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Opportunities & Challenges for Natural Gas in British Columbia

UBCM Convention 2012 Global Opportunities

September 24, 2012 Geoff Morrison

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  To enhance the economic sustainability of the Canadian upstream petroleum industry in a safe and environmentally and socially responsible manner, through constructive engagement and communication with governments, the public and stakeholders in the communities in which we operate.

  Balancing the “3 ‘E’s” – Advancing environmental performance, economic growth, and energy and reliability to achieve balanced outcomes

Canadian Association of Petroleum Producers Mission Statement:

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●  IEA expects global demand for energy to increase 40 per cent by 2035

●  Global demand for natural gas is expected to increase 55 per cent by 2035

●  IEA calls next two decades a “golden age” for natural gas

The global context

3 Source:  IEA  2011  

Global  Energy  Demand  

Top 10 world natural gas producers in 2010

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Source:  BP  Sta5s5cal  Review  2011  

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●  Shale gas supply a game changer

●  Technology breakthroughs

●  New producing regions ●  Shifting supply/demand

dynamics

North American supply outlook

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TransCanada  Transmission  Mainline  

TQ&M  

Westcoast  

Kern  River  

Northwest   Northern  Border  

TransCanada    Alberta  (NGTL)  

NGPL  

ANR  

ANR  El  Paso  SoCal  

PGT  

Texas  Eastern  

Panhandle  

Algonquin  

Transcon5nental  

NGPL  

Northwest  Foothills  

El  Paso  

Transwestern  

Trailblazer  

M&NE  

CNG  

Iroquois   PNGTS Lakes  Great    

Vector  

West 2.4 bcf/d

Mid West 5.1 bcf/d

East 1.4 bcf/d

Alliance  

ANG/  Foothills  

PG&E  

Proposed Kitimat LNG

Projects

N.A.  Natural  Gas  Pipelines  &  2011  Cdn.  Exports  to  U.S.  (bcf/d)  

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Pipeline infrastructure

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●  B.C. home to some of North America’s most promising natural gas plays: Horn River and Montney

●  Resource estimated at up to 336 tcf ●  That’s enough supply to last at

least 100 years at current demand levels

●  B.C. is Canada’s second-largest producer of natural gas, behind Alberta

●  Annual production is 1.3 tcf per year

●  More than 20,000 wells drilled in B.C. since the early 1900s

B.C.’s natural gas resource

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Source:  B.C.  OGC  

●  $6 billion estimated for 2012 ●  $6 billion invested in 2011 ●  $70 billion invested up to 2010 ●  $13 billion spent on acquisitions in B.C. gas plays by foreign

companies from 2010 to date

Investment in B.C.’s natural gas sector

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British Columbia Crown Land Sales

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T  T  T  TT  

T  

Total Wells Drilled in Western Canada

Source – CAPP. Based on Rig Release

2008 = 16,100

2009 = 8,137

2010 =10,611

2011 = 11,115

8,200

1,600 900

2010 2011 2012F

Alberta 7,090 7,087 6,707

British Columbia 552 560 425

Saskatchewan 2,517 2,980 3,012

Manitoba 439 471 556

2012 F = 10,700

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Natural gas production in B.C.

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Prices recover to $5.50/GJ before 2015

Prices remain below $4.00/GJ for the forecast period

Price recovery case – Bcfd:

Cntd. low price case – Bcfd:

●  Large resource base near West Coast ●  Growing world LNG market

  Proximity to growing Asian markets   Opportunity for market diversification

●  Price uplift – global versus North American market   Natural gas prices in Japan currently US$16.50 MMBtu and US

$2.40 MMBtu in North America   Higher prices will incent higher activity levels, and enhance

industry and provincial revenues   Positive project economics

●  Infusion of foreign investment ●  Broad government, First Nations and stakeholder support ●  Need to act swiftly: other countries already responding to rising

Asian demand

Factors favouring Canadian LNG exports

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●  Ports of Kitimat and Prince Rupert are closer to Asia than any other North American port   8 sailing days to Japan   9 sailing days to Korea   11 sailing days to China

Canada’s LNG export opportunity

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Source:  Apache  Corpora5on  

●  Kitimat LNG (Apache, Encana, EOG)

  1.4 Bcf/d   Awaiting investment decision

●  BC LNG Export Co-operative   0.25 Bcf/d   Permits received

●  LNG Canada (Shell, KOGAS, Mitsubishi, PetroChina)

  1.8 Bcf/d   Final stages of discussion

●  Progress/Petronas   1.0 Bcf/d   Conducting feasibility

●  Nexen/Inpex   Conducting feasibility

●  BG Group/Spectra Energy Corp.   4.2 Bcf/d   Advancing feasibility study

Canadian LNG export projects in development

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Total  new  capacity  ~  8.6  Bcf/d  

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B.C. government’s Natural Gas and LNG strategies: ● Recognize importance and promote competitiveness of B.C. natural gas sector ● Recognize natural gas as a foundational, cleaner-burning fuel with an important role in addressing global carbon reduction objectives ● Ensure the natural gas industry is a key contributor to job creation, as well as to royalties and taxes

B.C. classifies natural gas as “clean energy” when supporting LNG development ● B.C.’s natural gas industry will see increasing demand for electricity as development proceeds ● Enables competitive electricity solutions

Government encourages investment

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Impact over next 25 years from natural gas development: ● 12,000 people directly employed in B.C. natural gas sector ● By 2035, direct employment could reach 40,000 people ● Taxes and royalties will exceed $160 billion (CERI 2011)

Royalties & mineral rights payments: ● Largest source of natural resource revenue in 2011/2012 fiscal year

Economic benefits

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Through the CAPP Responsible Canadian Energy (RCE) program, Canada’s oil and gas industry works to: ● Reduce the amount of fresh water required per barrel equivalent of production ● Safeguard the quality of regional surface and groundwater resources

Our safety record: ● 175,000 wells fractured safely in B.C. and Alberta without an incident of harm to groundwater, according to regulators ● Robust regulations and industry best operating practices are key to earning our social licence to operate

Responsible Canadian Energy - water objectives

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Guiding Principles for Hydraulic Fracturing

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We will safeguard the quality and quantity of regional surface and groundwater resources, through sound wellbore construction practices, sourcing fresh water alternatives where appropriate, and recycling water for reuse as much as practical.

We will measure and disclose our water use with the goal of continuing to reduce our effect on the environment.

We will support the development of fracturing fluid additives with the least environmental risks.

We will support the disclosure of fracturing fluid additives

We will continue to advance, collaborate on and communicate technologies and best practices that reduce the potential environmntal risks of hydraulic fracturing.

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Operating Practices for Hydraulic Fracturing

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Practices put Principles into action

Fracturing Fluid Additive Disclosure   Publicly disclose all information on fracturing fluid additives

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Practices put Principles into action

Wellbore Construction and Quality Assurance

  Affirms compliance with regulatory requirements & good engineering practice

  Specifies that a cement barrier must exist from the top of the producing formation to surface

  Outlines wellbore testing requirements and specifies remedial actions, when required

Not to Scale

Graphic from Shell Canada

Report Findings: ● Indicates minor seismic activity (2ML to 3.8ML) associated with hydraulic fracturing ● None of the seismic events caused danger to people, structures, environment

Expanded Seismic Array: ● MOU with OGC, Geoscience BC, NRCan and CAPP ● Shared industry funding ● Six new seismic monitors will be added in NEBC – total of eight ● Operational by end of 2012

Induced Seismicity Guidelines Under Development: ● Purpose is to outline procedures to assess, monitor and mitigate ● Guidelines will apply nationally and be incorporated into CAPP Hydraulic Fracturing Operating Practices

Seismicity – August 2012 OGC report

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Net imports of oil in the New Policies Scenario

Changing Oil Import Needs

 0  

 2  

 4  

 6  

 8  

 10  

 12  

 14  

China   India   European  Union  

United  States  

Japan  

mb/d  

2000  

2010  

2035  

Source:  IEA  World  Energy  Outlook  2011,  EIA  

Korea  

Global GHG Emissions

GHG emissions from oil sands:   just over 1/1000th of global GHG

emissions   6.9% of Canada’s GHG emissions   26% reduction in intensity from 1990

Global Emissions Canada’s 2%

Sources: 1. United Nations Statistics Division (2008 Data) 2. Environment Canada (2010 Data)

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Full Cycle GHG Emissions

Source: Jacobs Consultancy, Life Cycle Assessment Comparison for North America and Imported Crudes, June 2009

98 102 102 106

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114 107 104

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North American GHG Emissions (2010) Oil Sands and Power Generation

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

U.S. Coal fired power generating plants

Canadian coal-fired power generating plants

Canadian oil sands

FL

WV

0-15 mtonnes 16-50 mtonnes 51-100+ mtonnes

Legend

Sources: U.S. DOE/EIA & Environment Canada

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Land Use and Reclamation

●  Huge opportunity for Canada ●  Market diversification is key ●  Need to be competitive ●  Social licence to operate ●  Principles and Practices

  Guide development   Inform and complement regulations   Consistently deliver responsible

operations across Canada   Continue to develop the resource

safely

Summary

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