Canadian Oil and Gas Industry: What lies ahead Presented by Dinara Millington Vice President, Research Canadian Energy Research Institute June 10, 2015 1
Canadian Energy Research Institute Overview Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, nonprofit research institute specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public. Our core supporters include the Canadian Government (Natural Resources Canada), the Government of Alberta (Alberta Energy), and the Canadian Association of Petroleum Producers (CAPP). In-kind support is also provided by the Alberta Energy Regulator (AER) and the University of Calgary. All of CERI s research is placed in the public domain and can be accessed via our website at 2
Agenda Canadian Oil and Gas Resources Contribution of the Industry to Canadian Economy Oil and Oil Sands: Why Market Access is Critical! Natural Gas: Is the Market Truly Disappearing? LNG: Build it Now or Not at All? Conclusions 3
Oil Reserves and Natural Gas Resources Crude Oil Remaining Established Reserves in Canada = 171.3 Billion barrels (at end of 2012) Total Remaining Marketable Gas Resources in Canada = 1093 Tcf (at end of 2012) Conventional Oil, 4.3 Oil Sands, 167.1 Mining, 32.8 In Situ, 134.2 Frontiers, 223 Maritimes, 1 WCSB, 861 Tight Gas, 530 Conventional, 74 Shale Gas, 222 CBM, 35 Ontario, 1 Quebec, 7 Source: ERCB ST-98. Alberta s Energy Reserves 2013 and Supply/Demand Outlook 2014-2023, June 2014. Source: National Energy Board (NEB), Canada s Energy Future 2013: Energy Supply and Demand Projections to 2035, November 2013 4
Oil Proved Reserves by Country (billion barrels and % of total at end-2013) (bln barrels) 350.0 World Oil Proved Reserves - 1,688 Billion barrels (at end of 2013) 80 % are state-owned or controlled 20.0% 300.0 17.7% 18.0% 250.0 15.8% 96% (167.1 billion barrels) of Canadian reserves are in the oil sands 16.0% 14.0% 200.0 10.3% 12.0% 9.3% 8.9% 150.0 298.3 265.9 100.0 174.3 157.0 150.0 50.0 6.0% 5.8% 5.5% 101.5 97.8 93.0 10.0% 8.0% 6.0% 4.0% 2.0% 0.0 Venezuela Saudi Arabia Canada Iran Iraq Kuwait United Arab Emirates Russian Federation 0.0% Source: BP Statistical Review of World Energy, June 2014 5
World Oil Production by Country (million barrels per day and % of total world crude production) (MMbpd) 14.0 12.0 13.1% World Oil Production- 86.75 Million barrels per day (at end of 2013) 14.0% 12.0% 10.0 12.9% 10.8% 10.0% 8.0 Canada is the 5th largest global oil producer 8.0% 6.0 11.53 10.79 10.00 5.0% 4.7% 4.0 4.0% 3.4% 3.3% 6.0% 4.0% 2.0 4.18 3.95 3.56 2.87 2.62 2.0% 0.0 0.0% Source: BP Statistical Review of World Energy, June 2014. 6
World Gas Production by Country (billion cubic feet per day and % of total world gas production) (Bcfpd) 70.0 60.0 20.6% 17.9% World Gas Production- 326 Billion cubic feet per day (at end of 2013) 25.0% 20.0% 50.0 40.0 Canada is the 5th largest global gas producer 15.0% 30.0 66.5 58.5 10.0% 20.0 10.0 4.9% 4.6% 4.7% 16.1 15.0 15.3 5.0% 0.0 0.0% Source: BP Statistical Review of World Energy, June 2014. 7
Canadian Economy Annualized GDP by Industry or Sector (as of January 2014) At a Glance. Real estate and rental and leasing is the largest segment of Canada's economy. Manufacturing is still a very large portion of GDP and is the second largest component at 10%. The oil and gas sector has long been a significant contributor to Canada s economy accounting for 8% of GDP and 550,000 direct and indirect jobs. Source: Statistics Canada. 8
What Does Canada Export? At a Glance. Goods exports amount to 30% of GDP (service exports ~5% of GDP) The largest category of goods exports is Energy Products (oil, natural gas and other) at 24% of total exports. The United States still accounts for the vast majority of Canadian exports at 75% share. Source: Statistics Canada. 9
Western Canada s Energy Sector: Net Cash Expenditures 2013: $73.5 billion (11% higher than 2012) 2013: $59.3 billion (16.3% higher than 2012) Royalties Wages Royalties Wages Production Production Operation and Maintenance Operation and Maintenance Completion and Tie in Construction Conventional Drilling Evaluation Land Acquisition Crown Land Sales Land Acquisition Crown Land Sales Oil and Gas Drilling 10 Oil Sands Developments
6098 Bitumen Wells 4392 Oil Wells 3303 Gas Wells 40% BC 11
Oil and Oil Sands: Why Market Access is Critical! 12
2013 Facts About the Canadian Crude Market 2013 Total Canadian Crude Production = 3.5 MMbpd EASTERN CANADA 7% WESTERN CANADA 93% CONV. LIGHT 19% AB NON- UPGRADED BITUMEN 28% AB UPGRADED BITUMEN 26% PENTANES PLUS 7% CONV. HEAVY 13% 2013 Canadian Crude Exports (bpd) PADD IV 237,058 9% PADD V 194,225 7% Non-US Exports 82,887 3% PADD I 200,102 8% PADD III 120,321 5% Canadian imports in 2013 656,609 bpd. 13 PADD II 1,765,650 68%
Western Canadian Transportation and Export Volumes 8,500 8,000 7,500 7,000 6,500 Net Export Flow Volume ('000 bbls/day) 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Total Conventional Exports Onstream Under Construction Bakken Volumes - Enbridge Approved Awaiting Approval Announced Energy East Project Northern Gateway TMX Expansion Keystone XL Line 9 Reversal and Expansion Alberta Clipper Part II Rail Capacity Existing Export Capacity Note(s): 1)Operational Capacity is 95% of total design capacity. 2) Conventional crude volumes are net production volumes available for export (i.e., net of domestic demand). 3) Oil Sands volumes comprise of net bitumen and SCO available for export and diluent volumes req'ed to move bitumen as per pipeline 14
Existing and Proposed Pipeline Infrastructure 15
Proposed Pipeline Construction and Expansion Pipeline Operator Capacity (kb/d) AB Clipper Enbridge +120 Phase 1 +230 Phase 2 On-stream Date Proposal 2014/2015 Expansion of existing Line 67 (existing capacity 450 kb/d) Keystone XL TransCanada 830 2017? 1,900km export line from Hardisty to Steele City, NB. Southern leg of KXL complete. Northern Gateway TMX Enbridge Kinder Morgan 525 crude 193-diluent n/a A 1,200 export line from AB to Kitimat, BC coast. A parallel diluent line from BC to AB. Strong opposition from BC and First Nations (BC s 5 conditions) +590 2017 Expansion and twinning the current line (300 kb/d) from AB to Burnaby, BC. Tanker exports from BC. Energy East TransCanada 1,100 2018 Conversion of gas mainline to ON; expansion to QC and NB to carry 500-850 kb/d. Total line will be 4,460km, of which 3,000km is existing gas line. Line 9B Enbridge +60 2015 A reversal and expansion of existing 639km line to carry 240-300 kb/d from North Westover, ON to Montreal for refining and export. Status US Permit delays Awaiting US Approval NEB Approved, subject to 209 conditions Under NEB Review Under NEB Review NEB Approved, subject to 30 conditions 16
Natural Gas: Is the Market Truly Disappearing? 17
2013 Facts about Canadian Natural Gas, NGLs All volumes expressed as average day Production: Western Canada (AB) Marketable Natural Gas 9,740 mmcf/day Western Canada (BC) Marketable Natural Gas 3,759 mmcf/day Canada (other Provinces) Marketable Natural Gas 620 mmcf/day Total 2013 Production 14,119 mmcf/day Exports: To United States 8,800 mmcf/day Imports: Pipeline gas from the United States and LNG imports 2,600 mmcf/day Natural Gas Liquids: Recovered Ethane 200,000 bbls/day Recovered Propane 145,000 bbls/day Recovered Butane 64,000 bbls/day Recovered Pentanes + 101,000 bbls/day 18
Changing Natural Gas Market Dynamics in North America have resulted in increasing natural gas (NG) and NGLs availability in Canada Rapid increase in US shale gas production US domestic demand fails to keep up with Supply increasing Shock: production Shale Gas Revolution Supply and Demand Imbalance NG import requirements in the US decrease Costly overseas (LNG) imports displaced first (subject to contracts flexibility) Canadian pipeline gas imports follow suit Increased US NGLs production Lower NGLs import dependency. Including CAD supplies (LPG) Increasing NGLs exports to Canada (C2/LPG/C5+) and the world (LPG/C5+) Lower NG prices and erosion of market share for Canadian producers Lower CAD export volumes and increasing NG transportation tolls Curtailing production in Western Canada Meanwhile, spread between (regional) natural gas and (global) crude oil prices is widening Price fluctuation/uncert ainty 19 Adapting to change Canadian producers need to remain competitive Price takers and marginal suppliers in NA NG market Focus on finding new markets and enhancing profitability Increased availability of NGLs in CAD CAD south-bound LPG volumes looking for new markets US NGLs increasingly available in Western and Eastern CAD Diversify markets: LNG: Look West (Asia- Pacific) & East (Europe), not South (US) Grow local demand: Power generation, industrial demand, petrochemicals, Finding new markets Enhancing profitability Cutting costs through process efficiencies Maximize revenues by monetizing NGLs LNG project opportunities Opportunities to increase use of NG in industrial applications (oilsands, power generation, etc.) or as a feedstock for the production of petrochemicals (methanol) and refined petroleum products (GTL) Focus on NGLsrich areas has lead to increasing availability of surplus NGLs in Canada. The options are to use domestically (petrochemical feedstock/other), export to global markets (LPG exports), or curtail (reject) extraction
New Market Opportunities for Canadian Gas 20
LNG: Build it Now or Not at All? 21
BC LNG Projects within the Global LNG Game Proposed LNG Export Projects' Capacity in the United States and Canada 40% 8% 5% 2% 45% British Columbia US Gulf Coast (TX, LA, MS) Eastern Canada US West Coast (AK, OR) US East Coast (GE, MD, ME) Total Capacity: 665.8 MMtpa Global LNG trade (2013): 237 MMtpa or 31 bcf/d - 31% of global NG trade, or 10% of global NG production Global liquefaction capacity (2013): 291 MMtpa or 38 bcf/d - Global iquefaction utilization rate (2013): 81% North American Natural Gas Production (2013): 87 bcf/d (27% of total) (United States: 66.5 bcf/d; Canada 15 bcf/d; Mexico: 5.5 bcf/d) 57 LNG export projects proposed for the United States and Canada with 666 MMtpa or 89 bcf/d of export capacity - 2.3x current global liquefaction capacity/same size as NAM market 20 projects proposed in BC with 301 MMtpa (40 bcf/d) of capacity - BC LNG export project proposals capacity is equivalent to the existing global liquefaction capacity, and about 1/2 of the total NG production in North America: are these prospects realistic? 22
Competition to Supply LNG in the Asia-Pacific Basin Qatar LNG (8 Operating) (Total 9.5 bcf/day) (now 7.5 bcf/day) Mozambique Anadarko Shell Up to (6.5 bcf/day) West Africa Indonesia Malaysia (now 7.4 bcf/day) Russia Sakhalin Island LNG (now 1.1 bcf/day) Pipeline: 3.2 6.4 bcf/day China Korea Japan India SE Asia Australia LNG Operating: 3.8 bcf/d Under Construction: 7.7 bcf/d Australia Proposed: 4.9 bcf/d Total: 16.4 bcf/d Alaska LNG Up to 2.6 bcf/day Kitimat LNG LNG Canada Pacific Northwest LNG West Coast LNG Prince Rupert LNG Woodfibre LNG Up to 40 bcf/day Jordon Cove (0.9) Oregon LNG (1.3) Sabine Pass Freeport LNG Cameron LNG Dominion Cove LNG Lake Charles LNG Corpus Christi LNG Up to 36 bcf/day 23
Canadian Advantage: Short Transport Times Canada 7,300 km 10 days Australia East 7,000 km 9.5 days US Gulf Coast 17,145 km 23.5 days Mozambique 13,000 km 17 days Australia West 6,855 km 9.5 days 24
BC LNG Export Projects Development Pipeline: Large potential but no FID yet MMtpa 300 WCC Watson Island 250 Grassy Point Discovery Steelhead 200 Aurora 150 Prince Rupert LNG Canada Kitimat Cedar Triton 100 Orca 50 WesPac Pacific Northwest Kitsault New Times 0 Stewart Energy Woodfibre Douglas Channel 2016 2017 2018 2019 2020 2021 2022 2023 Date TBD Total potential: 40 bcf/d (301 MMtpa) Realistic estimate: 4 to 6 bcf/d (31 to 46 MMtpa) Data from various sources. Figure by CERI 25
Competition and Canada s LNG Opportunity bcf/d 50 45 40 35 30 25 20 15 10 5 Effect of Russian gas via pipeline on regional LNG Too many projects, not enough demand = increased competition from United States Potential Liquefaction East Africa Potential Liquefaction Canada Liquefaction United States Liquefaction Australian Liquefaction Middle East Liquefaction Other supply sources/contracted supply Increased competition from suppliers will give bargaining power to buyers! Price competitiveness of LNG supplies will be very important! 0 Estimated Asia-Pacific LNG Demand 2011 2014 2017 2020 2023 2026 2029 26
Conclusions Canada s proved oil reserves are third only to Venezuela and Saudi Arabia and marketable gas resources are within the Top 5. Canada has transparent regulatory and legal regimes and a stable economy with a long-term potential for energy development. Canada has competitive fiscal regimes. Canadian energy resources are not state-controlled. Pipeline expansions and new pipelines will allow Canadian crude, gas and NGLs to penetrate existing and new markets. LNG development and subsequent production growth will allow gas producers to capture higher gas prices in Asian markets. 27
Canadian Energy Research Institute Thank you for your time Please visit us at 28