Alberta’s Energy Resources:

Opportunities and Challenges in a

Global Context

Paul Tsounis

Alberta Department of Energy

September, 2011

Overview of Alberta’s

Energy Industry

0.000

50.000

100.000

150.000

200.000

250.000

300.000

Bill

ion

Bar

rels

Crude Oil Proved Reserves

State owned

or controlledAccessible Canada’s

Oil Sands

World Oil

Reserves

Other

Accessible

Reserves

51%

49%

Accessible

Oil ReservesIncludes 170 billion barrelsof oil sands reserves

Source: Oil & Gas Journal. January 2009

Source: Canadian Society for Unconventional Gas

Source: Energy Resource Conservation Board, Petrel Robertson, Gas

Technology Institute (GTI)

0

100

200

300

400

500

600

700

800

900

Conventional Gas (GIP)

Deep Basin Tight Gas (GIP)

Coal Bed Methane (GIP)

Shale Gas (GIP)

Tc

fRemaining

Recoverable

Gas in Place

Produced

Alberta’s Natural Gas Resources

NGC: Natural gas from coal (CBM)

GIP: Gas in Place is the total gas volume believed to be contained in the

reservoir.

1 24

6 75 6

1012

1721

14 1510 8

11

13 11 14

17

23

25

21

19

1011

0%

10%

20%

30%

40%

50%

60%

70%

0

5

10

15

20

25

30

35

40

45

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Oil Sands investment Ratio

Billions CAD$

Total Oil and Gas Investment in Alberta (1998 - 2010)

Oil Sands Conventional Oil & Gas Oil Sands/Total O&G Investment

Data Source: Statistics Canada

Oil and Gas Investment in Alberta

Investment (Millions)

2000 to 2010 2011*

Oil Sands $110,057 $ 11,226

Conventional Oil & Gas $176,236 $ 9,369* Estimated

Alberta Energy Production

Source: Energy Resource Conservation Board

Production (million b/d)

Natural gas:

2000: 14.16 (bcf/d)

2011: 10.72 (bcf/d)

2019: 7.89 (bcf/d)

Crude oil:

2000: 0.77

2011: 0.5

2019: 0.42

Raw Bitumen:

2000: 0.7

2011: 1.7

2019: 3.3

Diluted Bitumen:

2000: 0.3

2011: 0.9

2019: 1.9

Synthetic Crude Oil:

2000: 0.3

2011: 0.8

2019: 1.4

Alberta Energy Exports

Source: Energy Resource Conservation Board

Exports (million bpd)

Natural gas:

2000: 10.6 (bcf/d)

2011: 6.1 (bcf/d)

2019: 2.1 (bcf/d)

Crude oil:

2000: 0.5

2011: 0.4

2019: 0.3

Bitumen & Synthetic

Crude Oil:

2000: 0.4

2011: 1.4

2019: 3.0

Current

Activity Trends

Western Canadian Land Sales

Source: Alberta Department of Energy

0

500

1000

1500

2000

2500

3000

2009 2010

Millions of CA $AB BC SK

Emerging Resources

• Land sales is an indicator of future activity

• Total 2010 land sales over $2.3 Billion

$177

$1,512

$2,679

0

500

1,000

1,500

2,000

2,500

3,000

2009 2010 2011

Millions of CAD$

Alberta Land Sales(through August)

Source: Alberta Department of Energy

Alberta Drilling Activity

0%

5%

10%

15%

20%

25%

30%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010

% H

ori

zon

tal

Nu

mb

er

of

We

lls

Year

Alberta Oil and Gas Well Drilling Activity by Year

Horizontal Vertical/ Deviated % Horizontal (2nd y axis)

• Increasing horizontal drilling reflecting shift towards unconventional

oil and gas development in shale and tight plays

• Activity has shifted towards tight oil in Alberta

Source: Alberta Department of Energy

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

2008 2009 2010

Me

tre

s d

rill

ed

Year

Alberta Oil and Gas Metres Drilled by Year

Horizontal Vertical/ Deviated Total

Energy Markets and Prices:

Natural Gas

Current Alberta Natural Gas Markets

WCSB

14.4

Bcf/d

US

Rockies

10 Bcf/d

Barnett &

Haynesville

6 Bcf/d

Marcellus

1

Bcf/d

Gulf

15.8

Bcf/d

Bison

Source: Source: WoodMcKenzie 2009 ; ERCB

2010,

Legend

Light Blue– WCSB Gas Production

Dark Blue – US Gas Production

Market Bcf per Day

PADD 1 0.26

PADD 2 2.87

PADD 3 0.00

PADD 4 0.40

PADD 5 1.26

Eastern Canada 1.76

Western Canada 1.07

Total 7.63

Alberta Disposition – 2010

Alberta production

year 2010: 11.31 (bcf/d)

Increasing U.S. Supply and Weak Demand Forecasts are

Threatening Alberta’s Traditional Markets (2020)

14

WCSB

Production

2010: 14.4 Bcf/d

2020: 18.7 Bcf/d

US Rockies

Production

2010: 10.2 Bcf/d

2020: 11.9 Bcf/d

Barnett &

Haynesville

Production

2010: 7.1 Bcf/d

2020: 12.4 Bcf/d

Marcellus

Production

2010: 1.4 Bcf/d

2020: 10.0 Bcf/d

Gulf On &

Offshore

Production

2010: 21.9 Bcf/d

2020: 26.1Bcf/d

Source:. Wood Mackenzie Long Term View Apr 2011

Legend

Red – Cdn Gas

Blue – US Gas

Green – Demand Forecasts

AB Oil Sands Demand

2010: 2.5 Bcf/d

2020: 3.5 Bcf/d

Ontario Power Gen

Demand

2010: 0.4 Bcf/d

2020: 0.5 Bcf/d

Pacific U.S. Power

Gen Demand

2010: 2.6 Bcf/d

2020: 2.9 Bcf/d

Northeast & East

North Central U.S.

Power Gen

Demand

2010 : 4.3 Bcf/d

2020 : 6.3 Bcf/d

Natural Gas Price & Forecast

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.0019

97

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

F

2012

F

2013

F

2014

F

2015

F

2016

F

2017

F

U.S

. Dol

lars

per

MM

BTU

Henry Hub Price Forecast

Consultants range Actual

Natural Gas Price Drivers

• shale gas production

growth

• high inventory levels

• Joint Ventures

• US drilling to retain land

• lower returns

• investment migrating towards

tight oil & liquid rich plays

• cost inflation pressures (oil/gas

competition)

• slow down in drilling activity

• economic recovery

• increase usage of natural gas

Lower Prices Higher Prices

Natural Gas Prices

and Market Diversification

• Natural gas is a continental commodity

as LNG transports a small portion of total

natural gas production

• Price differentials have widened as

natural gas prices in other international

markets are tied to higher oil prices

• Market diversification (LNG) can increase

the price Alberta producers received for

natural gas and reduce the risk associated

with depending on the North American

market

Source: PIRA, Global LNG Monthly (March 2011), ADOE

HH

$4.17

Asia

$13.74

Europe

$10.21

NBP

$10.09

Energy Markets and Prices:

Crude Oil

Western Canadian Crude Oil Demand and

Refinery Capacity

PADD 5

148

[2,730]

PADD 3

107

[8,928]

PADD 1

62

[1,394]

PADD 2

1,215

[3,711]

PADD 4

238

[613]

Source: CAPP

Western

Canada

451

[622]

Eastern

Canada

258

[398]

Crude Oil Demand

from Western Canada

(refinery capacity in

parenthesis)

Barrels per day 000’sMarket

Alberta Exports

(Barrels Per Day

000’s)

PADD 1 59

PADD 2 1,167

PADD 3 78

PADD 4 218

PADD 5 106

Eastern Canada 252

Western Canada 47

Total 1,927

Maya

HardistyCurrent

Trends:

Heavy crude oil prices

appreciated up to 2010 due

to increased heavy crude

oil refining capacity

However, falling heavy

crude oil prices since late

2010 due to:

• Pipeline ruptures en route

to PADD II (“A”) – backlog

in Enbridge system

• Increasing supplies from

Bakken, heavy crude from

Alberta, and crude from

PADD III into Cushing (“B”).

A

B

AB Heavy

(Enbridge)

Bakken

AB Heavy

(TransCanad

a Keystone)

North American Heavy & Light Crude Prices

Not Keeping Pace with Global Prices

Heavy

Prices

HardistyShort Term:

Enbridge pipeline repairs

will “drain” heavy crude

build up in Enbridge system

into PADD II (“A”). Should

help support heavy crude

prices

Longer term:

Keystone XL will “drain”

crude from landlocked

Cushing market (“B”) and

will help get much needed

heavy crude from Alberta

into PADD III (“C”)

Mexico and Venezuela

heavy crude into USGC on

the decline

A

B

C

WTI Price Forecast

WTI Price Forecast

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

U.S

. D

ollars

per

Barr

el

Consultant Range WTI

Oil Price Drivers

Lower Prices Higher Prices

• Economic slowdown

• Higher US dollar

• Geopolitical stability

• Low refinery capacity

• Market over-supplied

in the US Mid-West

(crude oil is land

locked)

• Higher Economic

recovery in US

• Unrest in the Middle East

• Low spare oil production

capacity

• Supply disruption

• Investors looking for a

hedging vehicle against

US dollar devaluation

Access To New Markets:

Pipelines and Regulatory

Access to USGC: TransCanada Keystone

XL Keystone capacity: 591kbpd

Keystone XL capacity:

•Hardisty to Cushing:

700k bpd

• Cushing to USGC: 500k

bpd

• SCO, DilBit,

conventional

• Will also transport 65k

bpd of Bakken from

Marketlink project

•USGC refineries:

• 58 refineries with over

8 million bpd refining

capacity (50% of US total).

U.S. Gulf Coast Refineries

• 58 refineries

• 8.9 million barrels per day of refining capacity (56% of US, 10% of global, 21% of global “heavy” processing capacity)

• Diesel, jet fuel and gasoline

• Traditional heavy oil feedstocks from Mexico (Maya) and Venezuela in decline – has raised demand for heavy crude oil (oil sands)

• Keystone XL offers an opportunity to link Alberta’s heavy oil production with the complex refineries in the USGC that are best configured to turn that into highest value products like gasoline and diesel which are in demand.

• This link ensures that producers receive the best value for their production and consumers receive the best price for their fuels.

Access to the West: Enbridge Gateway

Cost: $5.5 billion (1,177 km

twin pipe)

Capacity: 525k bpd

Bruderheim to Kitimat

SCO, SynBit, DilBit,

conventional heavy and

light

Condensate (193k bpd)

back to Alberta

Access to the West: Kinder Morgan TMX

• Capacity: 300k bpd (only pipeline

that transports both crude and

refined products)

• 80% light, 20% heavy

Phase 2 (2013/14):

+ 80,000 b/d

Phase 3 (2015/16):

+ 320,000 b/d

Northern Leg (after 2016):

+ 400,000 b/d

Total 1,100,000 bpd

• Proposed expansions will

transport primarily crude oil, not

RPPs.

• Nov 2010: Applied to NEB for

approval of Firm Service on the

Trans Mountain pipeline system

with respect to Westridge

mariane terminal deliveries.

• Alberta connects into British

Columbia via the Spectra

Pipeline

• The Pacific Trails Pipeline

proposes to connect the

Spectra Pipeline with

Kitimatt through Summit

Lake

• The pipeline is expected to

be 463 kilometres long with

a capacity of up to 1 Bcf/d

• The estimated capital cost of

the Pacific Trails project is

$1 billion dollarsPacific Trails Pipelines

Natural Gas Access to the West

Improving Investment

Improving Investment

• New Well Royalty Rate (May 2010)

• Natural Gas Deep Drilling Program (May 2010)

• Horizontal Oil New Well Royalty Rate (May 2010)

• Emerging Resources Technology Initiative (May 2010)

• Resource Characterization (May 2011 – March 2012)

Initiatives

• Natural Gas Strategy

• Address the near and long term competiveness of Alberta based natural gas supply

• Focus on both demand side initiatives and supply economics.

• Maintains near-term industry health

• Oil Markets Diversification Strategy

• Focus on market diversification and transportation

North Asia Strategy

• Long-term goal is to ensure energy producers have access to and

diversified export markets with Asian markets

• Work together through the New West Partnership

• Lay the groundwork for a long-term supply relationship with key North

Asian market partners by:

– Providing information and enhancing understanding of Western Canadian

gas and oil supply issues and opportunities

– Demonstrate commitment by Canadian federal and provincial

governments to working with North Asian partners and governments to

facilitate trade and investment in the energy sector in Western Canada.

– Develop mechanisms to support enhanced market development and

investment.

– Develop and maintain an ongoing and consistent dialogue and exchange

on energy related issues.

Land-use Framework and Regional Plans

• Define regional outcomes (economic,

environmental and social) and a broad plan for

land and natural resource use on public and

private lands

• Align provincial strategies and policies at the

regional level

• Determine specific trade-offs and appropriate land

and natural resource management for specific

landscapes within a region

• Define the cumulative effects management

approach for the region and identify targets and

thresholds for watersheds, airsheds and

landscapes.

Regulatory Enhancement Report (REP)

• In January of 2011, the Department of Energy released

its report and recommendations for reform of the

upstream oil and gas regulatory system in Alberta.

• Implementation of recommendations will:

– Simplify the system.

– Enhance policy clarity.

– Improve public engagement processes.

– Enhance accountability.

– Improve knowledge and information sharing.

– Ensure risk is assessed and managed throughout the

system.

– Set clear expectations for industry.

36

THANK-YOU

Alberta.

Resourceful. Responsible.