Canadas Natural Resources – Now and for the Future 1 North American Shale Gas Revolution...

Canada’s Natural Resources – Now and for the Future 1

North American Shale Gas Revolution

Presentation to APECBy Dan Cowan – Petroleum Resources Branch, Natural Resources Canada

May 10, 2011


Outline

Natural gas and energy in Canada Energy policy and jurisdiction North American gas market Shale gas at a glance How has “the game” changed? Cdn. unconventional resources Challenge of commercializing resource Canadian supply forecast


Energy - important to Canada’s economic prosperity

3rd largest producer & exporter of natural gas

Only OECD country with growing oil production

Stable and secure energy supplier

$84 billion exports in 2009, primarily oil and gas:

23.4% of total exports

In 2009, energy represented 6.7% of GDP, with direct employment of about 263,000 people

1.8%

6.7%

20.6%23.4%

0%

5%

10%

15%

20%

25%

Investment Exports GDP Employment

Energy as a Percentage of Canadian Total (2009)


Federal Energy Framework and Jurisdiction

Reliance on competitive markets for determining supply, demand, prices, and trade

Shared jurisdiction over natural resources

Federal Jurisdiction

•International and interprovincial issues

•North, offshore and Crown lands•Works declared to be for the general benefit of Canada (e.g. science and technology)

•Nuclear, uranium

Provincial Jurisdiction

•Resource ownership, management and royalties

•Land-use planning and allocation

•Laws regarding the exploration, development, conservation and use of natural resources within provincial boundaries


North American Natural Gas Market

74 Bcf/d - fully integrated market Supply and demand centers connected via

extensive pipeline network Canada is a major producer and net exporter

Provides 85% of US imports Majority of reserves located in Western Canada

Far from premium markets incl. Boston and H.H. Surging U.S. shale gas production

Prices expected to remain relatively low Ongoing efforts to build and diversify markets


Technology is unlocking shale gas potential

Shale is an unconventional natural gas

Resource development not previously economical due to low flow rates

Combining long-reach horizontal drilling with multi-stage hydraulic fracturing has made the resource viable


Shale Gas - Production and Resource Profile

Shale gas development began in the US where production grew from <1 bcf/d in 2000 to about 15 Bcf/d today More than 20% of North American production

Shale gas widely expected to compose a third of North American natural gas production by 2020

Canadian Society for Unconventional Gas estimates 700 to 1300 Tcf of natural gas in Canada (largely unconventional) At unconstrained prices, North America estimated to now have

100-200 years of supply


2008- Present Demand-driven market,

lower drilling, 100-200 years supply

Lower prod’n costs and prices, reduced volatility

Decoupling from oil prices Redrawing the energy

map Surplus LNG import

capacity Industry advancing LNG

export projects

2000-2007 Supply-limited market High drilling levels,

concern about supply High prod’n costs, high

and volatile prices, linked to oil

Falling WCSB conventional prod’n

Falling exports to US Canada looking to

import LNG

How is shale gas changing the game?


Forecast Oil (WTI) and Natural Gas (Henry Hub) Prices

$0

$20

$40

$60

$80

$100

$120

$140

$160

$US

200

8 /

Per

Bar

rel

$0

$3

$6

$9

$12

$15

$18

$21

$24

$27

$US

200

8 / M

MB

tu

Oil Price Range Natural Gas Price Range Average PriceSource: Various private consultants on retainer to the department and publically available forecasts.

Natural Gas prices converted into per barrel equivalent using a value of 1 barrel oil = 5.8 MMBtu

WTI

H.H.


Major Unconventional Gas Basins

Canada has major unconventional gas resources

50% of currently defined potential exists within Horn River and Montney Both among lowest cost

basins in North America Challenged by distance to

domestic markets and current low prices


Producer Challenge:How to increase netbacks?

Cost reductions, stimulate demand etc. Focus on the liquids rich plays Exploring gas-to-liquids opportunities Diversify export markets (via LNG)

AECO$3.84 NBP

$8.99LNG

>$11.00 H.H.$4.11

Oil-based LNG


Canadian Gas Supply Forecast – February 2011

Source: CAPP, Price assumption: $5.50/mcf

Tight Gas

Shale Gas


Conclusions

Surging US unconventional natural gas prod’n caused significant over-supply in North America

Canada has enormous shale gas potential Industry aggressively developing shales in BC

and other provinces

Industry exploring new business models including boosting demand, gas-to-liquids technology, and diversifying export markets via LNG.

Canadas Natural Resources – Now and for the Future 1 North American Shale Gas Revolution...

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