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Home > Speeches and Presentations > Speeches and Presentations 2007 > NEB Views on Energy Future - Focus on Canada with impact for the Rockies

NEB Views on Energy Future - Focus on Canada with impact for the Rockies

Presented by
Roland George
Board Member
National Energy Board

11^th Wyoming Natural Gas Fair
Jackson Hole, Wyoming

19-21 September 2007

NEB Views on Energy Future - Focus on Canada, with Impacts for the Rockies

Outline

What is the NEB?

Our Board Members

The National Energy Board has 8 full time members, 3 temporary members and about 300 staff, all located in Calgary. Our decisions are based on the knowledge that people share with us during our hearings. All decisions made by the Board are intended to serve the Canadian public interest.

The NEB's role pursuant to the National Energy Board Act

NEB Vision

What is the "Energy Future" Report?

The EF Report is a long-term assessment of energy demand and supply in Canada. EF reports have been released at roughly four year intervals, the last one in 2003. These reports provide an opportunity to integrate the short term market intelligence reflected in the various commodity-specific Energy Market Assessments (EMAs) into an "all energy" market analysis and outlook.

The objectives of the 2007 report:

Independent analysis on energy supply and demand trends
A reference for interested Canadians on energy issues and trends
Provides stimulus for energy discussion
Informs decision makers of key risks and uncertainties facing the energy future
Will be published in November 2007

The Energy Futures project attempts to look ahead in time to the year 2030 and tries to identify how Canadians will produce and consume all types of energy.

Energy Future Report Key Scenario Assumptions

The upcoming EF Report includes a reference case to 2015 and a range of three scenarios to 2030. This slide lists some of the major drivers that differentiate the scenarios. Oil prices are the major determinant of oil supply, and natural gas prices are important because natural gas is a major input cost component for oil sands producers.

The light/heavy differential is set at 30% for all scenarios, and is based on the average differential over the last 10 years.

WTI oil prices vary from 35$ to 85$ in the 3 scenarios, while Henry Hub gas prices vary between $5.50 and $12, with a slight environmental premium on gas in the Triple E case.

Technology has been a major driver, especially for the oil sands industry, and the high oil prices of the Fortified Islands scenario are the most conducive to enhancements in oil production technology.

The cost of environmental compliance is an important factor, and this cost is highest in the TE scenario.

Scenarios are An effective method to deal with uncertainty, Not a forecast but a plausible outcome

Reference case (2005-2015)

Based on established trends and known developments

Continuing Trends

Extend reference case trends to 2030

Triple E (Energy, Economy and Environment)

International cooperation
Emphasis of balanced development
Low energy prices

Fortified Islands

Lower world trade
Emphasis on energy security
High energy prices

High Level EF Results

Supply is adequate, but energy mix will change (unconventional replacing conventional - both oil and gas)

Prices higher than historical averages, prices to remain at higher levels

Markets functioning as they should: hi prices, build supply, decrease demand, low prices decrease supply & increase demand, some evidence that Canadians are adjusting life styles in response to the prices

Oil and electricity exports to US will grow, gas exports will decrease in all scenarios except for the Fortified Islands

Macro economic growth is lower than past primarily to due ageing population, low population growth, need for significant investments to meet demand and replace ageing infrastructure

Technology is required in all areas, new or better ways to produce unconventional supplies, reduction in demand growth thru efficiency gains, cleaner use of fossil fuels especially coal

Climate concerns are big in the public's eyes, governments trying to determine policies and plans to reduce emissions without large sacrifice on economy, scenarios all show that total emission grow over the next thirty years, but that the intensity levels decrease in almost all scenarios, reduction of total emissions require much more stringent policies than those announced to date, Kyoto targets are not met in Canada

Canadian Total Greenhouse Gas Emissions

In Canada, programs, policies and technologies are in development, impacts are explored only in Triple E Scenario

GHG emissions are outcome of energy demand and are rigid in short term

Addressing climate change requires utilization of all available strategies, EF focuses on reductions via energy efficiency, energy management and investment in carbon capture and storage

In Triple E, emission reductions of 0.3%/year from 2004 to 2030 with balance of energy use, environmental impacts and economic growth

Canadian government has announced goal to achieve a 20% reduction below 2006 by 2020 (purple line). This will require using other emission reduction policies and programs that are outside of the EF scope. Possibilities include: government technology funds, carbon offsets and access to Kyoto's Clean Development Mechanism. There is significant uncertainty about how consumers & technology will react to the required policies and programs.

Gas Related Issues

Canadian Gas Production

Canadian production slips due to reduced drilling in 2007-2008, then flatter to 2010

Then responds to price tracks we have adopted - real $5.50, $7, $12 HH

In long term unable to maintain current net export levels since more gas being used in Canada, primarily to fuel growth in oil sands output

"Net Exports" refers to the difference between amount produced in Canada plus amount imported into Canada - the amount exported form Canada. Imports would include LNG, or Alaska pipeline deliveries

Canadian Supply / Demand

Canadian gas demand increases steadily through 2015 largely due to increasing gas use for oil sands and electricity generation

Over the same period, gas supply in Canada, even when domestic production is supplemented by imported LNG, is flat to declining

This reduces the volume potential available for export and to compete with Rockies-sourced gas in major markets

Canadian Gas Exiting Western Canada

With Alberta gas demand increasing in all cases, and flat to declining WCSB production in the Reference, Continuing Trends and Triple E, it results in a significant reduction in the net amount of gas available to exit the region. Slide only shows the expected domestic production form conventional and unconventional sources. It does not show the impact of Alaska pipeline deliveries or any LNG deliveries from the West Coast into the WCSB. These volumes would need to be added to the volumes shown.

Any reduction in net gas flows out of western Canada is expected to be offset by increased imports of LNG into North America.

In Fortified Islands, net gas exports are close to current levels to 2020

Other Supply Sources

LNG

International trade
Questions about using foreign sources

CBM & Other unconventional gases

Tight gas, shale gas, gas hydrates

Conventional Supplies from frontiers

Mackenzie Delta, Alaska, Arctic Islands, East Coast

North American Pipeline Network

Changing Flow Dynamics

About 95% of N. Am production currently comes from an area following roughly the continental divide. (blue shaded areas)

Directional representation - don't have numbers for flows by period - nominally looking out to about 2015

Shows flows staying about the same in yellow, flow increases in pink and flow decreases in dark blue

Demand growing faster than supply in western Canada (even counting Mackenzie) - Canadian gas flows out of western Canada expected to decline - impact of Alaska not included - Nova Scotia offshore also declines (even counting Deep Panuke)

LNG imports growing - regas capacity doubling by 2009, potential for less pipeline exports from US to Mexico due to LNG

Some pipeline routes constrained - up east coast, across NY state, PA. Other pipe routes unlikely to increase due to competition - LNG coming into S. California, Rockies gas in central

Biggest increase is 2 Bcf/d Rockies Express pipeline under construction - approved to Missouri, going to Ohio

Joined by gas supply increases up from east Texas + Gulf LNG imports

All heading toward high netback markets in NE - too much gas for market growth - some may end up stuck in Chicago and, seeing ready market, could possibly move up into Ontario (Vector expansion likely required)

Discussion Points - Rockies Gas

Expectations of flat to declining gas production in Canada and growing Canadian gas demand for oil sands extraction and processing and for electricity generation creates some potential headroom in markets served by Canadian exports

Supply potential in the Rockies (200 Tcf according to the Potential Gas Committee) suggests that REX is just a first step and that further compression and looping may follow as markets develop

REX West will add to the already substantial pipeline capacity into the Mid-Continent

A key challenge for REX is moving such a large incremental volume of gas from its terminus in Eastern Ohio through existing pipelines to major markets in New York and Boston. Should this prove difficult (recalling Millennium Pipeline's 5+ years to gain the necessary approvals to traverse that territory) there is the possibility for more Rockies gas to want to move north.

This might occur via an expanded Vector Pipeline into Dawn. From Dawn, the Ontario market could bid for some of the gas and some could move onto a potentially underutilized^[1] TCPL-Iroquois pipe to head to the U.S. Northeast.

[1] Assuming increasing volumes of WCSB gas stay in Alberta for the oil sands.

The potential risk of this northern route to the northeast is the potential for rate-stacking on the numerous pipelines (Vector, Union, TCPL, Iroquois) putting you out of the money if a direct route from the REX terminus to market can be achieved.

(The Alberta-Northeast (ANE) shippers may be one group that has taken that bet by recently recommitting to 15 year demand charges on 275 MMcf/d from Dawn on TCPL-Iroquois.)

Summary

"Net Exports" refers to the difference between amount produced in Canada plus amount imported into Canada - the amount exported form Canada. Imports would include LNG, or Alaska pipeline deliveries

Thank You!

Energy Future - Reference Case & Continuing Trends

Reference Case & Continuing Trends Scenario ($7/Mcf HH)

Canada has a large remaining natural gas resource base (424 Tcf) about a third is conventional gas in western Canada

After dropping to 12 000 gas wells drilled in 2007, drilling in western Canada recovers to stabilize at roughly 18 000 gas wells per year

Production declines gradually - losing about 40 percent by 2030

CBM production steadily increases, reaching 1.4 Bcf/d by 2015

Atlantic production includes Sable, McCully, CBM (and Deep Panuke in 2010 - subject to regulatory approval)

If no significant new discoveries, offshore Nova Scotia winds down by 2020

Newfoundland Grand Banks oil projects make gas available by 2017 as CNG

Mackenzie starts in 2015

Three LNG import terminals operational by 2015 and importing 1.4 Bcf/d.

LNG imports represent 27 percent of supply by 2030 (5 terminals)

Gas demand grows 45 percent from 2005 to 2030 - led by gas use for oil sands and power generation

Tightening supply-demand balance - stop being a net exporter by 2028

Energy Future - Triple E Scenario

Triple E: $5.50/Mcf

Through 2010, geopolitical tensions are easing, high economic growth keeps prices high and constrain demand

Secure international investment climate, increased access - leads to energy supply abundance

Slowing of international energy demand growth as consumers search for more efficient methods of using energy, and governments introduce policies to manage demand; and

Continued pressure to deal with rising emissions levels.

Energy prices fall between 2010 and 2020.

Abundant LNG imports drive gas prices down

Efficiency and environment focus with carbon tax to keep prices high to end users

Canadian production declines as higher cost resources uneconomic to develop

Only 8 000 gas wells drilled per year in western Canada

No Mackenzie gas project

Demand grows less than 10 percent by 2030 due to energy efficiency improvements

Canadian supply and demand would be in balance by 2020, as shown in Figure 6.3.6

By 2030, Canada would be a net importer of almost 3.5 Bcf/d.

Imports of LNG into North America are so extensive, there is no market for Canadian natural gas exports after 2018

Energy Future - Fortified Islands Scenario

Fortified Islands: $12/Mcf

Insecure international investments – North America focuses on security of supply

Higher prices enable strong Canadian supply

24 000 gas wells drilled per year in western Canada (1075 rigs at 55% utilization)

CBM production rising to 3.5 Bcf/d, up to 2 Bcf/d from shale gas

Production above remains within 1 Bcf/d of 2015 peak through 2024

Extensive development of unconventional and frontier sources

Nova Scotia offshore exploration revitalized and leads to deepwater discoveries

Production from the Arctic and offshore Labrador in the latter stages of projection

Due to insecurity of supply, no LNG imports into Canada after 2015

Gas demand grows about 15 percent by 2030 but is hampered by higher energy prices and reduced economic activity

Net exports erode slightly until 2015 when frontier gas production enables new peak