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Home > Speeches and Presentations > Speeches and Presentations 2009 > Long-term Future Supply of Oil and Natural Gas in Canada

Long-term Future Supply of Oil and Natural Gas in Canada

Presented by
Georgette Habib
Board Member
National Energy Board

CAMPUT Energy Resources Committee

21 September 2009

Long-term Future Supply of Oil and Natural Gas in Canada

I am very delighted to be here today participating at the CAMPUT Annual General Meeting. Thank you for that opportunity.

As a member of the National Energy Board, I must say that I am as are all my colleagues at the NEB very excited to be celebrating NEB's 50^th anniversary this year.

I am speaking today not just as a member of this fine organization, but also on behalf of CAMPUT's Energy Resources Committee, which I am very honoured to be a member of.

I will be speaking about crude oil and natural gas trends and developments in Canada.

During the presentation I will refer to some official NEB reports and will also draw heavily on reports by the Alberta's Energy Resources Conservation Board, but the comments I provide today and certainly any errors I may make are strictly my own.

Why Focus on Energy?

Wide swings in energy prices over the last year or two have shown how integral energy is to most aspects of the economy.

There is an impact on prices to transport goods and even the availability of some goods when transportation costs became too high.

Consumer choices when filling the car with gasoline have meant less disposable income for purchasing other products.

Decisions on where to live may be required when commuting costs rise.

Both cost savings and environmental benefits provide a rationale for energy efficiency.

Why Focus on Energy? (cont'd)

CAMPUT members have responsibilities in a wide variety of economic endeavors - not just energy.

But any infrastructure proposal under CAMPUT member jurisdiction is driven and influenced by trends in energy supply and demand.

Services expected by customers of regulated utilities, are strongly related to their demand for energy.

Key Drivers

The pace of economic recovery influences energy market opportunities.

Energy exploration, development and transmission are capital intensive endeavors, and well-functioning capital markets are key.

Major swings in crude oil and natural gas supply sources could occur including unconventional sources.

Demand for crude oil and natural gas was severely impacted by the recession, and future demand levels are difficult to predict.

Carbon policies could alter future energy supply and demand.

Adjustments are potentially large and have long lead times.

These factors combine to introduce considerable uncertainty into the evolution of energy markets in Canada and around the world.

Energy Prices

Planning and economic adjustments are more difficult under extreme price volatility.

Crude Oil Prices 1861-2008

Extreme price volatility is not new.

Natural Gas Prices 1976-2009

Volatility has also been a feature of natural gas pricing.

Crude Oil Production - 2008

Canada is currently not a huge player in the overall world oil market.

World Oil Reserves - Top 20

But Canada's future role could be very large based on its large oil sands reserves.

Crude Oil Consumption - 2008

Global requirements for crude oil could be maintained or grow.

Canada remains the largest exporter of crude oil to the U.S.

Natural Gas Production - 2008

Canada is not a dominant player in terms of global gas markets

However, natural gas is much more of a regional market.

Canada accounts for almost 22 per cent of the North American natural gas market

Natural Gas Consumption - 2008

99 per cent of U.S. imports are from Canada.

Clearly Canada is a major supplier to the North American natural gas market.

Canada's Energy Role

With vast bitumen reserves, Canada could become a major supplier to world oil markets.

Canada is already a major supplier to North American natural gas markets.

Energy supply, demand, capital investment, efficiency and carbon policies involve major uncertainties.

NEB Areas of Responsibility

The National Energy Board has as part of its mandate, the responsibility to:

Monitor energy markets;
Provide advice to the federal government
Issue reports on energy issues to inform the Canadian public.

Under this mandate, this presentation will describe NEB views of future energy markets.

The presentation will also refer to a recent projection by the Alberta Energy Resources Conservation Board.

Canada's Energy Future and 2009 Reference Case Scenario

The Energy Future report project Canadian energy supply and demand to 2030 and was released in November 2007.

The second report was released in July of this year and updates the Reference Case from the first report and extends it to 2020.

It includes low and high energy price cases rather than scenarios.

Key drivers for the Reference Case Outlook are energy prices, economic outlook and government policies.

See Energy Futures index to access all related documents.

Alberta's Energy Reserves 2008 and Supply/Demand Outlook 2009-2018

Every year the ERCB issues a report providing stakeholders with independent and comprehensive information on the state of reserves, supply, and demand for Alberta's diverse energy resources.

Crude Oil Price Outlooks - I

Oil prices are expected to be lower than recent high levels as a result of global economic conditions and reduced crude oil demand.

Oil prices in the Reference Case are expected to begin to recover in 2010 as markets are restored.

The wide range of prices considered in the sensitivities reflects continued price uncertainty.

Major considerations are an increasingly tight crude oil market in the long-term, supporting real growth in the oil price. This requires a return of demand growth in emerging economies after 2010 and increasing difficulty and cost to develop crude oil pools.

The ERCB price outlooks are an extension of the lows experienced in the market in late 2008 escalated by the expected inflation rate thereafter.

Crude Oil Price Outlooks - II

Here is the same comparison using an average Alberta wellhead price in 2008 Canadian dollars.

Natural Gas Price Outlooks

Natural gas prices have declined in 2009 as falling industrial requirements for gas and gas-fired power have caused demand to grow more slowly than supply.

Upstream activity has dropped severely, but gas supply in the U.S. has remained strong as a consequence of high levels of activity from 2005 to 2008.

Additional deliveries of LNG into North America may compound excess supply conditions and cause prices to weaken further in the near term.

Severe cutbacks in drilling coupled with a recovering economy are expected to begin to restore balance and cause prices to trend higher after 2009.

The ERCB projection expects the price of natural gas in Alberta to increase slowly as determined by continental supply and demand conditions.

Canadian Economic Growth

The short-term economic growth projection is for negative economic growth in 2009 and positive growth in 2010.

As in many past business cycles, the recession is assumed to be followed by a rapid, recovery-stage growth lasting through 2013.

After this period of recovery, the economy returns to expected levels of growth rates based on the long-term economic potential.

Canadian Crude Oil Supply and Demand

Crude Oil and Bitumen Remaining Reserves

Most of Canada's conventional crude oil comes from the Western Canadian Sedimentary Basin.

A second significant supply region is the Grand Banks off Newfoundland.

The other major source will be oil sands, which is considered to be a unconventional resource.

Oil Sands Reserves and Production

Alberta's remaining established reserves of conventional crude oil are estimated at 1.5 billion barrels.

In 2008, total reserve additions were 130 million barrels and replaced 77 per cent of the 2008 production.

The ERCB estimates that there is 170 billion barrels of bitumen reserves.

Alberta's 2008 supply of crude oil and equivalent was 1.85 million barrels per day.

Bakken Oil Play

An area of keen interest is the emerging Bakken oil play in Saskatchewan.

The ¾ of the play located in the U.S. is estimated to have 413 billion barrels of petroleum in-place, but traditional drilling methods over the years recovered very little commercial oil.

Horizontal drilling and hydraulic fracturing are improving recovery.

Deposits are at relatively shallow depths and contain light sweet oil.

About a quarter of the Bakken Formation lies in Saskatchewan, and a much smaller portion juts into Manitoba.

There are no reliable estimates of how much oil is on the Canadian side of the Bakken.

In Saskatchewan, production from the Bakken is now above 15 million barrels per year.

Crude Oil and Bitumen Remaining Ultimate Potential

The addition of established reserves, discovered and undiscovered resources represents the remaining ultimate potential supply of crude oil that is expected to be recovered over the life of the resource.

Key sources for Canada's future conventional oil supply include areas such as the Grand Banks, the Beaufort Sea and High Arctic.

The other major source will be oil sands, which is considered to be a unconventional resource.

Canadian Supply of Crude Oil and Equivalent

Conventional oil production is expected to continue to decline over the forecast period, while unconventional and oil sands become more prevalent.

By 2020, production is expected to reach 3.75 million barrels/d.

Alberta Supply of Crude Oil and Equivalent

The ERCB estimates that bitumen production will more than double and reach 3.1 million barrels per day by 2018.

The ERCB expects the share of non-upgraded bitumen and SCO production in the overall Alberta crude oil and equivalent supply to increase from 65 per cent in 2008 to 88 per cent by 2018.

The NEB estimate of total bitumen production is very similar to the ERCB outlook.

Oil sands projects that were already well underway and scheduled to be completed in 2009 and 2010 are expected to be completed, but most other projects will be delayed until economics improve.

Oil Sands Economics

This summarizes major economic assumptions for constructing large oil sands projects.

The estimates assumes a 30 per cent decline in most input costs from peak levels in 2007-08, including material and labour.

Eastern Canada Production Forecast

The three major producing fields offshore Newfoundland and Labrador are in decline.

The decline could be moderated later in the period by the addition of several satellite fields as well as the larger Hebron field.

Canadian Oil Production Forecast

This indicates the NEB's crude oil production outlooks in the three price cases.

At the lower price, production reaches only 2.9 million barrels/d, compared with 4.4 million barrels/d in the high price case and 3.8 million barrels/d in the Reference Case.

Light Crude Oil Balance

The balance between domestic light crude oil supply, domestic demand and imports indicates that while domestic demand gradually rises, much of the additional light domestic supply is exported.

Heavy Crude Oil Balance

The heavy oil balance indicates an even stronger trend toward rising exports than for light oil.

Domestic demand remains almost flat through the forecast period.

Oil Demand by Sector

Both domestic and imported crude oil is used to produce petroleum products in Canada.

Canadian refinery feedstock requirements are expected to rise by 14 per cent in the Reference Case.

Higher prices and government initiatives support more energy efficiency.

Energy-intensive industries in Canada grow more slowly than in the past, with the exception of the oil and gas industry.

Transportation sector demand is projected to increase more slowly due to higher fuel prices, slowing economic conditions, energy-efficient technology, and changes to consumer behaviour.

Potential Oil Infrastructure Changes

Rising crude oil demand, prices and strong oil sands growth in the last decade led to expansions of existing crude oil pipelines and applications to construct new ones.

The financial crisis in 2008 impacted the price of crude oil and slowed the rate of expansion of oil sands projects.

The pipeline industry is challenged by the need to plan well ahead when adding pipeline capacity to meet oil supply growth.

The pipeline industry has been adding capacity to serve traditional markets in the U.S., such as Washington State and the Midwest.

Pipeline projects beyond 2012 may target new markets such as the U.S. Gulf Coast and Asia.

Key Uncertainties to the Crude Oil Outlook

Two key areas of uncertainty for crude oil markets are economic factors and future environmental policies.

Volatile oil prices makes investment decisions to expand production more challenging.

A robust recovery of the global economy could lead to cost inflation that could dampen the pace of oil sands expansion.

Most of the planned bitumen upgrading projects in Alberta have been postponed.

Environmental compliance may add significant additional costs for oil sands developers.

The projected growth in oil sands output assumes additional volumes of synthetic crude oil and blended bitumen can be marketed in the U.S. and potentially Asia.

Canadian Natural Gas Supply and Demand

Canadian Natural Gas Supply

Conventional natural gas from western Canada represents the majority of Canadian supply, but production rates are expected to gradually decline.

Lower permeability or tight gas currently accounts for roughly a third of Canada's output.

Production of coalbed methane is expected to stabilize.

Shale gas development is expected to contribute significantly in future years and could help to offset declines in other conventional output.

In Atlantic Canada, production is expected to come from the Sable project and Deep Panuke.

Other developments onshore in the Maritimes and the recent interest in shale gas in Quebec could make important contributions to regional markets.

The Canaport LNG import facility in Saint John New Brunswick went into service this year.

Prospective producing regions include the north, offshore Newfoundland and Labrador, and future discoveries off Nova Scotia.

Natural Gas Remaining Reserves

The NEB adopts the reserve estimates of the provinces where available.

The estimate includes tight gas and of CBM reserves in Alberta.

Reserve estimates have not yet been made for emerging shale gas plays, so this potentially large component is not included.

Through additional drilling, reserves are added each year to at least partially offset annual production.

Reserve additions are expected to be added to reserves is expected to be located in shallower zones or in relatively small deeper pools, that will require increased drilling to exploit.

Shale Gas in Canada

Shale gas represents a potentially huge resource.

The Horn River basin is an emerging play in a remote area just south of the Yukon border that is generally accessible only during the winter months when the ground is frozen.

The Montney is not a pure shale gas play but includes tight gas, other conventional gas and shale gas.

Initial drilling has taken place in the Utica shale in Quebec's St. Lawrence Lowlands.

The Frederick Brook formation in southern New Brunswick is under consideration as a future shale gas play.

Natural Gas Remaining Ultimate Potential and Production from 2009 to 2020

Canada has a sizeable endowment of natural gas resources for future use.

Comparing the total amount of natural gas that remains against the projected amount of natural gas production over the period to 2020 gives an indication of how rapidly new supplies of natural gas need to be accessed.

Production will rely on the conventional resource in western Canada and increasingly on the tight gas component.

CBM has a modest role.

The shale gas estimate is likely conservative in recognition of the time required to acquire the knowledge and refine techniques and scale up operations.

Other frontier resources are challenged by uncertainty and the time and cost for infrastructure needed to connect to their remote locations.

Natural Gas Wells Drilled

Natural gas drilling is expected to plunge in 2009.

A recovery in drilling depends on price, investment and costs.

Production declines initially due to reduced drilling.

Natural Gas Production Outlook

The natural gas supply outlook reflects the drilling projection and a shift toward more tight gas and shale gas.

Future Gas Supply: More Tight Gas and Unconventional

Solution gas refers to gas produced from oil wells.

The majority of the new production comes from tight gas, and to a lesser extent from shale gas and CBM.

Conventional gas, excluding tight gas, has a smaller role in future.

Mackenzie gas and offshore Newfoundland gas is assumed to come on in 2016. Whether this actually happens is subject to the regulatory process underway, and corporate decisions and timing that might result.

NG Supply Demand Balance

Over the period to 2011, Canadian gas production is expected to decline by 2.5 Bcf/d while growing use for oil sands and power raises Canadian demand by 0.6 Bcf/d.

After 2011, gas supply increases at a similar rate to Canadian domestic demand until the latter stages of the projection when additional gas from frontier areas begins contributing to supply.

Canadian Natural Gas Demand Outlook

The extent and pace of natural gas demand growth is difficult to ascertain.

Key demand sectors are to produce oil sands in Western Canada, Ontario industrial markets, fuel for carbon capture and storage operations and gas-fired power generation.

More energy efficiency may result from the price volatility and the desire to reduce emissions.

Natural gas-fired power is often a preferred alternative when electricity demand growth is uncertain.

Natural gas-fired power may be preferred as a backup to intermittent wind power.

Natural gas-fired power generating units may be located closer to markets, thereby reducing high voltage transmission lines

Should there be massive shale gas development, some speculate that natural gas could be used much more extensively in North America for environmental benefits and to improve energy security.

Purchased Natural Gas for Oil Sands

Natural gas is expected to remain a primary energy source for oil sands operations over the period to 2020.

The North Central Corridor pipeline is under construction to bring additional natural gas supplies into the Ft. MacMurray region.

Both in situ and surface mining operations require energy for process heat.

The relative share of in situ operations will likely increase over time.

Potential Gas Infrastructure Changes

Canadian natural gas pipeline infrastructure is well developed and includes substantial existing long haul capability.

Most infrastructure requirements through 2020 are likely to be regional in nature and integrated into existing infrastructure.

Deliveries into the transportation hub near Dawn, Ontario have become increasingly diverse in recent years, including gas from growing shale gas supplies in the U.S.

Expected growth in gas demand for oil sands development and declining production from conventional gas, excluding tight gas, may result in lower flows on transmission pipelines from western Canada.

Growing U.S. production and LNG imports may provide competition to Canadian gas and possibly reduce Canadian gas flows to particular markets in the U.S.

[Note: Mackenzie Pipeline is contingent upon regulatory approval being given and construction completed.]

Key Uncertainties to the Natural Gas Outlook

Natural gas price movements have become more pronounced since 2007 and create challenges for capital investments in upstream natural gas projects, pipelines and processing infrastructure.

Increases in shale gas production could be slowed by shortages of key project components.

The potential recovery or possible growth of natural gas demand is difficult to ascertain.

Key demand sectors include producing oil sands in Western Canada, gas consumption in Ontario industrial markets, fuel for CCS operations, gas-fired power generation and vehicle fuel.

Sources of supply may shift and may require changes to pipeline infrastructure.

Cost inflation associated with oil sands development could make gas development in the WCSB less competitive.

Excess LNG may be delivered into North America, further depressing prices.

Increases in North American gas supply may warrant exports of North American LNG to global markets.

Conclusion

Canadians can expect energy markets to function well.

Energy prices will provide appropriate market signals for the development of adequate energy resources to meet Canadian and export demand.

A large proportion of Canadian demand for energy will be met by fossil fuels.

Energy demand grows at a slower pace and combined with a move towards greener fuels, should result in slowing GHG emissions growth.

There may be a significant shift towards unconventional production of oil and unconventional and tight gas.

There may be growing interconnections between energy, environment and economy.

Thank You!

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