Alberta’s Energy Resources:Opportunities and Challenges in aGlobal ContextPaul TsounisAlberta Department of EnergySeptember, 2011
Overview of Alberta’sEnergy Industry
Billion BarrelsCrude Oil Proved Reserves300.000250.000200.000150.000100.000Includes 170 billion barrelsof oil sands reservesWorld OilReservesState ownedor controlledAccessibleOil ReservesAccessible Canada’sOil Sands51%50.0000.00049%OtherAccessibleReservesSource: Oil & Gas Journal. January 2009
TcfAlberta’s Natural Gas Resources9008007006005004003002001000Gas in PlaceRemainingRecoverableProducedConventionalGas (GIP)Deep BasinTight Gas (GIP)Coal BedMethane (GIP)Shale Gas (GIP)Source: Energy Resource Conservation Board, Petrel Robertson, GasTechnology Institute (GTI)Source: Canadian Society for Unconventional GasGIP: Gas in Place is the total gas volume believed to be contained in thereservoir.NGC: Natural gas from coal (CBM)
Oil and Gas Investment in AlbertaTotal Oil and Gas Investment in Alberta(1998 - 2010)Billions CAD$45403530Investment (Millions)2000 to 2010 2011*Oil Sands $110,057 $ 11,226Conventional Oil & Gas $176,236 $ 9,369* Estimated19Oil Sands investmentRatio70%60%50%25252140%2023101130%1510501713 11 1411211712141510 8106 745 61 21998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Oil Sands Conventional Oil & Gas Oil Sands/Total O&G Investment20%10%0%Data Source: Statistics Canada
Alberta Energy ProductionProduction (million b/d)Natural gas:2000: 14.16 (bcf/d)2011: 10.72 (bcf/d)2019: 7.89 (bcf/d)Crude oil:2000: 0.772011: 0.52019: 0.42Raw Bitumen:2000: 0.72011: 1.72019: 3.3Diluted Bitumen:2000: 0.32011: 0.92019: 1.9Synthetic Crude Oil:2000: 0.32011: 0.82019: 1.4Source: Energy Resource Conservation Board
Alberta Energy ExportsExports (million bpd)Natural gas:2000: 10.6 (bcf/d)2011: 6.1 (bcf/d)2019: 2.1 (bcf/d)Crude oil:2000: 0.52011: 0.42019: 0.3Bitumen & SyntheticCrude Oil:2000: 0.42011: 1.42019: 3.0Source: Energy Resource Conservation Board
Western Canadian Land SalesMillions of CA $3000AB BC SK250020001500100050002009 2010Source: Alberta Department of Energy
Emerging Resources• Land sales is an indicator of future activity• Total 2010 land sales over $2.3 BillionMillions ofCAD$3,0002,5002,0001,5001,000Alberta Land Sales(through August)$1,512$2,679500$17702009 2010 2011Source: Alberta Department of Energy
Number of Wells% HorizontalMetres drilledAlberta Drilling ActivityAlberta Oil and Gas Well Drilling Activity by YearAlberta Oil and Gas Metres Drilled by Year10,0009,0008,00030%25%14,000,00012,000,0007,0006,0005,0004,0003,00020%15%10%10,000,0008,000,0006,000,0004,000,0002,0005%1,00000%2008 2009 2010YearHorizontal Vertical/ Deviated % Horizontal (2nd y axis)2,000,000-2008 2009 2010YearHorizontal Vertical/ Deviated TotalSource: Alberta Department of Energy• Increasing horizontal drilling reflecting shift towards unconventionaloil and gas development in shale and tight plays• Activity has shifted towards tight oil in Alberta
Energy Markets and Prices:Natural Gas
Current Alberta Natural Gas MarketsAlberta productionyear 2010: 11.31 (bcf/d)WCSB14.4Bcf/dAlberta Disposition – 2010USRockies10 Bcf/dBisonMarcellus1Bcf/dMarket Bcf per DayPADD 1 0.26PADD 2 2.87PADD 3 0.00PADD 4 0.40LegendLight Blue– WCSB Gas ProductionDark Blue – US Gas ProductionSource: Source: WoodMcKenzie 2009 ; ERCB2010,Barnett &Haynesville6 Bcf/dGulf15.8Bcf/dPADD 5 1.26Eastern Canada 1.76Western Canada 1.07Total 7.63
Increasing U.S. Supply and Weak Demand Forecasts areThreatening Alberta’s Traditional Markets (2020)WCSBProduction2010: 14.4 Bcf/d2020: 18.7 Bcf/dPacific U.S. PowerGen Demand2010: 2.6 Bcf/d2020: 2.9 Bcf/dAB Oil SandsDemand2010: 2.5 Bcf/d2020: 3.5 Bcf/dUS RockiesProduction2010: 10.2 Bcf/d2020: 11.9 Bcf/dBarnett &HaynesvilleProduction2010: 7.1 Bcf/d2020: 12.4 Bcf/dSource:. Wood Mackenzie Long Term View Apr 2011Ontario Power GenDemand2010: 0.4 Bcf/d2020: 0.5 Bcf/dMarcellusProduction2010: 1.4 Bcf/d2020: 10.0 Bcf/dGulf On &OffshoreProduction2010: 21.9 Bcf/d2020: 26.1Bcf/d14Northeast & EastNorth Central U.S.Power GenDemand2010 : 4.3 Bcf/d2020 : 6.3 Bcf/dLegendRed – Cdn GasBlue – US GasGreen – Demand Forecasts
U.S. Dollars per MMBTU199719981999200020012002200320042005200620072008200920102011F2012F2013F2014F2015F2016F2017FNatural Gas Price & Forecast10.009.008.007.006.005.004.003.002.001.000.00Henry Hub Price ForecastConsultants rangeActual
Natural Gas Price DriversLower PricesHigher Prices• shale gas productiongrowth• high inventory levels• Joint Ventures• US drilling to retain land• lower returns• investment migrating towardstight oil & liquid rich plays• cost inflation pressures (oil/gascompetition)• slow down in drilling activity• economic recovery• increase usage of natural gas
Natural Gas Pricesand Market DiversificationHH$4.17NBP$10.09Europe$10.21Asia$13.74• Natural gas is a continental commodityas LNG transports a small portion of totalnatural gas production• Price differentials have widened asnatural gas prices in other internationalmarkets are tied to higher oil prices• Market diversification (LNG) can increasethe price Alberta producers received fornatural gas and reduce the risk associatedwith depending on the North AmericanmarketSource: PIRA, Global LNG Monthly (March 2011), ADOE
Energy Markets and Prices:Crude Oil
Western Canadian Crude Oil Demand andRefinery CapacityMarketAlberta Exports(Barrels Per Day000’s)PADD 1 59WesternCanada451Crude Oil Demandfrom Western Canada(refinery capacity inparenthesis)Barrels per day 000’sPADD 2 1,167PADD 3 78PADD 4 218PADD 5 106PADD 4238EasternCanada258Eastern Canada 252Western Canada 47Total 1,927Source: CAPPPADD 5148[2,730]PADD 3107[8,928]PADD 21,215[3,711]PADD 162[1,394]
HardistyAB Heavy(TransCanada Keystone)BakkenAB Heavy(Enbridge)ACurrentTrends:Heavy crude oil pricesappreciated up to 2010 dueto increased heavy crudeoil refining capacityMayaBHowever, falling heavycrude oil prices since late2010 due to:• Pipeline ruptures en routeto PADD II (“A”) – backlogin Enbridge system• Increasing supplies fromBakken, heavy crude fromAlberta, and crude fromPADD III into Cushing (“B”).
North American Heavy & Light Crude PricesNot Keeping Pace with Global PricesHeavyPrices
HardistyCBAShort Term:Enbridge pipeline repairswill “drain” heavy crudebuild up in Enbridge systeminto PADD II (“A”). Shouldhelp support heavy crudepricesLonger term:Keystone XL will “drain”crude from landlockedCushing market (“B”) andwill help get much neededheavy crude from Albertainto PADD III (“C”)Mexico and Venezuelaheavy crude into USGC onthe decline
U.S. Dollars per BarrelWTI Price ForecastWTI Price Forecast140.00120.00100.0080.0060.0040.0020.000.00Consultant RangeWTI
Oil Price DriversLower PricesHigher Prices• Economic slowdown• Higher US dollar• Geopolitical stability• Low refinery capacity• Market over-suppliedin the US Mid-West(crude oil is landlocked)• Higher Economicrecovery in US• Unrest in the Middle East• Low spare oil productioncapacity• Supply disruption• Investors looking for ahedging vehicle againstUS dollar devaluation
Access To New Markets:Pipelines and Regulatory
Access to USGC: TransCanada KeystoneXLKeystone capacity: 591kbpdKeystone XL capacity:•Hardisty to Cushing:700k bpd• Cushing to USGC: 500kbpd• SCO, DilBit,conventional• Will also transport 65kbpd of Bakken fromMarketlink project•USGC refineries:• 58 refineries with over8 million bpd refiningcapacity (50% of US total).
U.S. Gulf Coast Refineries• 58 refineries• 8.9 million barrels per day of refining capacity (56% of US, 10%of global, 21% of global “heavy” processing capacity)• Diesel, jet fuel and gasoline• Traditional heavy oil feedstocks from Mexico (Maya) andVenezuela in decline – has raised demand for heavy crude oil(oil sands)• Keystone XL offers an opportunity to link Alberta’s heavy oilproduction with the complex refineries in the USGC that are bestconfigured to turn that into highest value products like gasolineand diesel which are in demand.• This link ensures that producers receive the best value for theirproduction and consumers receive the best price for theirfuels.
Access to the West: Enbridge GatewayCost: $5.5 billion (1,177 kmtwin pipe)Capacity: 525k bpdBruderheim to KitimatSCO, SynBit, DilBit,conventional heavy andlightCondensate (193k bpd)back to Alberta
Access to the West: Kinder Morgan TMX• Capacity: 300k bpd (only pipelinethat transports both crude andrefined products)• 80% light, 20% heavyPhase 2 (2013/14):+ 80,000 b/dPhase 3 (2015/16):+ 320,000 b/dNorthern Leg (after 2016):+ 400,000 b/dTotal 1,100,000 bpd• Proposed expansions willtransport primarily crude oil, notRPPs.• Nov 2010: Applied to NEB forapproval of Firm Service on theTrans Mountain pipeline systemwith respect to Westridgemariane terminal deliveries.
Natural Gas Access to the West• Alberta connects into BritishColumbia via the SpectraPipeline• The Pacific Trails Pipelineproposes to connect theSpectra Pipeline withKitimatt through SummitLake• The pipeline is expected tobe 463 kilometres long witha capacity of up to 1 Bcf/d• The estimated capital cost ofthe Pacific Trails project is$1 billion dollarsPacific Trails Pipelines
Improving Investment• New Well Royalty Rate (May 2010)• Natural Gas Deep Drilling Program (May 2010)• Horizontal Oil New Well Royalty Rate (May 2010)• Emerging Resources Technology Initiative (May 2010)• Resource Characterization (May 2011 – March 2012)
Initiatives• Natural Gas Strategy• Address the near and long term competiveness ofAlberta based natural gas supply• Focus on both demand side initiatives and supplyeconomics.• Maintains near-term industry health• Oil Markets Diversification Strategy• Focus on market diversification and transportation
North Asia Strategy• Long-term goal is to ensure energy producers have access to anddiversified export markets with Asian markets• Work together through the New West Partnership• Lay the groundwork for a long-term supply relationship with key NorthAsian market partners by:– Providing information and enhancing understanding of Western Canadiangas and oil supply issues and opportunities– Demonstrate commitment by Canadian federal and provincialgovernments to working with North Asian partners and governments tofacilitate trade and investment in the energy sector in Western Canada.– Develop mechanisms to support enhanced market development andinvestment.– Develop and maintain an ongoing and consistent dialogue and exchangeon energy related issues.
Land-use Framework and Regional Plans• Define regional outcomes (economic,environmental and social) and a broad plan forland and natural resource use on public andprivate lands• Align provincial strategies and policies at theregional level• Determine specific trade-offs and appropriate landand natural resource management for specificlandscapes within a region• Define the cumulative effects managementapproach for the region and identify targets andthresholds for watersheds, airsheds andlandscapes.
Regulatory Enhancement Report (REP)• In January of 2011, the Department of Energy releasedits report and recommendations for reform of theupstream oil and gas regulatory system in Alberta.• Implementation of recommendations will:– Simplify the system.– Enhance policy clarity.– Improve public engagement processes.– Enhance accountability.– Improve knowledge and information sharing.– Ensure risk is assessed and managed throughout thesystem.– Set clear expectations for industry.36