situ n.d. n.d. 1,204.6 AER (1) Alberta Bitumen Grosmont n.d. n.d AER (1) Carbonates Nisku n.d. n.d AER (1) Alberta Conventional Various AER (1) Alberta CBM Various 500 n.d. n.d. AER (1) Duvernay ERCB/AGS (2) Muskwa ERCB/AGS (2) Alberta Shales Montney 2, ERCB/AGS (2) Nordegg ERCB/AGS (2) Wilrich ERCB/AGS (2) Banff/Exshaw ERCB/AGS (2) Alberta Tight Sands Cardium n.d. n.d. 9.1 NEB (3) Saskatchewan Heavy Oil Mannville n.d. n.d Sask. Gov t (4) Heavy Saskatchewan Oil Oilsands Mannville n.d. n.d. 9.4 Oilsands Quest(5) Saskatchewan Shale Bakken n.d. n.d NEB (6) Sask. Conventional Various 1.8 n.d. 1.2 Sask. Gov t (7) Montney NEB et al (8) British Columbia Shales Horn River 448 n.d. n.d. NEB at al (9) Liard 848 n.d. n.d. NEB at al (9) BC Conventional Various 12.6 n.d. 0.1 BC Gov t (10) Yukon Shales Liard, Horn 68 n.d. n.d. NEB at al (11) NWT Shales Liard, Horn 505 n.d. n.d. NEB at al (11) Canol, n.d. n.d NEB (12) NWT Mainland Bluefish Various NEB (13) NWT Arctic Islands Various 3.8 n.d. 0.3 NEB (13) NWT Beaufort Sea Various NEB (13) TOTAL NORTHWEST 8, ,582 CANADA RESOURCES Table 2. Hydrocarbon resources of northwest Canada. Source: Mike Priaro.

15 Key Issues There are a number of key issues that must be resolved in order to achieve an integrated northwest Canada energy corridor and pipeline hub: 1. Sufficient approvals are required from inland First Nations along the proposed route for an integrated energy corridor containing an oil pipeline, a natural gas pipeline, a natural gas liquids pipeline, electric power transmission lines, fibre-optic cables, and access roads. 2. Sufficient approvals are required from coastal First Nations for oil, LNG, and natural gas liquids marine terminals in the Prince Rupert area. 3. Agreement by the Government of British Columbia is necessary that an integrated northwest Canada energy corridor meets its five conditions for approval of a heavy oil pipeline through BC. 4. Waiver of the proposed federal tanker moratorium in northern waters off BC s coast for terminals in the Prince Rupert area is required. 5. Sufficient agreement is required from all other stakeholders that an integrated northwest Canada energy corridor is the best solution to the economic, environmental and ecological issues surrounding resource development. Canadian Domestic Political Considerations This proposed northwest Canada energy corridor respects the concerns, needs, legal responsibilities to, and desires of, First Nations, as well as environmental concerns, far better than any of the other oil pipeline proposals to Canada s west coast Enbridge s Northern Gateway pipeline proposal and Kinder Morgan s Trans Mountain pipeline expansion proposal. It ties in very well with current Canadian federal government priorities to improve the economic and social well-being of First Nations. There must be direct, long-term economic benefit to First Nations from pipelines and facilities on First Nations lands. This could be achieved through federal loans providing a measure of capital participation by affected First Nations. There would also be significant benefit to First Nations, as well as project proponents, through their involvement and assistance designing, constructing, operating, and managing the energy corridor and associated pipelines and facilities with training provided by industry. Co-ordinated leadership for an integrated northwest Canada energy/transportation corridor will challenge Canadians. It is a complex mega-project that will require the leadership and support of the Canadian federal government under Prime Minister Justin Trudeau and the federal Ministers of Transport, Natural Resources, Environment, Infrastructure, and Indigenous and Northern Affairs, the provincial governments of Premiers Clark and Notley of British Columbia and Alberta, First Nations, affected local municipalities, BC Hydro, Alberta Energy, power companies, and, of course, companies in the oil and gas industry. Mike Priaro, P.Eng. Calgary, Alberta,

16 Cited 1. Alberta Energy Regulator, ST : Alberta s Energy Reserves 2014 and Supply/Demand Outlook Energy Resources Conservation Board/Alberta Geological Survey, Summary of Alberta's Shale- and Siltstone-Hosted Hydrocarbons 3. National Energy Board, Tight Oil Developments in the Western Canada Sedimentary Basin, eng.pdf 4. Government of Saskatchewan, Evaluation of Saskatchewan s Heavy Oil Reserves, 5. Oilsands Quest Inc., ; erves_estimate 6. National Energy Board, The Ultimate Potential for Unconventional Petroleum from the Bakken Formation of Saskatchewan 7. Saskatchewan Government, NEB et al, The Ultimate potential for Unconventional Petroleum from the Montney Formation of British Columbia and Alberta, 9. National Energy Board, Ultimate Potential for Unconventional Natural Gas in Northeastern British Columbia s Horn River Basin, Hydrocarbon and By-Product Reserves in British Columbia, The Unconventional Gas Resources of Mississippian-Devonian Shales in the Liard Basin of British Columbia, the Northwest Territories, and Yukon, March 2016, An Assessment of the Unconventional Petroleum Resources of the Bluefish Shale and the Canol Shale in the Northwest Territories Assessment of Discovered Conventional Petroleum Resources in the Northwest Territories and Beaufort Sea, November,

17 Author Bio Mike Priaro, B.Eng.Sc. (Chem. Eng.), U.W.O. '76, P.Eng., Lifetime Member Association of Professional Engineers and Geoscientists of Alberta (APEGA), worked in facilities, production, operations and reservoir engineering, as engineering consultant, area superintendent, and engineering management in Alberta's oil patch for 25 years for companies such as Amoco and PetroCanada. He increased oil production from the historic Turner Valley oilfield and brought in under-balanced drilling and completion technology to drill out, complete, and test several of the highest producing gas wells ever on mainland Canada at Ladyfern. He co-authored Advanced Fracturing Fluids Improve Well Economics in Schlumberger's Oilfield Review and developed the course material for the Advanced Production Engineering course at Southern Alberta Institute of Technology. Mike has presented his work to Canada s House Committee on Natural Resources in Ottawa and had work published by the Macdonald-Laurier Institute in the March and April, 2014 and February, 2015 editions of Inside Policy magazine, by U.S. energy industry websites such as RBN Energy, in the July 17, 2014 edition of the Oil and Gas Journal, in Petroleum Technology Quarterly, Q3 2014, and in several columns in the Calgary Herald, Edmonton Journal, Montreal Gazette, Halifax Chronicle Herald, and others. Mike has no formal connection to any oil company, environmental organization, think tank, labour organization, lobbying or special interest group, academia, or to provincial or federal politics. In 2015 Mike provided "A Preliminary Engineering, Economic, and Environmental Evaluation of ASRL's Partial Upgrading Process" to Alberta Sulphur Research Limited and presented it to 80 representatives of ASRL's member companies. ASRL partial upgrading subsequently obtained Alberta government funding and industry support. On Jan. 29, 2016, the Alberta Government made partial upgrading a priority based on its Royalty Review Panel s recommendations. As of Sept., 2016 the ASRL partial upgrading flow test pilot is running at CANMET/NRCan s research facility in Devon, AB. In 2016 Mike was invited to be a Bowman Centre Volunteer Associate at the not-for-profit Bowman Centre for Sustainable Energy. Its goal is to catalyze big energy projects which drive Canada s energy strategy and generate sustainable wealth and jobs. Mike s work can be found on his LinkedIn pages: or Behance website: Mike is available for special projects and speaking engagements.