CERI Commodity Report - Natural Gas

PAGE June The views presented in this article are those of the author, and do not necessarily reflect those of the Canadian Energy Research Institute. Deploying Natural Gas Trucks and Buses to Reduce Canada s Carbon Emissions By Alicia Milner Canada has a growing problem with carbon emissions from medium- and heavy-duty vehicles. At the national level, total greenhouse gas (GHG) emissions are declining. In, Canada s gas annual GHG emissions decreased by. percent, contributing to a five year average decrease of. percent. However, within the transportation sector, emissions continue to rise. Total carbon emissions from transportation sources increased by percent between and, and by percent between 99 and. Emissions from medium- and heavy-duty diesel vehicles are a significant factor in the overall growth in emissions CERI COMMODITY REPORT - NATURAL GAS Editor-in-Chief: CONTENTS Mellisa Mei (mmei@ceri.ca) FEATURED ARTICLE... NATURAL GAS PRICES... WEATHER... CONSUMPTION AND PRODUCTION... TRANSPORTATION... STORAGE... LIQUEFIED NATURAL GAS... DRILLING ACTIVITY... from transportation sources, contributing. megatonnes, or percent of the total growth in transportation GHG emissions since 99. This contribution is noteworthy, given that only percent of vehicles used in Canada are medium- and heavy- duty vehicles. Since 99, the rate of growth in carbon emissions from these vehicles has been second only to the rate of growth in emissions from light-duty pick up trucks, and sport utility vehicles. Source: Environment Canada Canada aims to reduce carbon emissions by percent, relative to levels, by. This percent goal equals megatonnes of carbon dioxide equivalent (CO e), of which an estimated megatonnes would theoretically need to come from transportation sources. Based on the current vehicle population mix, this would suggest a. megatonne decrease is needed from the medium- and heavy-duty portion of the vehicle population. Achieving this reduction will be a significant challenge, given that energy use for medium- and heavy-duty vehicles is one of the fastest growing areas of energy demand, according to Natural Resources Canada. Natural Gas as a Niche Solution for Transportation In June 9, an article from the Canadian Natural Gas Vehicle Alliance, highlighting natural gas as a potential niche solution for medium- and heavy-duty vehicles in Canada, was featured in the Canadian Energy Research Institute s Commodity Report Natural Gas. In this article, the leadership position of Canadian companies, in supplying natural gas engines to North American truck and bus manufacturers, was noted. Key technology benefits that were cited included lower cost fuel, lower carbon fuel,

PAGE criteria contaminant reductions relative to pre- diesel engines, and the ability of natural gas vehicles to operate on renewable natural gas produced from waste sources with near zero emissions. An increasingly robust natural gas supply outlook was referenced. The relatively high upfront capital cost, for both natural gas vehicles and natural gas refuelling infrastructure, was highlighted as a key barrier to adoption, and public policy considerations were briefly reviewed. What Has Changed? Since June 9, a number of significant developments have taken place that underscore the potential for natural gas as a transportation fuel for medium- and heavy-duty vehicles in Canada. First among these changes is an increasing understanding of the robustness of the Canadian natural gas resource. Robust Gas Supply Outlook - In May, the Canadian Society for Unconventional Gas (CSUG) released a report on the size of Canada s natural gas resource, incorporating information about both conventional and unconventional natural gas. The key finding of the report was that Canada s natural gas in place resource is almost, trillion cubic feet (Tcf), with the marketable portion of the resource estimated at between and, Tcf. Based on current annual production rates of to Tcf, and assuming that the resource can be recovered economically, the report demonstrated that Canada has natural gas resources of more than years. Concerns associated with declining production from conventional natural gas sources had, in the past, limited the Canadian government s interest in considering a greater role for natural gas as a lower emission transportation fuel. The findings of the CSUG report suggest that natural gas can be relied upon as an abundant fuel that can serve as a foundation for Canada s sustainable energy future, and play a more significant role in reducing carbon emissions from transportation sources. Intent to Regulate Carbon Emissions In April, the Government of Canada released draft vehicle regulations, which align with proposed regulations in the United States. For the first time, carbon emissions from passenger vehicles, including automobiles, pickup trucks, and sport utility vehicles, will be regulated. It is expected that the new rules will apply to model year vehicles in Canada. Annual requirements to improve emissions performance will result in model year vehicles that emit roughly percent less carbon than new vehicles sold in in Canada. Medium- and heavy-duty vehicles are not subject to these new regulations. The regulatory focus for these types of vehicles will continue to be tailpipe emissions of criteria contaminants, at least until the to timeframe, although the Government of Canada also recently announced its intent to regulate GHG emissions from the medium- and heavy-duty vehicle sector. The approach that is to be taken will be one that is harmonized with the United States. These future carbon-based regulations could provide a framework, within which the lower carbon intensity of natural gas as a transportation fuel could provide a viable compliance pathway for medium- and heavy-duty vehicles, operating in return-to-base mode, or in regional corridors. Emissions modelling of liquefied natural gas (LNG) highway tractors using Natural Resources Canada s GHGenius model suggests a percent well-to-wheels reduction in carbon, compared to a diesel powered tractor, and percent of the carbon reduction is attributable to vehicle operation. It is too early to know how the proposed regulations will be structured, but an emphasis on carbon could support greater adoption of natural gas as a transportation fuel. Growing Fleet Interest The first deliveries of mediumand heavy-duty natural gas trucks from original equipment manufacturers have also taken place over the past year in Canada. Enbridge Gas Distribution took delivery of two Freightliner M s with factory-equipped compressed natural gas (CNG) fuel systems, and Cummins Westport ISL G engines. Enbridge also had three International Model s converted at a local International truck dealer, using Emission Solutions engines, and dedicated CNG fuel systems. CNG-powered Freightliner M medium-duty dump truck is one of five natural gas trucks purchased by Enbridge Gas Distribution in Ontario for its fleet.

PAGE The City of Toronto has taken delivery of a rear-loading CNG refuse collection truck and, at a recent green fleet event, staff presented a plan to transition the City s refuse truck fleet to renewable natural gas operation, beginning in. The City plans to expand an existing digester, and to build a second large digester to process increased volumes of curbside organic waste, collected through the existing green bin program. City Council recently approved a recommendation to enter into a sole source contract with Enbridge Gas Distribution for upgrading the biogas to pipeline standard, and injecting it into the local gas distribution system. This green gas will then be used by the City for its refuse truck fleet, and to heat municipal buildings. Also in Ontario, privately-held Miller Group has purchased a natural gas refuse collection truck, with funding assistance from the Province of Ontario. Miller is a leader in both the refuse collection, and road construction and maintenance industries, and has operations in Central and Western Canada. The other area in which fleet interest is growing is in regards to natural gas highway tractors. Groupe Robert, a leading Québec-based for-hire trucking company, has announced that it intends to purchase at least LNG highway tractors, to be used on linehaul routes between Montréal, Québec City, and Toronto, Ontario. Negotiations are underway for two refuelling stations to support the trucks. Groupe Robert is considered to be one of Québec s leading trucking companies. The company has demonstrated expertise in adopting and integrating innovative technology solutions for over-the-road trucking. Group Robert operates an estimated, tractors in Central and Eastern Canada, and is ranked within the top full truckload carriers in North America. Increased Availability of Natural Gas Trucks and Buses - The trend toward increased availability of natural gas trucks and buses from North American original equipment manufacturers continues. Within the past year, California-based Gillig Corporation added natural gas to its factory-direct transit bus product offering. Kenworth expanded its line of natural gas trucks, adding a natural gas cement mixer, as well as expanding its highway tractor and vocational truck offerings. Peterbilt also now offers additional models of highway and vocational trucks with natural gas fuel systems. And, in the past month, Navistar has announced that it will soon start taking orders for a natural gas version of its medium-duty DuraStar truck, which will be built on the line at its production facility in Texas. Initiation of Natural Gas for Transportation Deployment Roadmap The final, and perhaps most significant, change in the landscape for natural gas as a transportation fuel in Canada is the launch of a deployment roadmap process, co-led by industry and the federal government, under the leadership of Natural Resources Canada Deputy Minister Cassie Doyle. An initial roundtable session was held in March to begin the process. A broad group of stakeholders were invited with participation from across the natural gas value chain, end user groups, provinces, truck and bus manufacturers, academia, and the environmental community. Six working groups are now in place, involving a range of stakeholders, and with ongoing support provided by Natural Resources Canada. An initial reporting back to the roundtable took place in June, at which time stakeholders confirmed that the priority for near term ( to years) market development is medium- and heavyduty natural gas vehicles in return-to-base, and corridor operation. Unlike previous roadmap processes that Natural Resources Canada has been involved in, such as the Electric Vehicle Technology Roadmap in 9, or the Carbon Capture and Storage Technology Roadmap in, the natural gas for transportation roadmap is focused on deployment, rather than technology development. It is well understood that there are commercial technologies available for natural gas vehicles and refuelling infrastructure. It is also clear that for natural gas to move from the periphery to the mainstream, as a transportation fuel in Canada, a number of issues need to be verified, and addressed, related to natural gas supply, pricing, and environmental considerations, vehicle and infrastructure readiness and future RD&D requirements, end user needs in both the private and public sectors, codes and standards issues, and key drivers and strategies for market transformation. Current deployment roadmap work may create the model for future roadmaps with other industry sectors in Canada. Looking Forward to Given the many indicators of forward momentum for natural gas as a transportation fuel for medium- and heavy-duty vehicles in Canada, the next twelve months offer an opportunity to build on this momentum, and create the right conditions to encourage fleet adoption of natural gas vehicles. An end user-centric approach that recognizes, and responds to, different fleet needs will be fundamental to success. Similarly, a clear view of roles and responsibilities for industry and government players is vital to ensure that end user needs are met and that the solution

PAGE that is taken to the market is integrated and involves a seamless process for fleet adoption. Natural gas can be successfully deployed for medium- and heavy-duty vehicle fleets that return-to-base, or operate in regional corridors. Natural gas offers an option to reduce emissions from transportation sources, and it is in Canada s environmental and economic interest to move in this direction. Endnotes Canada s Greenhouse Gas Inventory: A Summary of Trends: 99-, Environment Canada. May,. http://www.ec.gc.ca/ges-ghg/default.asp? lang=en&n=9b-#section. Accessed on July,. Ibid. Ibid. Canadian Vehicle Survey: Annual, Statistics Canada Transport Division, July 9. National Inventory Report: Greenhouse Gas Sources and Sinks in Canada 99-, Environment Canada Greenhouse Gas Division, April 9. CERI Commodity Report Natural Gas, Canadian Energy Research Institute, June 9. Heffernan, Kevin. CSUG report redefines size of Canada s natural gas resource. Canadian Society for Unconventional Gas. May,. http://www.csug.ca/ images/news//csug%report%release.pdf. Accessed on June,. Alica Milner is President, Canadian Natural Gas Vehicle Alliance, Sparks Street, Suite 9, Ottawa, ON KR S. She can be reached at -- or Alicia.Milner@cngva.org.

PAGE Henry Hub/AECO Beginning of Next Month Spot Price US$/MMBtu 9 Henry Hub AECO-C Differential - Jan- Jan- Jan- Jan- Jan- Jan- Jan-9 Jan- SOURCE: CERI, Platts Gas Daily Price Guide. US$/MMBtu 9 Henry Hub Rockies Differential Henry Hub/Rockies Beginning of Next Month Spot Price - Jan- Jan- Jan- Jan- Jan- Jan- Jan-9 Jan- SOURCE: CERI, Platts Gas Daily Price Guide. US$/MMBtu 9 - - - Henry Hub/Chicago Beginning of Next Month Spot Price Henry Hub Chicago Differential Jan- Jan- Jan- Jan- Jan- Jan- Jan-9 Jan- SOURCE: CERI, Platts Price Daily Price Guide. US$/MMBtu 9 - - Henry Hub/Southern California Beginning of Next Month Spot Price Henry Hub Southern California Differential Jan- Jan- Jan- Jan- Jan- Jan- Jan-9 Jan- SOURCE: CERI, Platts Gas Daily Price Guide.

PAGE Canadian Heating Degree Days 9 -Year Avg. 9 SOURCE: Canadian Gas Association. US Heating Degree Days, 9 -Year Avg. 9 SOURCE: Canadian Gas Association, NOAA. Canadian Heating Degree Days v. Residential and Commercial Consumption Degree Days, Degree Days Consumption CERI Estimate, Jan- May-Sep- Jan-May-Sep- Jan-9May-9Sep-9 Jan- May- SOURCE: CERI, Canadian Gas Association, Statistics Canada. US Heating Degree Days v. Residential and Commercial Consumption Degree Days, Degree Days Consumption CERI Estimate, Jan- Jun- Nov- Apr- Sep- Feb-9 Jul-9 Dec-9 May- SOURCE: CERI, NOAA, EIA.

PAGE SOURCE: Environment Canada. SOURCE: NOAA. SOURCE: Environment Canada. SOURCE: NOAA.

PAGE SOURCE: NOAA. SOURCE: NOAA. North American Weather Environment Canada s three month temperature outlook shows higher than normal temperatures across most of the country. Over the next three months, normal to below normal temperatures are expected in British Columbia, the Yukon Territory, and parts of Newfoundland. Between July and September, the US National Oceanic and Atmospheric Administration (NOAA) is forecasting warmer than normal weather conditions in Alaska, and throughout southern and northeastern US states. Over the next three months, central Canada, north central Canada, and the eastern Maritimes will experience normal to above normal precipitation levels. The US NOAA s three month precipitation outlook indicates above average precipitation in the central and south eastern US regions, and along the Gulf Coast. The figures below present the average population-weighted heating degree days, and residential and commercial gas demand (combined), in both Canada and the US, from July to September. Canada -Year Average July August September Heating Degree Days.9. 9.9 Residential+Commercial Consumption ()..9. United States -Year Average July August September Heating Degree Days... Residential+Commercial Consumption ().9.. SOURCE: Environment Canada.

PAGE 9 Canadian Consumption Canadian Marketable Production By Sector By Province/Region Residential Commercial Industrial & Power E. Coast SK AB BC, Yukon, NWT Jan- Jul- Jan- Jul- Jan-9 Jan- Jun- Nov- Apr- Sep- Feb-9 Jul-9 Dec-9 SOURCE: Statistics Canada. SOURCE: Statistics Canada, NEB. US Consumption By Sector US Marketable Production Residential Commercial Electric Power Industrial US Total Louisiana GOM Federal Waters Texas The monthly rate of growth in US natural gas production declined from. percent in Februrary, to. percent in April. Jan- Jul- Jan- Jul- Jan-9 Jul-9 Jan- Jan- Jul- Jan- Jul- Jan-9 Jul-9 Jan- SOURCE: EIA. SOURCE: EIA.

PAGE BC, Yukon, NWT Marketable Production AB Marketable Production. 9. 9....... SOURCE: Statistics Canada, NEB. SOURCE: Statistics Canada, NEB. SK Marketable Production East Coast Marketable Production. 9. 9.... SOURCE: Statistics Canada, NEB. SOURCE: Statistics Canada, NEB.

PAGE System Field Receipts TransCanada + Westcoast; Monthly Average Alberta System Deliveries 9 Alliance AB-BC McNeil Empress Jun-9 Aug-9 Oct-9 Dec-9 Feb- Apr- Jun- SOURCE: CERI. SOURCE: CERI. Canadian Gas Exports to the US Canadian Gas Exports to the US By Export Point - West By Export Point - East Huntingdon Elmore Monchy Kingsgate 9 Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb- Apr- Others Niagara Iroquois Emerson 9 Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb- Apr- SOURCE: NEB. SOURCE: NEB.

PAGE US Imports of Canadian Gas Average Canadian Export Price By US Region By US Region California Pacific NW Northeast Central C$/GJ Pacific NW California Central Northeast In April, the average price of Canadian natural gas exports to the US declined below the -month moving average price of. C$/GJ (.9US$/MMBTU), to.9 C$/GJ (.US$/MMBTU). Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb- Apr- Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb- Apr- SOURCE: NEB. SOURCE: NEB. Total US Pipeline Gas Imports Canadian Gas Imports By Import Point Mexico Canada. Other St. Clair Sarnia Courtright.... U.S. pipeline gas imports from Canada have declined by percent, or., since April.... Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb- Apr- Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb- Apr- SOURCE: NEB, EIA. SOURCE: NEB.

PAGE Canadian Working Gas Storage Canadian Storage by Region -Year Avg. 9 East West Jun-9 Aug-9 Oct-9 Dec-9 Feb- Apr- Jun- SOURCE: CERI, Platts Gas Daily. SOURCE: CERI, Platts Gas Daily. US Lower- Working Gas Storage US Storage by Region, -Year Avg. 9,, Producing Region West East,,,,,,,,,,,,, Jun-9 Aug-9 Oct-9 Dec-9 Feb- Apr- Jun- SOURCE: CERI, Platts Gas Daily. SOURCE: CERI, Platts Gas Daily.

PAGE Western WC_IJ_WD Canada Storage Eastern Canadian Storage Injections/Withdrawals -Year Avg. 9 - - - -Year Avg. 9 - - - - - - SOURCE: CERI, Platts Gas Daily. SOURCE: CERI, Platts Gas Daily. Canadian Storage North American Storage - - - -Year Avg. 9 Working gas volumes in Canadian and US underground storage have increased by percent and percent, respectively, since the traditional 9/ winter heating season ended in March. While storage levels in both countries have remained above the five-year averages, working gas storage volumes have declined below those observed in June 9. As of June, working gas in Canadian underground storage totaled. BCF,. BCF below storage levels recorded in the previous year. Canadian natural gas storage facilities were operating at percent of capacity at the end of June. Natural gas additions to western Canadian storage totaled BCF, and accounted for percent of total Canadian storage injections made during the month of June. Working gas in US underground storage totaled. TCF, nearly percent, or BCF, below storage levels in June 9. Of the BCF injected into US storage, the storage injections in the US eastern consuming region accounted for nearly percent. Net storage injections in the US producing region and western consuming region were BCF and BCF above regional storage injections made during the same period last year, respectively. SOURCE: CERI, Platts Gas Daily.

PAGE US Western Consuming Region Storage US Eastern Storage Injections/Withdrawals -Year Avg. 9 -Year Avg. 9 - - - - - - - - - SOURCE: CERI, Platts Gas Daily. SOURCE: CERI, Platts Gas Daily. US Producing Region Storage US Storage Injections/Withdrawals -Year Avg. 9 -Year Avg. 9 - - - - - - - - - - SOURCE: CERI, Platts Gas Daily. SOURCE: CERI, Platts Gas Daily.

PAGE Eastern US LNG Imports By Facility US GOM LNG Imports By Facility BCF Cove Point Elba Island Everett NE Gateway Neptune May-9 Jul-9 Sep-9 Nov-9 Jan- Mar- May- BCF Gulf Gateway Freeport Lake Charles Sabine Pass Cameron May-9 Jul-9 Sep-9 Nov-9 Jan- Mar- May- SOURCE: U.S. DOE. SOURCE: U.S. DOE. US LNG Imports By Origin Volume-Weighted Average LNG Price BCF Egypt Nigeria Trinidad Norway Qatar Growing demand for natural gas in Egypt may result in fewer LNG shipments to the US. US$/MMBtu 9 May-9 Jul-9 Sep-9 Nov-9 Jan- Mar- May- SOURCE: U.S. DOE. SOURCE: U.S. DOE.

PAGE LNG Importers in LNG Shippers in Canadian LNG Importers in (As of April, ) Company U.S. LNG Importers in (As of May, ) Company Volume (BCF) Volume (BCF) % of Total LNG Imports Repsol Energy Canada Ltd..9 Total.9 % of Total LNG Imports BG LNG Services.. Distrigas. 9. Excelerate.. Statoil.9.9 BP Energy Company.. Total Gas & Power. 9. Sempra LNG Marketing..9 Chevron U.S.A... Shell NA LNG.. Total.. LNG Shippers to the U.S. in (As of May, ) Company Volume (BCF) % of Total LNG Shipments Atlantic LNG / Company.. Atlantic LNG Company.. BG 9.. ELNG/BGGM.. Gas Natural Aprovisionamientos.. Atlantic LNG.. Nigeria LNG Limited.. PFLE.9. Trinling.. Shell Eastern LNG.. GDF Suez.. RasGas LNG.. RasGas.. Qatar Liquefied Gas Company Limited (II).. Ras Laffan.. Statoil ASA, RWE-Dea Norge AS, Hess Norge AS.. BG Gas Marketing Ltd.. Statoil ASA.. Yemen LNG Company Ltd.; TOTAL Gas & Power Ltd...9 Total Gas & Power Limited.. GDF Suez Supply.. Total.. SOURCE: U.S. DOE. SOURCE: U.S. DOE. US LNG Exports to Japan US LNG Exports By Exporter BCF BCF ConocoPhillips Marathon May-9 Jul-9 Sep-9 Nov-9 Jan- Mar- May- May-9 Jul-9 Sep-9 Nov-9 Jan- Mar- May- SOURCE: EIA, U.S. DOE. SOURCE: U.S. DOE.

PAGE North American Active Rigs Canadian Rig Fleet Utilization Weekly Average Active Rigs Rigs, WCSB US, Rigs, Active Rigs Total Rig Drilling Fleet 9,,, Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-9 Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-9 Jan- SOURCE: CERI, CAODC, Baker Hughes. SOURCE: CERI, CAODC. WCSB Active Rigs by Province Western Canada Active Rigs Weekly Average Weekly Average Rigs BC AB SK Rigs -Year Avg. 9 Jan- Mar- Jun- Sep- Dec- Mar-9 Jun-9 Sep-9 Dec-9 Mar- Jun- - 9 9 9 Week Number SOURCE: CERI, CAODC. SOURCE: CERI, CAODC.

PAGE 9 US Total Active Rigs US Total Active Rigs Rigs,,,,,,, % Oil-Directed Gas-Directed Gas-Directed % 9% % % % % % % % % Rigs, Onshore Gas-Directed GOM Gas-Directed Total Oil-Directed,,, Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-9 Jan- % Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-9 Jan- SOURCE: CERI, Baker Hughes. SOURCE: CERI, Baker Hughes. US Gulf of Mexico Active Rigs North American Rig Activity Rigs Oil-Directed Gas-Directed Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan-9 Jan- Following two consecutive months of relatively constant rig utilization rates in the WCSB, the average monthly utilization rate increased by approximately percent, to percent. With the exception of the Northwest Territories, monthly average rig counts increased throughout the WCSB. The average number of rigs operating in the WCSB increased from in May to in June. Alberta and Saskatchewan accounted for percent and percent of the total increase, respectively. Compared with the same month last year, WCSB rig activity has increased by percent, or 9 additional rigs. In June, an average of 9 natural gas rigs were operating in the US, up percent from the previous year. While the average number of active GOM rigs has declined by percent, or rigs, since June 9, the average number of onshore natural gas rigs has increased by percent, or 9 rigs. As of June, onshore natural gas directed rigs accounted for nearly 99 percent of all active natural gas rigs in the US. SOURCE: CERI, Baker Hughes.