Canadian Energy Research Institute
Western Canadian Oil and Gas Sector Overview
Dinara MillingtonVP Research
2016 International Cold Regions Oil & Gas SeminarSeoul, South KoreaDecember 7-8, 2016
Relevant • Independent • Objectivewww.ceri.ca
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Canadian Energy Research InstituteOverview
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 objective economic research of energy and environmental issues to benefit business, government, academia and the public.
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Current Sponsors
Supporters include:
In-kind support is also provided:
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Agenda
Canadian Oil and Gas Resources
Industry Contribution to the Canadian Economy
Oil and Oil Sands: Why Market Access is Critical!
Natural Gas: Is the Market Truly Disappearing?
LNG: Build it Now or Not at All?
Conclusions
Relevant • Independent • Objectivewww.ceri.ca5
Oil Reserves and Natural Gas Resources
Source: AER, NEB Source: NEB
Conventional Oil, 5.5
Mining, 32.1 In Situ, 133.3
Oil Sands, 167.1
Total Remaining Established Reserves in Canada = 171 Trillion barrels (at end of 2015)
Ontario, 1
Quebec, 7
Maritimes, 1
Frontiers, 223Conventional,
68
Tight Gas, 512
CBM, 48
Shale Gas, 371
WCSB, 855
Total Remaining Marketable Gas Resources in Canada = 1230 Tcf (at end of 2015)
Relevant • Independent • Objectivewww.ceri.ca6
Oil Proved Reserves by Country(billion barrels and % of total at end-2015)
Source: BP Statistical Review of World Energy, June 2016
300.9
266.6
172.2157.8
143.1
102.4 101.5 97.8
17.7%
15.7%
10.1%
9.3%8.4%
6.0% 6.0% 5.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
Venezuela Saudi Arabia Canada Iran Iraq RussianFederation
Kuwait United ArabEmirates
(bln barrels)
96% (165.4 billion barrels) of Canadian reserves are in the oil sands
World Oil Proved Reserves - 1,697.6 Billion barrels (at end of 2015)80 % are state-owned or controlled
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World Oil Production by Country(million barrels per day and % of total world crude production)
Source: BP Statistical Review of World Energy, June 2016.
12.7012.01
10.98
4.39 4.31 4.03 3.92
2.63
13.0%13.0%
12.4%
4.9% 4.9% 4.5% 4.2%
3.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
(MMbpd)
World Oil Production- 91.7 Million barrels per day (at end of 2015)
Canada is the 4th largest global oil producer
Relevant • Independent • Objectivewww.ceri.ca8
World Gas Production by Country(billion cubic feet per day and % of total world gas production)
Source: BP Statistical Review of World Energy, June 2016.
74.2
55.5
18.6 17.6 15.8
22.0%
16.1%
5.4% 5.1%4.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
(Bcfpd)
World Gas Production- 342 Billion cubic feet per day (at end of 2015)
Canada is the 5th largest gas producer in the world
Relevant • Independent • Objectivewww.ceri.ca9
Canadian Economy Annualized GDP by Industry or Sector(as of August 2016)
Source: Statistics Canada.
At a Glance….
• Good producing sectors amount to 30% of total GDP, service-producing – 70%.
• Real estate and rental and leasing - largest segment of Canada's economy.
• Manufacturing is the second largest component at 10.5%.
• The oil and gas sector has long been a significant contributor to Canada’s economy accounting for 8% of GDP.0.7%
0.7%
1.6%
1.9%
2.2%
2.4%
2.5%
3.0%
4.4%
5.2%
5.3%
5.4%
5.8%
6.5%
6.8%
6.8%
7.2%
7.9%
10.5%
13.1%
0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0%
MANAGEMENT OF COMPANIES AND ENTERPRISES
ARTS, ENTERTAINMENT AND RECREATION
AGRICULTURE, FORESTRY, FISHING AND HUNTING
OTHER SERVICES (EXCEPT PUBLIC ADMINISTRATION)
ACCOMMODATION AND FOOD SERVICES
UTILITIES
ADMINISTRATIVE AND SUPPORT, WASTE …
INFORMATION AND CULTURAL INDUSTRIES
TRANSPORTATION AND WAREHOUSING
EDUCATIONAL SERVICES
PROFESSIONAL, SCIENTIFIC AND TECHNICAL SERVICES
RETAIL TRADE
WHOLESALE TRADE
PUBLIC ADMINISTRATION
CONSTRUCTION
HEALTH CARE AND SOCIAL ASSISTANCE
FINANCE AND INSURANCE
MINING, QUARRYING, AND OIL AND GAS EXTRACTION
MANUFACTURING
REAL ESTATE AND RENTAL AND LEASING
Relevant • Independent • Objectivewww.ceri.ca10
What Does Canada Export?
Source: Statistics Canada.
At a Glance….
• Goods exports amount to 30% of GDP (service exports ~5% of GDP)
• The third largest category of goods exports is Energy Products (oil, natural gas and other) at 14% of total exports, a decline of 10% from 2014 prior to oil price collapse.
• The United States still accounts for the vast majority of Canadian exports at 75% share.
0.8%
2.0%
3.3%
4.1%
5.2%
6.1%
6.3%
6.4%
7.9%
11.5%
14.2%
14.4%
17.8%
0.0% 5.0% 10.0% 15.0% 20.0%
SPECIAL TRANSACTIONS TRADE
OTHER BALANCE OF PAYMENTS ADJUSTMENTS
METAL ORES AND NON-METALLIC MINERALS
AIRCRAFT AND OTHER TRANSPORTATION EQUIPMENT AND PARTS
ELECTRONIC AND ELECTRICAL EQUIPMENT AND PARTS
FARM, FISHING AND INTERMEDIATE FOOD PRODUCTS
BASIC AND INDUSTRIAL CHEMICAL, PLASTIC AND RUBBER PRODUCTS
INDUSTRIAL MACHINERY, EQUIPMENT AND PARTS
FORESTRY PRODUCTS AND BUILDING AND PACKAGING MATERIALS
METAL AND NON-METALLIC MINERAL PRODUCTS
ENERGY PRODUCTS
CONSUMER GOODS
MOTOR VEHICLES AND PARTS
Land AcquisitionCrown Land Sales
Evaluation
Construction
Operation and Maintenance
Production
Wages
Royalties
Western Canada’s Oil and Gas Sector
Land AcquisitionCrown Land Sales
Conventional Drilling
Completion and Tie in
Operation and Maintenance
Production
Wages
Royalties
2015 Expenditures: $49.6 billion 2015 Expenditures: $46.3 billion
Oil and Gas Drilling Oil Sands Developments11
Relevant • Independent • Objectivewww.ceri.ca12
Historical Expenditures in Conventional Oil and Gas
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
(‘0
00
CD
N $
)
BC TOTAL AB TOTAL SK TOTAL Territories TOTAL Western Canada
2014-2015: CAPEX Decline of 23%
2015-2016E: CAPEX Decline of 44%
Source: CAPP, Arc Financial
Relevant • Independent • Objectivewww.ceri.ca13
Historical Expenditures in Oil Sands
Source: CAPP, Arc Financial
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
(‘0
00
CD
N $
)
Capital Operating Royalties Total
2014-2015: CAPEX Decline of 28%2015-2016E: CAPEX Decline of 20%
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Canadian Crude and Oil Sands Production Outlook
Relevant • Independent • Objectivewww.ceri.ca15
2015 Facts about Canadian Crude
2015 Average Day Volumes• Western Canada Conventional Light/Medium Production 663,296 bbls/day• Eastern Canada Conventional Light/Medium Production 175,754 bbls/day• Canadian Condensate Production (C5+) 218,922 bbls/day• Canadian Conventional Heavy Production 430,117 bbls/day• Canadian Upgraded Bitumen Production (SCO) 976,208 bbls/day• Canadian Non-Upgraded Bitumen Production (Bitumen) 1,405,173 bbls/day• Total Canadian Production of Crude Oil and Equivalent 3,869,469 bbls/day
In June 2016• Production of Crude Oil and Equivalent 3,289,182 bbls/day
2Q16 Day Export Volumes (%Change – 2Q15)• Exports of Crude Oil and Equivalent to US 2,848,752 bbls/day (-3.7%)• Total Crude Oil Exports to PADD II 1,781,229 bbls/day (-6.3%)• Total Crude Oil Exports to PADD III 392,724 bbls/day (+2.9%)
Source: National Energy BoardNote: Some of the year-end volumes have not been finalized and thus are estimates
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Canadian Crude Exports to the US (2Q2016)
Source: National Energy Board
218,152
1,781,229
392,724
221,381 235,265
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
PADD I PADD II PADD III PADD IV PADD V
bb
l/d
Conventional Light Conventional Medium Conventional Heavy SCO Bitumen Total
Relevant • Independent • Objectivewww.ceri.ca17
Conventional Oil Production Forecast(Study 159, September 2016)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036
Bb
l/d
ayTh
ou
san
ds
Alberta British Columbia Saskatchewan Manitoba Newfoundland CAPP 2016 Forecast
Source: CERI, BCOGC, AER, Gov’t of SK, Gov’t of MB, CNLOPB, PSAC, CAPP
Relevant • Independent • Objectivewww.ceri.ca18
Oil Sands Production Forecast(Forthcoming Study)
-
1,000
2,000
3,000
4,000
5,000
6,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
('0
00
b/d
)
Mined Bitumen Extraction Total In-Situ Bitumen Extraction Total Bitumen Extraction - CAPP
Relevant • Independent • Objectivewww.ceri.ca19
Oil Pipeline Infrastructure
Relevant • Independent • Objectivewww.ceri.ca20
North American Liquids Pipelines
Source: CAPP
Relevant • Independent • Objectivewww.ceri.ca21
Pipeline Network: Proposed Pipeline Export Capacity
Source: CAPP, company websites
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
'00
0 b
/d
Enbridge Line 3 Restored Kinder Morgan TMX Expansion TransCanada Energy East Existing Export Capacity
Relevant • Independent • Objectivewww.ceri.ca22
Net Available Export Supply
Source: CERI
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
'00
0 b
/d
Total Western CDN Convetional Export Supply Total SCO And Diluted Bitumen Supply Enbridge Line 3 Restored
Kinder Morgan TMX Expansion TransCanada Energy East Existing Export Capacity
Relevant • Independent • Objectivewww.ceri.ca23
Factors Affecting Canadian Oil
1. Global Demand
Economic growth in major consuming regions: Europe, US, China
Future demand growth
2. Global Supply
High levels of inventories (short term)
Delayed investments
Geopolitical Issues: Middle East, South America, Russia
3. Market Access
4. Oil Prices
5. Climate Change Policies and Emissions
Relevant • Independent • Objectivewww.ceri.ca24
Canadian Natural Gas Production Outlook
Relevant • Independent • Objectivewww.ceri.ca25
2015 Facts about Canadian Natural Gas
2015 Average Day Volumes• Western Canada Marketable Gas Production 14,763 Mmcf/day• Eastern Canada Marketable Gas Production 210 Mmcf/day• Total Canadian Marketable Gas Production 14,972 Mmcf/day
In July 2016• Total Canadian Marketable Gas Production 14,852 Mmcf/day
2015 Day Export and Imports Volumes (%Change – 2014)• Exports 7.4 Bcf/d (0%)• Imports 1.9 Bcf/d (-9.5%)
Source: National Energy BoardNote: Some of the year-end volumes have not been finalized and thus are estimates
Relevant • Independent • Objectivewww.ceri.ca26
Raw Natural Gas Production Forecast in WCSB
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Raw
Nat
ura
lGas
Pro
du
ctio
n (
mm
cf/d
ay)
WCSB Solution Gas Alberta Alberta Coal Bed Methane British Columbia Saskatchewan BC LNG Field Supply
Source: CERI, NEB, BCOGC, AER, Gov’t of SK, PSAC, CAPP
Relevant • Independent • Objectivewww.ceri.ca27
Canadian Natural Gas Supply and Demand
Source: CERI, NEB
0
5000
10000
15000
20000
25000
2005 2010 2015 2020 2025 2030 2035
mm
cfd
Pipeline Exports LNG Exports Supply Demand
Relevant • Independent • Objectivewww.ceri.ca28
Factors Affecting Canadian Natural Gas
1. Declining production volumes driven by lower demand for exports in the US
Emerging supply sources and inter-basin gas-on-gas competition
2. Western Canadian export volumes to Ontario and Quebec have declined, competing with US exports out of Marcellus
3. Domestic demand is providing upside relief to market driven by industrial demand (oil sands, petrochemicals and power generation)
4. Low natural gas prices
5. LNG facilities
Relevant • Independent • Objectivewww.ceri.ca29
Canadian Natural Gas Infrastructure and LNG Terminals
Relevant • Independent • Objectivewww.ceri.ca30
West Coast Natural Gas Pipelines and LNG Facilities
Relevant • Independent • Objectivewww.ceri.ca31
Asia-Pacific LNG Demand and SupplyLNG Export Potential to the Pacific Basin
Source: CERI, IEA
Relevant • Independent • Objectivewww.ceri.ca32
Factors Affecting Canadian LNGLNG Export Potential to the Pacific Basin
1. Global Competition
Supply
• Pipeline access (China and Europe)
2. Demand Growth
3. Geopolitics Europe/Russia
4. How many plants get built in Canada if any
5. Natural Gas and Crude Oil Prices
6. Carbon Management Policies
Relevant • Independent • Objectivewww.ceri.ca33
Conclusions
Source: CERI, IEA
• 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
Relevant • Independent • Objectivewww.ceri.ca34
Canadian Energy Research Institute
Thank you for your time
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