Canadian Upstream Oil & Natural Gas Industry Overview
● CAPP Overview
● Global Context
● Competitiveness
Crude Oil Market Outlook
Natural Gas Market Outlook
● Social License
● Summary
Presentation Overview
Represents large and small producer member companies
Members explore for, develop and produce natural gas, natural gas liquids, crude oil, and oil sands throughout Canada
Produce about 90 per cent of Canada’s natural gas and crude oil
Part of a national industry with revenues of about $100 billion per year
Associate members provide a wide range of services that support the upstream crude oil and natural gas industry
Canadian Association of Petroleum Producers
CAPP’s Strategic Framework
CAPP’s Key
Interfaces
Governments
Regulators
Aboriginals
Local
Communities
Public
Media
Stakeholders
Other
Industries
Other
Associations
Key Influencers
- Academia
- Think Tanks
- NGOs
“3
E’s
”
- E
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iro
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erfo
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- E
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- E
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gy
Sec
uri
ty &
Rel
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y
Key Focus
Areas
Education
Policy &
Regulatory
Advocacy
Industry
Performance
Improvement
Scope
Upstream Oil & Gas Sector
Canada (Primary), U.S. (Secondary), International (Some)
Environmental &
Social
Economic/Fiscal
Markets
Health & Safety
Del
iver
ing
Res
ult
s
Competitiveness
Fiscal
Environmental Policy
& Regulation
Market Access &
Growth
Pipeline Tolls
Aboriginal
Consultation
Workforce
Safety
Canadian Energy
Framework
Social License to Develop
& Operate
Performance
Communications &
Outreach
Strategic
Priorities
Communications
& Outreach
Global Primary Energy Demand IEA New Policies Scenario
• Significant energy demand growth:
Population
Standards of living
• Need all forms of energy:
Increasing role for renewables
Continuing reliance on hydrocarbons
Increasing role for unconventional crude oil & natural gas
• Environmental challenges.
• Technology is a key lever for sustainable
growth. 0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2010 2015 2020 2025 2030 2035
million tonnes oil equivalent
Other RenewablesBioenergyHydroNuclearNatural GasOilCoal
Source: International Energy Agency World Energy Outlook 2012
Fossil fuels share of energy consumption: 2010: - 81% 2035: - 75%
● Invested ~$60 billion in Canada in 2012
● $21 billion to governments in 2011 (Royalties and Taxes)
● 20% of the value on Toronto Stock Exchange
● Approx. 18% of Canada’s exports
● Employs more than 550,000 in Canada
The Oil and Natural Gas Industry A Key Driving Force in the Canadian Economy
Upstream Oil & Gas
Auto Manufacturing
Forestry & Logging
Wheat & Barley
Uranium
Upstream O&G Sector – Opportunities & Challenges
Opportunities
Resource base.
Production growth potential.
Market demand.
Established infrastructure.
Human resources – skills /
experience.
Technology and innovation capability.
Performance track record.
Political stability.
Access to capital.
Broad public support.
Challenges
Market access.
Industry reputation:
Landowner / community;
Heightened conflict w/ ENGOs.
Relationships w/ FNs.
Human resources – capacity.
Cost escalation.
Expectations of public markets.
Media profile.
Industry collaboration.
Source: Cenovus
Crude Oil
Global Crude Oil Reserves by Country
26 25 21
3037
48
8092
102
141155
173
265
298
0
50
100
150
200
250
300
Vene
zuela
Saud
i Ara
bia
Cana
daIran
Iraq
Kuwait
Abu Dha
bi
Russ
ia
Liby
a
Niger
ia
Kazh
akhs
tan
China
Qatar
Unite
d St
ates
bill
ion b
arr
els
Source: Oil & Gas Journal Dec. 2012
Restricted
(81%)
Open to
Private
Sector
Oil Sands
56%
Other
44%
World Oil Reserves Open to
Private Sector
Western Canadian Oil Production – 2012 Forecast
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
Jan
-200
5
Jul-
2005
Jan
-200
6
Jul-
2006
Jan
-200
7
Jul-
2007
Jan
-200
8
Jul-
2008
Jan
-200
9
Jul-
2009
Jan
-201
0
Jul-
2010
Jan
-201
1
Jul-
2011
Jan
-201
2
Thousand b/d
Eagle Ford(Texas)N. Dakota
SK Light
AB Light
Light/Tight Oil Production
+ 750,000 b/d in 2 years
2011 Canada and U.S. Demand for Crude Oil by Source Thousand Barrels per Day
0
2
4
6
8
10
12
14
UnitedStates
China Japan Korea India EuropeanUnion
mm
b/d
Net oil imports in the New Policies Scenario
2005
2011
2020
2035
Changing Global Oil Import Needs
Source: IEA World Energy Outlook 2012, EIA
CURRENT MARKET
FUTURE MARKETS?
Access to Markets – Pipeline Expansions in Development
Global Versus U.S. Crude Pricing
-40
-20
0
20
40
60
80
100
120
140
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Jan-1
2
Jul-12
Jan-1
3
Differential WTI Brent
• Brent benchmark price used to price 65% of world’s oil.
• WTI lighter than Brent - historically traded at a premium.
• Growing disconnect between landlocked N.A. crude and globally traded crude such as Brent.
• Throughout 2011 and 2012, WTI has traded at a discount to Brent.
• Discount remains in $20US/bbl range.
• Expected to be alleviated as new p/l capacity comes on-stream from Cushing to U.S. Gulf Coast.
US$/bbl Daily
U.S. Versus Canadian Crude Oil Pricing
0
20
40
60
80
100
120
Jan-09
May-09
Sep-0
9
Jan-10
May-10
Sep-1
0
Jan-11
May-11
Sep-1
1
Jan-12
May-12
Sep-1
2
Jan-13
WTI @ Cushing
Edm Par
US$/bbl
-40
-20
0
20
40
60
80
100
120
Jan-0
9
May-0
9
Sep-0
9
Jan-1
0
May-1
0
Sep-1
0
Jan-1
1
May-1
1
Sep-1
1
Jan-1
2
May-1
2
Sep-1
2
Jan-1
3
Cdn Light/Heavy Diff
WCS @ Hardisty
MSW @ Edm
Cdn$/bbl
• Current differential ~ Edmonton to Cushing transport cost – near term p/l constraints mitigated by rail & other options.
• Light oil differential expected to widen as p/l constraints become more problematic.
• Light / heavy differential problematic until new heavy oil p/l capacity available.
WCSB P/L Takeaway Capacity Versus Supply Forecast
Western Canada Crude Oil Rail Exports
• Crude oil movement by rail increased significantly over short-term. • Q3/2012 - 70,000 b/d • Q1/2013 - 120,000 b/d • Q4/2013 - 200,000 b/d
• ~4% of WCSB production
• Positives
Potentially improved margins relative to pipe
Flexibility to different markets (e.g., East)
Less diluent Use rail in both
directions
• Negatives: Higher transportation
costs
Natural Gas
North American Natural Gas – Supply Outlook
• Shale gas supply a game-changer …100+ years supply
• Technology success (horizontal drilling, fracturing, completions)
• Implications:
New producing regions
Shifting S / D dynamics
Changes in p/ l flows
Emerging stakeholder challenges (env. & social)
Canadian Natural Gas Exports, 2012 Impact of Shale Gas on N.A Gas Flows
West
2.5
bcf / d
Mid-West
4.8 bcf / d
Northeast
1.1 bcf / d
LNG
Marcellus
Haynesville, Fayetteville, etc.
Horn River, Montney
U.S. Rockies
New Supply Areas
Increased Flow
2012 Canadian Exports
8.4 bcf / d
• Existing infrastructure serves N.A. markets.
• Changing S/D dynamics necessitate market growth:
• N.A. (transportation, power)
• Exports (LNG for price & takeaway)
Projected Net Natural Gas Imports (Bcf/d)
0
5
10
15
20
25
30
35
2008 2015 2025 2035
China
India
South Korea
Japan
Source: EIA 2011 International Energy Outlook
● Kitimat LNG (Chevron, Apache)
1.4 Bcf/d
Permits received; awaiting investment decision
● BC LNG Export Co-operative
0.125 Bcf/d
Permits received
● LNG Canada (Shell, KOGAS, Mitsubishi, PetroChina)
1.8 Bcf/d
Feasibility stage; applied for some permits
● Pacific Northwest LNG (Progress/Petronas)
2.0 Bcf/d (Merger approval granted)
Completed feasibility, progressing to pre-FEED
● Nexen/Inpex
Conducting feasibility
● BG Group/Spectra Energy Corp.
4.2 Bcf/d
Advancing feasibility and engagement
● AltaGas/Idemitsu Kosan
0.27 Bcf/d
Conducting feasibility
Canadian LNG Export Projects in Development
23
Total potential new demand ~ 9.0 Bcf/d Interest expressed by Woodside Petroleum, Imperial Oil /ExxonMobil and Korea SK E&S. Details not available.
Asian Markets Represent an Attractive Export Option
$/M
Mb
tu
2012 Japanese LNG Price
Global Competition…… Active and Emerging LNG Exporting Countries
Canada needs to develop its LNG export potential expediently to compete globally.
Canadian Production – Market Constrained Case and New Market Opportunity Case
26
Eastern Canada
CBM
Western Canada
Unconventional
Western Canada
Conventional
Market
Constrained
Case
New Market
Opportunity
Case
CAPP’s Social License Framework
Social License = Performance + Communication
● Performance:
Continuous environmental & social performance improvement (across the value chain)…..including monitoring, timely & transparent reporting.
“What’s in it for me?”……line of sight to jobs and economic benefits.
Robust regulatory system.
Solutions-oriented advocacy for balanced policy and regulation.
● Communications & Outreach:
Sustained communications grounded in performance improvement:
• Fact-based & emotive messaging……not apologetic or defensive.
• Delivered via diversity of mediums, approaches, spokespersons.
Strong focus on outreach & engagement - local / regional (must include Aboriginals) and national / international.
● New challenges for industry – requires leadership & collaboration
Public Perceptions – Shale Gas Development
• “Frac fluids contain dangerous chemicals that aren’t disclosed to public”
Disclosure
• “Fracking can have adverse effects on drinking water”
Water Quality
• “Fracking uses enormous amounts of water”
Water Quantity
• “Fracking & associated waste-water disposal cause earthquakes”
Seismicity
CAPP Hydraulic Fracturing Principles & Operating Practices
Improving Environmental Performance
● Accelerating environmental technology & innovation in the oil sands: Canadian Oil Sands Innovation Alliance (COSIA)
Focus on water, tailings, land, GHGs
● Alternatives to reduce the need for both water and energy (steam): Cogeneration – steam and electric power
Solvent / steam injection
Alternative well configurations for SAGD
Reduce water temperature 80 to 35 degrees Celsius
Electro-thermal technology
Carbon Capture & Storage
● Reducing water use, increasing water recycle: Use of saline (non-fresh) water for steam
Faster waste water recycle
Water technology development centre
Ceramic membranes for water treatment
Full-cycle GHG Emissions Oil Sands & U.S. Refined Crudes
0 100 200 300 400 500 600
Avg US Barrel Refined in theU.S. (2005)
Most Recent Oil Sands Mining
Most Recent Oil Sands In Situ
kgCO2e per barrel of refined product
Well-to-tank
Refined productCombustion
Source: IHSCERA Oil Sands Dialogue Getting the Numbers Right 2012
+5%
U.S. Barrel Refined in the U.S. (2005)
+2%
In Context….N.A. GHG Emissions (2011) - Coal-fired Power Plants & Oil Sands
0-15 mtonnes
16-50 mtonnes
51-100+ mtonnes
Legend
U.S. Coal fired power
generating plants
Canadian coal-fired power
generating plants
Canadian oil sands
Sources: U.S. DOE/EIA & Environment Canada
GA
TX
NC
MI
AL
MO KY
IN OH
NE
NM
ND
CO
SC
KS
IA
TN
WY
VA
MN
UT
OK
WI
AZ
AR
AK
LA
IL
NV
OR
MT
SD
NJ
NY
NH
MS
WV
FL
2013+ Strategic Direction – Communications & Outreach
2013 Strategic Direction
Communications remains a strategic priority for 2013 – key determinant in maintaining broad public / public policy support.
Build on success of current “Air Campaign”.
Implement a targeted “Ground Campaign” in key jurisdictions in support of market access.
Integrate across the value chain.
33
Reputation/ Social License
Performance Communication = +
Public Opinion Polling – Natural Gas & Oil Sands
34
“For each of the following types of energy, please indicate if your overall feelings are very negative, negative, neutral, positive, or very positive.”
CAPP Advertisement - Prevost
CAPP Advertisement – Water Monitoring
CAPP Advertisement – Natural Gas Exports
The Way Forward
● Opportunities
Market demand.
Competitive supply.
Build on strong foundation.
● Key Challenges
Market access / infrastructure dvm’t.
Social license.
● Industry Social License
Performance + Communication.
Must be earned (every day!).
Key levers:
• Technology & innovation.
• Collaboration (within sector, along value chain, w/ aligned interests).
● “A Marathon, Not a Sprint”
Appendix Slides
Project Type Project Size (bbl/d)
Capital Cost Range $MM
Estimated Supply Costs $US WTI/bbl
In Situ SAGD 30,000 $750 – 1,500 $50 - $78
Standalone mine
100,000 $5,500 – 7,500 $70 - $91
Oil Sands Supply Costs
41
Source: ERCB ST98 - 2012
Connecting to World Market Cushing, OK to US Gulf Coast – Capacity and Timing
● Canada’s natural gas production less constrained by resource base more constrained by market
● Growing US gas production means more competition for traditional markets (less US Exports & Greater US Imports)
● Canadian gas production projected under two scenarios
● Scenario 1: Market Constrained
No LNG Export Development
Little New Gas-Fired Power Generation added in Ontario post 2012
Limited Growth in NGV market
● Scenario 2: New Market Opportunities
LNG Exports – 1 train of 5 mtpa in 2018, 5 such trains by 2023
Natural Gas replaces some Nuclear Power Refurbishment in Ontario Power Generation
Higher Growth in NGV Market
Canadian Natural Gas Outlook 2013 to 2030
43
44
“General Public”
Policy-makers
Key Influencers Current focus:
Air Campaign
Added focus: Ground Campaign Opinion Leaders
Key Elements Of The Plan – Expanding Our Audiences
Current focus: Upstream Social License
Added focus: Market Access Social License