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North American Shale Gas Revolution

North American Shale Gas Revolution. Presentation to APEC By Dan Cowan – Petroleum Resources Branch, Natural Resources Canada May 10, 2011. Outline. Natural gas and energy in Canada Energy policy and jurisdiction North American gas market Shale gas at a glance How has “the game” changed?

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North American Shale Gas Revolution

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  1. North American Shale Gas Revolution Presentation to APEC By Dan Cowan – Petroleum Resources Branch, Natural Resources Canada May 10, 2011

  2. Outline • Natural gas and energy in Canada • Energy policy and jurisdiction • North American gas market • Shale gas at a glance • How has “the game” changed? • Cdn. unconventional resources • Challenge of commercializing resource • Canadian supply forecast

  3. Energy - important to Canada’s economic prosperity Energy as a Percentage of Canadian Total (2009) • 3rd largest producer & exporter of natural gas • Only OECD country with growing oil production • Stable and secure energy supplier • $84 billion exports in 2009, primarily oil and gas: • 23.4% of total exports • In 2009, energy represented 6.7% of GDP, with direct employment of about 263,000 people

  4. Federal Energy Framework and Jurisdiction • Reliance on competitive markets for determining supply, demand, prices, and trade • Shared jurisdiction over natural resources • Provincial Jurisdiction • Resource ownership, management and royalties • Land-use planning and allocation • Laws regarding the exploration, development, conservation and use of natural resources within provincial boundaries • Federal Jurisdiction • International and interprovincial issues • North, offshore and Crown lands • Works declared to be for the general benefit of Canada (e.g. science and technology) • Nuclear, uranium

  5. North American Natural Gas Market • 74 Bcf/d - fully integrated market • Supply and demand centers connected via extensive pipeline network • Canada is a major producer and net exporter • Provides 85% of US imports • Majority of reserves located in Western Canada • Far from premium markets incl. Boston and H.H. • Surging U.S. shale gas production • Prices expected to remain relatively low • Ongoing efforts to build and diversify markets

  6. Technology is unlocking shale gas potential • Shale is an unconventional natural gas • Resource development not previously economical due to low flow rates • Combining long-reach horizontal drilling with multi-stage hydraulic fracturing has made the resource viable

  7. Shale Gas - Production and Resource Profile • Shale gas development began in the US where production grew from <1 bcf/d in 2000 to about 15 Bcf/d today • More than 20% of North American production • Shale gas widely expected to compose a third of North American natural gas production by 2020 • Canadian Society for Unconventional Gas estimates 700 to 1300 Tcf of natural gas in Canada (largely unconventional) • At unconstrained prices, North America estimated to now have 100-200 years of supply

  8. How is shale gas changing the game? 2000-2007 • Supply-limited market • High drilling levels, concern about supply • High prod’n costs, high and volatile prices, linked to oil • Falling WCSB conventional prod’n • Falling exports to US • Canada looking to import LNG 2008- Present • Demand-driven market, lower drilling, 100-200 years supply • Lower prod’n costs and prices, reduced volatility • Decoupling from oil prices • Redrawing the energy map • Surplus LNG import capacity • Industry advancing LNG export projects

  9. Forecast Oil (WTI) and Natural Gas (Henry Hub) Prices WTI H.H. Source: Various private consultants on retainer to the department and publically available forecasts. Natural Gas prices converted into per barrel equivalent using a value of 1 barrel oil= 5.8 MMBtu

  10. Major Unconventional Gas Basins • Canada has major unconventional gas resources • 50% of currently defined potential exists within Horn River and Montney • Both among lowest cost basins in North America • Challenged by distance to domestic markets and current low prices

  11. Producer Challenge:How to increase netbacks? • Cost reductions, stimulate demand etc. • Focus on the liquids rich plays • Exploring gas-to-liquids opportunities • Diversify export markets (via LNG) AECO $3.84 NBP $8.99 LNG >$11.00 H.H. $4.11 Oil-based LNG

  12. Canadian Gas Supply Forecast – February 2011 Shale Gas Tight Gas Source: CAPP, Price assumption: $5.50/mcf

  13. Conclusions • Surging US unconventional natural gas prod’n caused significant over-supply in North America • Canada has enormous shale gas potential • Industry aggressively developing shales in BC and other provinces • Industry exploring new business models including boosting demand, gas-to-liquids technology, and diversifying export markets via LNG.

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