Canadian Production and Infrastructure Outlook Production and Infrastructure Outlook Platts 8th Annual Pipeline Development & Expansion Conference Canadian Energy Research Institute

Relevant • Independent • Objective www.ceri.ca 1

Canadian Production and Infrastructure Outlook

Platts 8th Annual Pipeline Development & Expansion Conference

Canadian Energy Research Institute

Dinara Millington Canadian Energy Research Institute

September 17-18, 2013


Canadian Energy Research Institute Overview

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 Small Explorers and Producers Association (SEPAC). 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

Our Work: Current Work (2013 – 2014): • Natural Gas Liquids in North America: Overview, Emerging Trends, and Updated Outlook • North American Natural Gas Demand Pathways (ICF/ Marbek, what-if?, S2S) • Many more… Recently Released Reports (2012 – 2013): • Canadian Oil Sands Supply Costs and Development Projects (2012 – 2046) • Potential Economic Impacts of Developing Quebec’s Shale Gas • Global LNG: Now, Never, or Later? • Natural Gas Liquids in North America: Overview and Outlook to 2035 • Many more… Periodicals/ Monthly Reports: • Crude Oil Commodity Report • Natural Gas Commodity Report • Geopolitics of Energy (Subscription Service) Annual Conferences: • Natural Gas Conference (February 2014) • Oil Conference (April 2014) • Petrochemical Conference (June 2014)

Kananaskis = Golf!

3


Example Reports

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

Potential Economic Impacts of Developing Quebec’s Shale Gas Released March 2013

North American Natural Gas Demand Pathways Released August 2013


Agenda

Canadian Crude and Oil Sands Production Outlook Western Canadian conventional oil Alberta’s Oil Sands

Oil Pipeline Infrastructure

New pipelines Expansion of existing Conversions and Reversals

Canadian Natural Gas Production Outlook

Western Canadian natural gas production Canadian Exports

LNG Development in Canada

Terminals Connecting infrastructure


2012 Facts about Canadian Crude

2012 Average Day Volumes • Western Canada Conventional Light/Medium Production = 658,054 bbls/day • Eastern Canada Conventional Light/Medium Production = 198,990 bbls/day • Canadian Condensate Production (C5+) = 138,627 bbls/day • Canadian Conventional Heavy Production = 451,363 bbls/day • Canadian Upgraded Bitumen Production (SCO) = 892,193 bbls/day • Canadian Non-Upgraded Bitumen Production (Bitumen) = 895,012 bbls/day • Estimated Production of Crude Oil and Equivalent = 3,234,229 bbls/day

In December 2012 • Estimated Production of Crude Oil and Equivalent = 3,418,544 bbls/day

2012 Average Day Export Volumes • Estimate Exports of Crude Oil and Equivalent = 2,316,038 bbls/day • Estimate of Total Crude Oil Exports to PADD II = 1,599,308 bbls/day (70%) • Estimate of Total Crude Oil Exports to PADD III = 164,710 bbls/day (7%)

Source: National Energy Board Note: Some of the year-end volumes have not been finalized and thus are estimates


Canadian Oil Industry Alberta connected oil wells by year

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2003 2004 2005 2006 2007 2008 2009 2010 2011

Perc

enta

ge H

oriz

onta

l Wel

ls

Conn

ecte

d O

il a

nd B

itum

en W

ells

Total Complete Vertical Oil Wells Total Completed Horizontal Oil Wells Percentage Horizontal Oil Wells

2012 Alberta Oil Licences • Horizontal Wells (78%) • Vertical Wells ( 9%) • Deviated and Slant (13%)

Source: ERCB data, CERI analysis


CERI’s WCSB Oil Well Count Forecast Reference Case (2013 Q2)

01,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,00013,00014,00015,000

2003

2004

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

2030

2031

2032

2033

2034

2035

2036

2037

Wel

l Cou

nt

AB Conventional Vertical Wells AB Conventional Horizontal Wells BC Conventional Vertical Wells

BC Conventional Horizontal Wells SK Conventional Vertical Wells SK Conventional Horizontal Wells

AB D&A Wells BC D&A Wells SK D&A Wells

Forecast


CERI’s WCSB Oil Production Forecast Reference Case (2013 Q2)

0100,000200,000300,000400,000500,000600,000700,000800,000900,0001,000,0001,100,0001,200,0001,300,0001,400,0001,500,0001,600,000

0100,000200,000300,000400,000500,000600,000700,000800,000900,000

1,000,0001,100,0001,200,0001,300,0001,400,0001,500,0001,600,000

Crud

e O

il Pr

oduc

tion

(exc

l Oil

Sand

s) b

bls/

day

Alberta Conventional Oil Saskatchewan Conventional OilNorth West Territories conventional oil British Columbia Conventional OilManitoba conventional Oil CAPP June 2013 WCSB Conventional


CERI’s Oil Sands Capital Investment

$0

$25,000

$50,000

$75,000

$100,000

$125,000

$150,000

$175,000

$200,000

$225,000

$250,000

$275,000

$300,000

Total In situ Thermal & Solvent Total Primary and EOR projects Total Mining Total Upgrading

(Million CDN$)

Strategic Capital Sustaining Capital


CERI’s Oil Sands Production Forecast (2012-2046)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,00020

0720

0820

0920

1020

1120

1220

1320

1420

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

2520

2620

2720

2820

2920

3020

3120

3220

3320

3420

3520

3620

3720

3820

3920

4020

4120

4220

4320

4420

4520

46

('000 b/d)

Mining Projects Thermal & Solvent In Situ Projects Primary/EOR Projects CAPP Forecast June 2013

Forecast


CERI’s Oil Sands Supply Cost Estimates

PrimaryRecovery 10%

ROR (a)

SAGD 10%ROR (a)

Mining &Upgrading 10%

ROR (a)

Mining 10%ROR (a)

Fixed Capital (Initial & Sustaining) $14.31 $19.87 $51.03 $32.00Operating Working Capital $0.45 $1.01 $0.69Fuel (Natural Gas) $3.23 $2.55 $1.60Other Op. Costs (Fixed, Variable, Elec) $8.38 $11.44 $23.62 $17.00Royalties $6.40 $8.83 $12.89 $12.76Income Taxes $1.23 $2.98 $7.20 $4.31Emissions Compliance Costs $0.73 $0.65 $0.40Abandonment Costs $0.03 $0.07 $0.05

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

Real

201

1CDN

$/bb

l

$30.32

$47.57

$99.02

$68.30


Canadian Oil Price Differentials

• Canadian Exports feed one market. • Light/heavy spread has been affected by

the availability of pipeline capacity. • With refinery configuration changes

pending, the spread should hold tighter in 2013-2014.

• Increased availability of pipeline and rail capacity should generate higher netbacks for oil sands producers by 2014.

• The Cushing bottleneck will be relieved and differential will tighten.

0.00

20.00

40.00

60.00

80.00

100.00

120.00

Jan

2010

Mar

201

0M

ay 2

010

Jul 2

010

Sep

2010

Nov

201

0Ja

n 20

11M

ar 2

011

May

201

1Ju

l 201

1Se

p 20

11N

ov 2

011

Jan

2012

Mar

201

2M

ay 2

012

Jul 2

012

Sep

2012

Nov

201

2Ja

n 20

13M

ar-1

3M

ay-1

3

WTI-WCS Differential

WTI-WCS Differential

Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

WCS , Hardisty (USD/bbl)

-20.000.00

20.0040.0060.0080.00

100.00120.00140.00

Jan

2010

Mar

201

0M

ay 2

010

Jul 2

010

Sep

2010

Nov

201

0Ja

n 20

11M

ar 2

011

May

201

1Ju

l 201

1Se

p 20

11N

ov 2

011

Jan

2012

Mar

201

2M

ay 2

012

Jul 2

012

Sep

2012

Nov

201

2Ja

n 20

13M

ar-1

3M

ay-1

3

Brent/WTI Differential

WTI-Brent

Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Europe Brent Spot Price FOB (Dollars per Barrel)


Pricing Volatility

Heavy Crudes:

Source: Argus Media Ltd., OPEC

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Jan

2010

Feb

2010

Mar

201

0Ap

r 201

0M

ay 2

010

Jun

2010

Jul 2

010

Aug

2010

Sep

2010

Oct

201

0N

ov 2

010

Dec

2010

Jan

2011

Feb

2011

Mar

201

1Ap

r 201

1M

ay 2

011

Jun

2011

Jul 2

011

Aug

2011

Sep

2011

Oct

201

1N

ov 2

011

Dec

2011

Jan

2012

Feb

2012

Mar

201

2Ap

r 201

2M

ay 2

012

Jun

2012

Jul 2

012

Aug

2012

Sep

2012

Oct

201

2N

ov 2

012

Dec

2012

Jan

2013

Feb-

13M

ar-1

3Ap

r-13

May

-13

Jun-

13

US$/bbl

WTI-WCS Differential Arab Heavy/Dubai Avg Avg

Vol. σ: 7.23

Vol. σ: 1.90


Options for Canadian Crude By Pipeline

Source: Canadian Association of Petroleum Producers, Crude Oil Forecast, Markets & Pipelines, June 2011


WCSB Oil Sands (Bitumen + SCO) Production Forecast Reference Case (2013 Q1)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Ope

ratio

nal P

ipel

ine

Capa

city

(100

0 bb

lc/d

ay)

Net

Exp

ort F

low

Vol

ume

(100

0 bb

ls/d

ay)

WCSB Net Export Volumes Oil Sands: Onstream Bakken Production (KXL, Enbridge)

Oil Sands: Under Construction Oil Sands: Approved Oil Sands: Awaiting Approval

Oil Sands: Announced Alberta Clipper Expansion I Rail Export Capacity

Operating Export Capacity

Note: Pipeline Capacity stated as Operational capacity with a 95% efficiency applied Oil Sands volumes include required diluent to reac pipeline specification


WCSB Oil Sands (Bitumen + SCO) Production Forecast Reference Case (2013 Q1)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Ope

ratio

nal P

ipel

ine

Capa

city

(100

0 bb

lc/d

ay)

Net

Exp

ort F

low

Vol

ume

(100

0 bb

ls/d

ay)

WCSB Net Export Volumes Oil Sands: Onstream Bakken Production (KXL, Enbridge)

Oil Sands: Under Construction Oil Sands: Approved Oil Sands: Awaiting Approval

Oil Sands: Announced Alberta Clipper Expansion I TCPL Keystove XL

Alberta Clipper Expansion II Rail Export Capacity Operating Export Capacity

Note: Pipeline Capacity stated as Operational capacity with a 95% load factor applied Oil Sands volumes include required diluent to reach pipeline specification


WCSB Oil Sands (Bitumen + SCO) Production Forecast What is Next (2013 Q1)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Ope

ratio

nal P

ipel

ine

Capa

city

(100

0 bb

lc/d

ay)

Net

Exp

ort F

low

Vol

ume

(100

0 bb

ls/d

ay)

WCSB Net Export Volumes Oil Sands: Onstream Bakken Production (KXL, Enbridge)Oil Sands: Under Construction Oil Sands: Approved Oil Sands: Awaiting ApprovalOil Sands: Announced Alberta Clipper Expansion I TCPL Keystone XL ExpansionTCPL Eastern Energy Project TCPL Keystove XL Alberta Clipper Expansion IIRail Export Capacity Operating Export Capacity

Note: Pipeline Capacity stated as Operational capacity with a 95% load factor applied Oil Sands volumes include required diluent to reach pipeline specification

Enbridge Northern Gateway Kinder Morgan TMX Expansion TCPL Eastern Energy Project

Future Pipes

(1) Declining production volumes in AB driven by lower demand for exports in the US (2) AB Export volumes to the US declining the fastest in PADDs I (East Coast) and IV (Rockies), PADD II

(Midwest) still significant but on decline, PADD V (West Coast) remains somewhat stable (3) AB Export volumes to ON and QC on decline, competing with US volumes.

Export volumes to BC SK MB are up (4) Demand in AB is providing upside relief to market driven by industrial demand

Natural Gas Markets: Canada & Alberta

3

4

Figures and Analysis by CERI, with data from ERCB and EIA

2

19

1


North American Natural Gas Demand Pathways US 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.

Source: CERI,ICF International


Montney

Duvernay

Wilrich Notikewan, Rock Creek etc

Glauconitic Milk River, Medicine Hat

North American Natural Gas Demand Pathways Alberta, British Columbia: 2013 Gas Directed Licences (January – August 2013)

Factors Affecting WCSB NG Production Physical: Emerging supply sources and inter-basin gas on gas competition

22 Images from US EIA and Ziff/ NEB


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

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2003 2004 2005 2006 2007 2008 2009 2010 2011

Perc

enta

ge H

oriz

onta

l Wel

ls

Conn

ecte

d G

as W

ells

Total Completed Horizontal Gas Wells

Total Complete Vertical Gas Wells

Percentage Horizontal Gas Wells

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

02,0004,0006,0008,000

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

2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

Gas

Pro

duct

ion

(mm

cf/d

ay)

Marcellus Supply: Full Speed Ahead

Marcellus Supply: Nowhere Fast

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

2013 Alberta Gas Well Licences (Jan-Aug) • 851 Wells


North American Natural Gas Demand Pathways Canada 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


Coastal GasLink 1.7 Bcf/day initial 3.2 Bcf/day ultimate

LNG Canada Kitimat 1.6 Bcf/day initial 3.2 Bcf/day ultimate

Montney

Duvernay, Wilrich

Glauconitic

North American Natural Gas Demand Pathways Gas Directed (2013 Jan-Aug)

Prince Rupert Gas Transmission 2.0 Bcf/day

Shell Encana Paramount Progress CNRL Arc Res Apache Peyto Bonavista

Pacific North-West LNG 1.6 Bcf/day TCPL Groundbirch Pipeline


NE British Columbia versus

NW Alberta

1

Kitimat LNG 0.7 BCFPD

LNG Canada 1.6 BCFPDLNG Canada Expansion 1.6 BCFPDBC LNG Co-Op 0.1 BCFPD

Prince Rupert LNG 1.8 BCFPD

Pacific North-West LNG1.6 BCFPD

Kitisault Energy Project

Woodfibre LNG

Imperial Oil/Exxon LNG

Altagas LNG (West Coast)Nexen LNG (West Coast)

Pacific Trail Pipeline 1 BCFPDCoastal GasLink Pipeline 1.7 BCFPD (initial)Prince Rupert Gas Transmission 2 BCFPDBG/Spectra Pipeline (System 4.2 BCFPD)Pacific Northern Gas Looping

North American Natural Gas Demand Pathways BC LNG Projects


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

0

5

10

15

20

25

30

35

40

45

50

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

BCFP

D

Other supply sources

United States Potential Liquefaction

United States Liquefaction

Canada Liquefaction

East Africa Potential Liquefaction

Australian Liquefaction

Middle East Liquefaction

Asian LNG Demand

Asia Pacific LNG

Pinch Point


Canadian Energy Research Institute

Thank you for your time Please visit us at www.ceri.ca

Documents

Canadian Production and Infrastructure Outlook Production and Infrastructure Outlook Platts 8th Annual Pipeline Development & Expansion Conference Canadian Energy Research Institute