Current Issues Affecting Canadian Energy Markets:

A Western Canadian Perspective

Jean-Sébastien Rioux

International Summer School on the Geopolitics of Energy & Natural Resources

Calgary, May 15-20, 2017

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Presentation highlights

• The most important issue affecting Western Canadian energy market potential is our lack of access to global markets – AB and SK are landlocked and have no natural access to “tide water”

• Canada is in the top 5 most important producers of energy in the world in all their form, but we only have one significant customer: the USA.

• Canada does not get the full price for its hydrocarbon exports andremains vulnerable to US domestic policies

• Canada also risks missing significant export opportunities due to our lack of infrastructure, as well as lack of policy coherence and uncompleted internal trade

• All this in a post-COP21 context…

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Hydrocarbon reserves in Canada

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Source: “Crain’s PetrophysicalHandbook”

http://www.spec2000.net/02-cdnoilhistory.htm

Let’s begin by looking at oil production in Canada

• Conventional crude oil flows naturally and can be brought to the surface (pumped) without heating or other treatment:– Light sweet crude (Saudi Arabia, Iraq, Alberta, SK, BC, ON, NL)– Medium or heavy crude (California, Mexico, Venezuela, Alberta, SK)– Note: Shale Oil (e.g. Bakken) is conventional: once fracked, it flows

• Unconventional oil must be heated or diluted in order to be extracted and moved by pipeline or rail car– WCSB oil sands

• All types of oil can be refined into the products we know –gasoline, diesel, aviation fuel, kerosene, etc. – but heavier crudes require more effort to refine, hence the discounted price

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North Sea light sweet crude price

Natural gas price at NYC hub

A basket of light/medium crudes from the US

A basket of Canadian heavy crudes

What Canada loses on every barrel of oil!

Financial Post commodities listing, 12 May 2017

Oil Sands (bituminous sands) in Alberta

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PHOTO: ALAIN ROBERGE, LA PRESSE

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Refining

Source: Hossam Gabbar, Evidence presented to House of Commons, 31 Jan. 2012: http://www.parl.gc.ca/HousePublications/Publication.aspx?Language=E&DocId=5499677&File=27

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Natural Gas• Natural gas is mostly methane, and contains various

proportions of ethane, propane, butane, pentane, etc.

• Conventional gas is found in reservoirs that are accessible with conventional drilling techniques

• Unconventional gas is exactly the same, the difference being that the reservoirs are “non-conventional” and require more sophisticated techniques to access the gas:– Shale gas– Coalbed methane– Gas hydrates, etc.

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Source de la vidéo: Marathon Oil Corp. (2012) “Animation of Hydraulic Fracturing.” Disponible sur You Tube: http://www.youtube.com/watch?v=VY34PQUiwOQ

Case Study: BC LNG

• Premier Christy Clark has bet a lot on developing the vast natural gas plays (mostly shale gas) in the Horn River and Montneybasins

• The idea is to extract the gas in NE BC, gather and move it to the coast where it would be liquefied and sent by LNG tankers to markets in East Asia to satisfy their needs for electricity generation and manufacturing

• The arguments in favour are:– Thousands of jobs generated = more taxes paid by workers & firms– More royalties = more money for the province to pay for services– It would “green” electricity generation in Asia (coal → gas)– Economic growth, exports, etc.

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www.policyschool.ca Source: CERI 2014

Supply cost comparison

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Potentiel netback

Source: CERI 2014

But…

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We should also talk about GHG emissions…

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Source: Environment and Climate Change Canada (2017) National Inventory Report 1990-2015: Greenhouse GasSources and Sinks in Canada – Executive Summary. Available online:https://www.ec.gc.ca/ges-ghg/default.asp?lang=En&n=662F9C56-1

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Source: Environment and Climate Change Canada (2017) Greenhouse Gas Emissions by Province and Territory. Available online:https://www.ec.gc.ca/indicateurs-indicators/default.asp?lang=en&n=18F3BB9C-1

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Top-10 largest emitters in Canada (2015) – 5 are thermal coal electricity generators (4 of which in Alberta), v. 4 oil sands producers:

TOP 10 CANADIAN GHG EMITTERS IN 2015 (Environment Canada)

Facility Reporting Company Province Total GHG (Mt.)

1 Sundance Thermal Electric Power Generating Plant TransAlta Generation Partnership AB 14.4

2 Mildred Lake and Aurora North Plant Sites Syncrude Canada Ltd. AB 11.5

3 Genesee Thermal Generating Station Capital Power Generation Services Inc. AB 10.0

4 Suncor Energy Inc. Oil Sands Suncor Energy Oil Sands Ltd Partnership AB 8.7

5 Keephills Thermal Electric Power Generating Plant TransAlta Generation Partnership AB 8.7

6 Boundary Dam Power Station Saskatchewan Power Corporation SK 5.7

7 Cold Lake Imperial Oil Resources AB 5.5

8 Firebag Suncor Energy Oil Sands Ltd Partnership AB 5.0

9 Dofasco Hamilton ArcelotMittal Dofasco Inc. ON 4.8

10 Sheerness Generating Station Alberta Power (2000) Ltd. AB 4.2

Some conclusions

• Natural resources are managed by the provinces and generate significant jobs and revenues for them – about 15% of GDP

• All extractive industries generate externalities that must be accounted for and managed

• Hydrocarbons found in Western Canada will continue to be the most important energy source in the world for the next 30-40 years – there is no magic bullet solution yet

• Society must confront choices head-on: can we/should we continue to base a large proportion of our economy on non-renewable resource extraction? What are the trade-offs? What are the economic impacts of our choices? How do elected officials balance that, given that most people hold increasingly polarized views on issues such as pipelines?

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