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Canadian Energy Research Institute

Canadian Oil, Gas and LNGMarket Review

Allan FogwillStrait of Canso – Superport Days’16

Dundee, Nova ScotiaJuly 2016

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Mission Statement

Founded in 1975, the CanadianEnergy Research Institute (CERI) is anindependent, non-profit researchInstitute specializing in the analysisof energy economics and relatedenvironmental policy issues in theenergy production, transportation,and consumption sectors.

Our mission is to provide relevant,independent, and objectiveeconomic research of energy andenvironmental issues to benefitbusiness, government, academia andthe public.

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Current Sponsors

Core supporters include:

In-kind support is also provided:

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Agenda

• Oil Market

• Natural Gas Market

• LNG

• Conclusion

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• The supply availability of oil and natural gas has fundamentally changed over the last 5 years.

• Horizontal drilling and hydraulic fracturing have opened up vast additional reserves creating a downward pressure on prices.

Evolution of Energy Markets

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OIL

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Source: EIA

World Oil Reserves

• Reserves have increased over 27% in the last 10 years with the 2013 reserves to production ratio of 53 years

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0100,000200,000300,000400,000500,000600,000700,000800,000900,000

1,000,0001,100,0001,200,0001,300,0001,400,0001,500,0001,600,000

Crud

e O

il Pr

oduc

tion

(exc

l Oil

Sand

s)

bbls

/day

Eastern Canada Pentanes Plus MB Oil Forecast BC Oil ForecastNWT Oil Forecast SK Oil Forecast AB Oil Forecast (Conv) Oil from Gas Wells

Canadian Conventional Oil Production (Aug 2015)

Source: CERI, CAPP

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Oil Sands Growth – CERI’s Projections (August 2015)

Oil Sands Growth (Aug 2015)

Source: CanOils, CERI

* Growth dependent on market access – TMX, Gateway or Energy East

0.0

1.0

2.0

3.0

4.0

5.0

6.0

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

(MM

bpd)

(Production, High Case Scenario)(Production, Low Case Scenario)(Production, Reference Case Scenario)

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Factors Affecting Oil Market

• Demand• Economic Growth

• Europe• US• China

• Strategic Oil Reserves (short term)

• Supply• High levels of inventories (short term)• Delayed investments• Geopolitical Issues

- Iran - Venezuela - Iraq- Yemen - Nigeria - Russia

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Natural Gas

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Natural Gas Reserves

Source: BP

• Reserves have increased over 19% in the last 10 years with the 2013 reserves to production ratio of 55 years

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Canadian NG Demand Outlook By Province

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035

BCFD

AB BC SK MB YK NW ON QC NB NS PE NF NU

Source: NEB, CERI

* Primary demand – includes steam and electricity generation demand

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US Natural Gas Production Forecast

Source: EIA

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0

20

40

60

80

100

120

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

Bcf/

d

Residential Commercial Industrial

Electric Power Transportation Pipeline Fuel

Lease and Plant Fuel Total Natural Gas Consumption

Source: EIA

US Natural Gas Demand Outlook by Sector

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Source: CERI

* Demand excludes steam and electricity requirements (approx. 3 bcf/d)

Export Potential from Western Canada

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Factors Affecting Natural Gas Market• Supply

• Pipeline access from US into Canada• Storage inventories

• Demand

• Weather

• Liquefied Natural Gas Facilities

• Power Generation

• Industrial Demand (Petrochemical Feedstock, oil sands)

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LNG

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LNG Supply and Demand – Asian Markets

Source: CERI, IEA

Two Russian pipelines, Altai and Power of Siberia can supply China with natural gas volumes in excess of 6 bcfd

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The Pipeline Challenge to LNG - Asia

Source: Singapore Straits Times

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The Pipeline Challenge to LNG - Europe

Source: Rethink Institute

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Factors Affecting LNG Market• Supply

• Pipeline access (china and Europe)• Russia• Caspian Sea States

• Geopolitics Europe/Russia• Oil Price• Merchant Plants

• Demand

• European Carbon Management Policies

• Industrial Demand

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Conclusions

• Markets for conventional oil and oil sands will grow, albeit slowly.

• Eastern Canada access to Western Canadian Oil dependent on pipeline access.

• Western Canadian sourced gas evolving into a regional market.

• Eastern Canadian markets likely to be sourced almost completely by US shale gas.

• LNG markets highly uncertain due to risk valuation of supply availability

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Canadian Energy Research Institute

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