Relevant Independent Objective 1 North American Natural Gas Demand Pathways Canadian Energy Research Institute Peter Howard Canadian Energy

Relevant • Independent • Objectivewww.ceri.ca1

North American Natural Gas Demand Pathways

Canadian Energy Research Institute

Peter HowardCanadian Energy Research Institute

32nd USAEE/IAEE North American ConferenceJuly 28-31, 2013


Canadian Energy Research InstituteOverview

Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, non-profit research institute specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research in energy and related environmental issues. A central goal of CERI is to bring the insights of scientific research, economic analysis, and practical experience to the attention of government policy-makers, business sector decision-makers, the media, and citizens in Canada and abroad.

Core members of the Institute include the Canadian Government, the Government of the Province of Alberta, the University of Calgary, the Canadian Association of Petroleum Producers (CAPP) and the Explorers and Producers Association (EPAC). In-kind support is also provided by the Energy Resources Conservation Board (ERCB).

All of CERI’s research is publically available on our website at www.ceri.ca


Current Projects

Global LNG: Now, Never, or Later?Released January 2013

Potential Economic Impacts of DevelopingQuebec’s Shale GasReleased March 2013

North American Natural Gas DemandPathwaysTo be Released August 2013


CERI North American Natural Gas Pathways

A View from 2006 What Drives WCSB Drilling Today Overview of the Project Description of the 4 Narratives North American Future Demand North American Future Supply The Future of Power Generation LNG in the Pacific Basin Comparing the 4 Narratives Questions


2006 2012 2030

Setting the Stage


North American Natural Gas Industry EIA United States view from 2006 looking forward

United States Natural Gas Supply (AEO 2006)

10

12

14

16

18

20

22

24

26

28

30

32

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Tc

f/y

r

US Dry Lower 48 Production

Canadian Imports

LNG Imports

Alaska

2015 Forecast• LNG Imports 8 bcf/day• Imports from Canada = 5 bcf/day• Alaskan Gas 2.5 bcf/day (4.5 bcf/day max)

24% imports


North American Natural Gas Industry CERI Canadian view from 2006 looking forward

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

0

1

2

3

4

5

6

7

8Canadian Supply and Demand for Gas (May 2006)

Quebec LNG supply

Mackenzie Valley Supply

Atlantic LNG

Altantic offshore

SK Conventional

BC Conventional

AB NGC (CBM)

AB Conventional

Revised March 2006

Total Demand

Canadian Do-mestic Demand

Oil Sands Demand

TC

F p

er y

ear

2015 Forecast (18% of Supply)• Quebec LNG• Mackenzie Valley Pipeline• Canaport LNG (NB)

2006 Gas WellsCompleted

2008 Gas WellsCompleted

2010 Gas Directed Licences

Montney Falher Duvernay

Cardium GlauconiticNotikewin

Viking Milk River

2012 Gas & CBM Directed Licences


North American Natural Gas Industry “A Tale of Two Countries”

2003 2004 2005 2006 2007 2008 2009 2010 20110

2000

4000

6000

8000

10000

12000

14000

16000

18000

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Total Complete Vertical Gas WellsTotal Completed Horizontal Gas WellsPercentage Horizontal Gas Wells

Conn

ecte

d Ga

s Wel

ls

Perc

enta

ge H

orizo

ntal

Wel

ls 2012 Alberta Gas Well Licenses• 774 Horizontal Wells (66%)• 283 Slant/Deviated (23%)• 127 Vertical (11%)

20052007

20092011

20132015

20172019

20212023

20252027

20290

2,0004,0006,0008,000

10,00012,00014,00016,00018,00020,00022,00024,000

Marcellus Supply: Full Speed AheadMarcellus Supply: Nowhere Fast

Gas

Pro

ducti

on (m

mcf

/day

)2012 Marcellus• 2,000 capped gas wells• 2,100-2,300 new wells per year• NGL’s 30-35 bbls/mmcf• 4,5,6 wells per pad• 90% horizontal

17 to 22 Bcf/day





Western Canada What Makes the Gas World WorkBC Montney Supply Cost example

12 BBLS/MMCF

(Original)

DRY 10 bbls/MMcf

20bbls/MMcf

30bbls/MMcf

40 bbls/MMcf

50 bbls/MMcf

60 bbls/MMcf

70 bbls/MMcf

80 bbls/MMcf

90 bbls/MMcf

100 bbls/MMcf

110 bbls/MMcf

120 bbls/MMcf

$- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 $5.5 $6.0 $6.5 $7.0

$3.8 $3.8 $3.9 $3.4

$3.0 $2.5

$2.1 $1.7

$1.3 $1.0 $0.7 $0.4 $0.2

$0.8 $-

$0.7 $1.3 $2.0 $2.6 $3.2 $3.8 $4.3 $4.9 $5.4 $5.8 $6.2 $6.5

$4.5

$3.8

$4.5 $4.7 $4.9 $5.1 $5.3 $5.5 $5.7 $5.8 $6.0 $6.2 $6.4 $6.5

Liquids Portion Gas Portion Revenue March 2012 Intra AB NIT Price ($/mcf)

$/ m

cf

With a Gas Price of $1.87/mcf a well needs a minimum of 60 bbls/mmcf (Liquids) to be economic a Gas Price of $3.48/mcf a well needs a minimum of 20 bbls/mmcf (Liquids) to be economic





North American Natural Gas Demand PathwaysOverview

The Players:Canadian Energy Research InstituteICF International (Fairfax)whatIf? Technologies (Ottawa)Scenarios to Strategy (Calgary)

Key Question:“Looking out to 2030, in the face of robust supply, how will industry, government and others work together to understand and grow the demand for natural gas and improve the competitiveness of the Canadian Natural Gas Industry?“

Objective:The project will develop a North American supply perspective and explore future pathways of natural gas demand within North America. The future will be detailed as four narratives that explore the future of the of the natural gas industry and detail the relationship of supply/demand, exports/imports and market pricing.


North AmericanNatural Gas

Industry

Residential & Commercial

Demand

Social Licence

Government Policy &

Regulation

Geopolitics

Demographics& Labour

Gas Supply

LNG Exports From North

America

Oil MarketDynamics

TransportationDemand

Access toCapital

North American Economy

Power Generation

Demand

Pipelines & InfrastructureIndustrial

Demand

Environmental Concerns & Management

North American Natural Gas Demand PathwaysDriving Forces


Po

wer

Gen

erat

ion

Dem

and

LNG Exports from North America

Power Wave

Low

Low Growth

Full Speed Ahead

LNG TsunamiNowhere Fast

High

High Growth

North American Natural Gas Demand PathwaysNarratives





North American Natural Gas Demand PathwaysNarrative Characteristics

Power Wave High Power Gen. Demand & Low LNG Exports

Global competition and regulatory uncertainties close the window on LNG exports while pragmatic polices and a responsive market allow

gas to penetrate power markets

• Intense global competition for LNG markets in Asia & Europe with shift away from oil price related contracts

• Regulatory delays in North America means that LNG misses the window• Gradual revival in North American economy increases demand for power and gas gains

market share• Pragmatic fracking policy & societal expectations to cut carbon support natural gas• Market efficient: supply responsive to price allowing supply-demand balance at modest

prices• Medium-term wave of small and large natural gas power facilities• Low cost power supports industrial expansion – regional differences persist in natural gas

markets



Full Speed Ahead High Power Gen. Demand & High LNG Exports

Carbon policy drives expanded LNG exports and an expandedrole for gas in power generation – demand fires on all cylinders

• Strong global economy & high oil prices fuel Asian LNG demand• Weather-related events attributed to climate change• Environmental concerns drive carbon policy in North America & globally• Collaboration helps industry engage stakeholders & weather near-term challenges• Carbon policy drives expanded role for gas in power generation within North America &

globally - supports LNG exports from North America• North American industrial and transportation demand growth• North American gas markets are balanced, efficient and profitable and environment is

improved



Nowhere Fast Low Power Gen. Demand & Low LNG Exports

A weak economy and stakeholder gridlock stymie LNG exportopportunities and any significant demand growth for gas

• Global economy falls sharply• Rising geopolitical tensions and protectionism stymie trade• Low oil prices close the door to LNG exports from North America• Canadian commodities and energy hit hard by downturn• Rising stakeholder tensions stymie development• Political and regulatory gridlock• No new demand in LNG, power generation, industrial or transportation• Industry under siege hunkers down – a survivors game• "New normal" of low economic growth and flat energy outcomes• Global & North American markets more local and less integrated



LNG Tsunami Low Power Gen. Demand & High LNG Exports

A surge of investment drives LNG exports as politics and risingprices undermine the competitiveness of gas in power generation

• Global growth in LNG supports high prices & oil-linked contracts• Aggressive development of LNG projects in North America: no regulatory or financial

restrictions• Integration of markets lead to convergence of North American & global prices• Economic growth greater than electricity growth as efficiencies decouple economic and

electricity growth• Rising natural gas prices linked to LNG markets undermines natural gas in power

generation• Coal lobby influential in extracting concessions – trade-off for support of coal is increased

support of renewables – reduced opportunity for gas in North America• Advances in power storage enhance value of renewable energy





North American Natural Gas Demand PathwaysLower-48 Gas Demand Disposition • The Nowhere Fast case shows

declining disposition over time.

• The Full Speed Ahead case has an aggressive disposition growth from 27 Tcf today to 41 Tcf by 2030.

• Power Wave and LNG Tsunami are in between the two extremes.– Different composition of

disposition.– About the same level of

disposition by 2030, with slightly greater growth in LNG Tsunami.

Source: CERI,ICF International


North American Natural Gas Demand PathwaysCanadian Gas Demand Disposition • Canada gas demand disposition

tells the same story as in the US.• Full Speed Ahead growth comes

from a combination of power growth and LNG exports growth.– Less potential for power to

grow compared to LNG exports.

– Change of Canadian disposition is not as aggressive as in the US.

– Declining pipeline exports to the US due to growing domestic demand as well as LNG exports.






North American Natural Gas Demand PathwaysThe Marcellus Story: Changing resource development parameters

• 2007 production 0.1 bcf/day, 75 new gas well completions

• 2011 production 4.0 bcf/day, 1,891 new gas well completions

• Drilling will hold at 1,800 wells per year (2012-2014)

• Approximately 2,000 capped wells will be tied in over the next 2-3 years

• Drilling will grow to 2,100-2,300 wells per year (2015-2035)

• 4,5,6 wells per pad

• 90% horizontal wells

• EUR’s increasing to 4-5 bcf/well

• Higher than expected IP rates

• Decline curve showing a higher sustaining level

• NGL recoveries of 30-35 bbls/mmcf


North American Natural Gas Demand PathwaysUS Gas Supply by Region: Mid-Atlantic, South Atlantic

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 20300

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

Marcellus Supply: Full Speed Ahead Marcellus Supply: Nowhere Fast

Gas

Pro

ducti

on (m

mcf

/day

)

5 bcf/day swing between Narratives

15 bcf/day GrowthPotential





North American Natural Gas Demand PathwaysBase Case Power Generation: 2011 Statistics

United States CanadaOther Gases 0.3% -Petroleum 0.17% 0.8%Wood 0.91% -Geothermal 0.40% *Biomass 0.48% *Solar 0.04% 1.8% *Wind 2.93% 1.8%Natural Gas 24.9% 8.4%Hydro 7.9% 59.4%Coal 42.5% 12.7%Nuclear 19.4% 15.1%

Total Generation (MW) 465,000 68,400

Generation Capacity (MW) 1,047,000 135,000*Geothermal, biomass and solar are combined in Canadian Statistics.


North American Natural Gas Demand PathwaysBase Case US Coal Power Generation Capacity (On Stream Years)

0-5 Years

5-10 Years

10-15 Years

15-20 Years

20-25 Years

25-30 Years

30-35 Years

35-40 Years

40-45 Years

45-50 Years

50+ years

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

On Stream Age Group

Cumulative Age Group

Win

ter c

apac

ity (M

W)

312 Gigawatts of operational coal fired power generation capacity (as of YE 2010)

87% of the Plants are 25 Years of age or older


North American Natural Gas Demand PathwaysBase Case US Power Generation (Additions and Retirements) 2011+

Coal Coal Coal & Coke

Coal & Coke

Solar Solar Nuclear Nuclear Natural Gas

Natural Gas

Wind Wind-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

Pow

er G

ener

ation

Add

ition

s an

d Re

tire

men

ts (M

W o

f Cap

acit

y)


North American Natural Gas Demand PathwaysBase Case: US Power Generation

20052007

20092011

20132015

20172019

20212023

20252027

20292031

20332035

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

United States

Additional Natural GasNuclearCoalHydroNatural GasWindSolarBiomassGeothermalWoodPetroleumPumped StorageOther GasesOtherEIA AEO2012 Table A8

Gen

erati

on B

y Ty

pe (M

W)


North American Natural Gas Demand PathwaysBase Case: US Power Generation by Narrative

20052006

20072008

20092010

20112012

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

0

10,000

20,000

30,000

40,000

50,000

60,000

LNG Tsunami Nowhere Fast Power WaveFull Speed Ahead Historical Data

Nat

ural

Gas

Req

uire

men

ts fo

r Pow

er G

ener

ation

(m

mcf

/day

)





North American Natural Gas Demand PathwaysAustralia's Supply Growth

Source: Bureau of Resource and Energy Economics

1989 2006 2012 2014 2015 2016 2017 2018+0

20

40

60

80

100

120

0

2

4

6

8

10

12

14

16Operating

Under construction

Planned

Mt bcfpd

Fisherman's landingTassie shoalSunriseScarboroughGorgon exp.BrowseArrow

Another 7 projects in the feasibility stage - an addi-tional 40 Mt or 4.6 bcfpd

North West Shelf

16 Mt 2.1 bcfpd

Darwin

3.7 Mt 0.5 bcfpd

Pluto4.3 Mt0.6 bcfpd

QCLNG

8.5 Mt1.1 bcfpd

Gorgon 15 Mt2.0 bcfpd

Gladstone7.8 Mt1.0 bcfpd

Prelude 3.6 Mt 0.5 bcfpd

APLNG9 Mt1.2 bcfpd

Wheatstone 8.9 Mt 1.2 bcfpd

Ichthys 8.4 Mt1.1 bcfpd


North American Natural Gas Demand PathwaysReference Case: LNG Export Potential to the Pacific Basin

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 20300

5

10

15

20

25

30

35

40

45

50

Other supply sourcesUnited States Potential LiquefactionUnited States LiquefactionCanada LiquefactionEast Africa Potential LiquefactionAustralian LiquefactionMiddle East Liquefaction Asian LNG Demand

BCFP

D



A View from 2006 What Drives WCSB Drilling Today Overview of the Project Description of the 4 Narratives North American Future Demand North American Future Supply The Future of Power Generation LNG in the Pacific Basin The LNG Tsunami Story Comparing the 4 Narratives Questions


North American Natural Gas Demand PathwaysUS and Canada Gas Production • Deep recession in Nowhere Fast

results in lowest gas production levels over time.

• Full Speed Ahead exhibits aggressive growth in gas production.

• Canada gas production that has been declining reverses its trend and grows in the future as a result of unconventional gas development. – But, the level of growth is very

sensitive to future market environment – very modest growth in Nowhere Fast and robust growth in Full Speed Ahead.



North American Natural Gas Demand PathwaysLower-48 LNG Exports • Robust LNG exports in the LNG

Tsunami case.– Lower-48 LNG exports peak

at 10 Bcf/d in 2023.– Declining trend after 2025

represents competition with supplies from other countries.

• Full Speed Ahead reaches the same level of LNG exports as in LNG Tsunami, but at slower pace.

• LNG exports are not a notable factor in the other cases.



North American Natural Gas Demand PathwaysCanada LNG Exports • Canada LNG exports

consistent with US exports, but at half the volume.

• In LNG Tsunami and Full Speed Ahead, Canada LNG exports reach 5 Bcf/d, but the pace of growth differs.

• In this study, Canada LNG export terminals are located near the Port of Kitimat in British Columbia.



North American Natural Gas Demand PathwaysCanada Pipeline Net Exports • Perhaps surprisingly,

Nowhere Fast shows the highest exports of gas from Canada to the US.– Gas has little option but to

flow to US markets even though the gas prices are not very attractive for the gas.

• In Nowhere Fast and Power Wave, Canada continues to be a net exporter to the US.

• In LNG Tsunami and Full Speed Ahead, the net pipeline exports to the US decline significantly, mostly because western Canada gas is exported to Asia as LNG.– Canada becomes a net

importer of pipeline gas in 2021 in LNG Tsunami and in 2026 in Full Speed Ahead.Source: CERI,ICF International


North American Natural Gas Demand PathwaysHenry Hub Gas Prices • The weak economy in Nowhere

Fast extends currently depressed gas prices into the future.

• In Power Wave, Henry Hub price remains in the $4/MMBTU ballpark, as a sluggish economy and lack of LNG exports hinders development of gas markets.

• Gas prices “cycle” in LNG Tsunami, riding the wave of LNG exports.

• In Full Speed Ahead, gas prices “bounce back” strongly, buoyed by robust economic activity.



Summary:What Does this Mean for Canada?



North American Natural Gas Demand PathwaysProvincial Production Forecast by Narrative

20052006

20072008

20092010

20112012

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000 Power WaveNoWhere FastLNG TsunamiFull Speed AheadHistorical

Mar

keta

ble

Gas P

rodu

ction

(mm

cf/d

ay)

20052006

20072008

20092010

20112012

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

Power WaveNoWhere FastLNG TsunamiFull Speed AheadHistoricalM

arke

tabl

e Ga

s Pro

ducti

on (m

mcf

/day

)

Alberta:• Production varies from a

low of 8 Bcf/day to a high of 12 Bcf/day

British Columbia:• Production varies from a

low of 2 Bcf/day to a high of 9 Bcf/day


North American Natural Gas Demand PathwaysSelected Export Pipeline Flow Forecast

TCPL Mainline (SK Border):• LNG Tsunami and Full

Speed Ahead display the most impact on border flows

Northern Border:• LNG Tsunami and Full

Speed Ahead display the most impact on border flows

20052006

20072008

20092010

20112012

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


Mar

keta

ble

Gas P

rodu

ction

(mm

cf/d

ay)

20052006

20072008

20092010

20112012

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500


Mar

keta

ble

Gas P

rodu

ction

(mm

cf/d

ay)



A View from 2006 What Drives WCSB Drilling Today Overview of the Project Description of the 4 Narratives North American Future Demand North American Future Supply The Future of Power Generation LNG in the Pacific Basin The LNG Tsunami Story Comparing the 4 Narratives Questions


Canadian Energy Research Institute

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Documents

Relevant Independent Objective 1 North American Natural Gas Demand Pathways Canadian Energy Research Institute Peter Howard Canadian Energy