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North American Natural Gas Demand Pathways

Canadian Energy Research Institute. North American Natural Gas Demand Pathways. Peter Howard Canadian Energy Research Institute 32 nd USAEE/IAEE North American Conference July 28-31, 2013. Canadian Energy Research Institute Overview.

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North American Natural Gas Demand Pathways

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  1. Canadian Energy Research Institute North American Natural Gas Demand Pathways Peter Howard Canadian Energy Research Institute 32nd USAEE/IAEE North American Conference July 28-31, 2013

  2. 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 Explorers and Producers Association (EPAC). 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

  3. Current Projects 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 To be Released August 2013

  4. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • Comparing the 4 Narratives • Questions

  5. Setting the Stage 2012 2006 2030

  6. North American Natural Gas Industry EIA United States view from 2006 looking forward • 2015 Forecast • LNG Imports 8 bcf/day • Imports from Canada = 5 bcf/day • Alaskan Gas 2.5 bcf/day (4.5 bcf/day max) 24% imports

  7. North American Natural Gas Industry CERI Canadian view from 2006 looking forward • 2015 Forecast (18% of Supply) • Quebec LNG • Mackenzie Valley Pipeline • Canaport LNG (NB)

  8. 2006 Gas Wells Completed

  9. 2008 Gas Wells Completed

  10. 2010 Gas Directed Licences

  11. 2012 Gas & CBM Directed Licences Montney Falher Duvernay Cardium Glauconitic Notikewin Viking Milk River

  12. North American Natural Gas Industry “A Tale of Two Countries” • 2012 Alberta Gas Well Licenses • 774 Horizontal Wells (66%) • 283 Slant/Deviated (23%) • 127 Vertical (11%) 17 to 22 Bcf/day • 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

  13. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • Comparing the 4 Narratives • Questions

  14. Western CanadaWhat Makes the Gas World Work BC Montney Supply Cost example With a Gas Price of $1.87/mcf a well needs a minimum of 60 bbls/mmcf (Liquids) to be economic a Gas Price of $3.48/mcf a well needs a minimum of 20 bbls/mmcf (Liquids) to be economic

  15. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • Comparing the 4 Narratives • Questions

  16. North American Natural Gas Demand Pathways Overview Objective: The project will develop a North American supply perspective and explore future pathways of natural gas demand within North America. The future will be detailed as four narratives that explore the future of the of the natural gas industry and detail the relationship of supply/demand, exports/imports and market pricing. Key Question: “Looking out to 2030, in the face of robust supply, how will industry, government and others work together to understand and grow the demand for natural gas and improve the competitiveness of the Canadian Natural Gas Industry?“ The Players: Canadian Energy Research Institute ICF International (Fairfax) whatIf? Technologies (Ottawa) Scenarios to Strategy (Calgary)

  17. North American Natural Gas Demand Pathways Driving Forces LNG Exports From North America Power Generation Demand Access to Capital Residential & Commercial Demand North American Economy Environmental Concerns & Management Transportation Demand North American Natural Gas Industry Social Licence Geopolitics Oil Market Dynamics Demographics & Labour Pipelines & Infrastructure Industrial Demand Gas Supply Government Policy & Regulation

  18. North American Natural Gas Demand Pathways Narratives High Growth Power Wave Full Speed Ahead LNG Exports from North America Low High Power Generation Demand Nowhere Fast LNG Tsunami Low Growth

  19. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • Comparing the 4 Narratives • Questions

  20. North American Natural Gas Demand Pathways Narrative Characteristics • Power Wave High Power Gen. Demand & Low LNG Exports • Global competition and regulatory uncertainties close the window • on LNG exports while pragmatic polices and a responsive market allowgas to penetrate power markets • Intense global competition for LNG markets in Asia & Europe with shift away from oil price related contracts • Regulatory delays in North America means that LNG misses the window • Gradual revival in North American economy increases demand for power and gas gains market share • Pragmatic fracking policy & societal expectations to cut carbon support natural gas • Market efficient: supply responsive to price allowing supply-demand balance at modest prices • Medium-term wave of small and large natural gas power facilities • Low cost power supports industrial expansion – regional differences persist in natural gas markets

  21. North American Natural Gas Demand Pathways Narrative Characteristics • Full Speed Ahead High Power Gen. Demand & High LNG Exports • Carbon policy drives expanded LNG exports and an expanded • role for gas in power generation – demand fires on all cylinders • Strong global economy & high oil prices fuel Asian LNG demand • Weather-related events attributed to climate change • Environmental concerns drive carbon policy in North America & globally • Collaboration helps industry engage stakeholders & weather near-term challenges • Carbon policy drives expanded role for gas in power generation within North America & globally - supports LNG exports from North America • North American industrial and transportation demand growth • North American gas markets are balanced, efficient and profitable and environment is improved

  22. North American Natural Gas Demand Pathways Narrative Characteristics • Nowhere Fast Low Power Gen. Demand & Low LNG Exports • A weak economy and stakeholder gridlock stymie LNG export • opportunities and any significant demand growth for gas • Global economy falls sharply • Rising geopolitical tensions and protectionism stymie trade • Low oil prices close the door to LNG exports from North America • Canadian commodities and energy hit hard by downturn • Rising stakeholder tensions stymie development • Political and regulatory gridlock • No new demand in LNG, power generation, industrial or transportation • Industry under siege hunkers down – a survivors game • "New normal" of low economic growth and flat energy outcomes • Global & North American markets more local and less integrated

  23. North American Natural Gas Demand Pathways Narrative Characteristics • LNG Tsunami Low Power Gen. Demand & High LNG Exports • A surge of investment drives LNG exports as politics and rising • prices undermine the competitiveness of gas in power generation • Global growth in LNG supports high prices & oil-linked contracts • Aggressive development of LNG projects in North America: no regulatory or financial restrictions • Integration of markets lead to convergence of North American & global prices • Economic growth greater than electricity growth as efficiencies decouple economic and electricity growth • Rising natural gas prices linked to LNG markets undermines natural gas in power generation • Coal lobby influential in extracting concessions – trade-off for support of coal is increased support of renewables – reduced opportunity for gas in North America • Advances in power storage enhance value of renewable energy

  24. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • Comparing the 4 Narratives • Questions

  25. North American Natural Gas Demand Pathways Lower-48 Gas Demand Disposition • The Nowhere Fast case shows declining disposition over time. • The Full Speed Ahead case has an aggressive disposition growth from 27 Tcf today to 41 Tcf by 2030. • Power Wave and LNG Tsunami are in between the two extremes. • Different composition of disposition. • About the same level of disposition by 2030, with slightly greater growth in LNG Tsunami. Source: CERI,ICF International

  26. North American Natural Gas Demand Pathways Canadian Gas Demand Disposition • Canada gas demand disposition tells the same story as in the US. • Full Speed Ahead growth comes from a combination of power growth and LNG exports growth. • Less potential for power to grow compared to LNG exports. • Change of Canadian disposition is not as aggressive as in the US. • Declining pipeline exports to the US due to growing domestic demand as well as LNG exports. Source: CERI,ICF International

  27. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • Comparing the 4 Narratives • Questions

  28. North American Natural Gas Demand Pathways The Marcellus Story: Changing resource development parameters • 2007 production 0.1 bcf/day, 75 new gas well completions • 2011 production 4.0 bcf/day, 1,891 new gas well completions • Drilling will hold at 1,800 wells per year (2012-2014) • Approximately 2,000 capped wells will be tied in over the next 2-3 years • Drilling will grow to 2,100-2,300 wells per year (2015-2035) • 4,5,6 wells per pad • 90% horizontal wells • EUR’s increasing to 4-5 bcf/well • Higher than expected IP rates • Decline curve showing a higher sustaining level • NGL recoveries of 30-35 bbls/mmcf

  29. North American Natural Gas Demand Pathways US Gas Supply by Region: Mid-Atlantic, South Atlantic

  30. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • Comparing the 4 Narratives • Questions

  31. North American Natural Gas Demand Pathways Base Case Power Generation: 2011 Statistics *Geothermal, biomass and solar are combined in Canadian Statistics.

  32. North American Natural Gas Demand Pathways Base Case US Coal Power Generation Capacity (On Stream Years) 87% of the Plants are 25 Years of age or older

  33. North American Natural Gas Demand Pathways Base Case US Power Generation (Additions and Retirements) 2011+

  34. North American Natural Gas Demand Pathways Base Case: US Power Generation

  35. North American Natural Gas Demand Pathways Base Case: US Power Generation by Narrative

  36. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • Comparing the 4 Narratives • Questions

  37. North American Natural Gas Demand Pathways Australia's Supply Growth Source: Bureau of Resource and Energy Economics

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

  39. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • The LNG Tsunami Story • Comparing the 4 Narratives • Questions

  40. 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

  41. North American Natural Gas Demand Pathways Lower-48 LNG Exports • Robust LNG exports in the LNG Tsunami case. • Lower-48 LNG exports peak at 10 Bcf/d in 2023. • Declining trend after 2025 represents competition with supplies from other countries. • Full Speed Ahead reaches the same level of LNG exports as in LNG Tsunami, but at slower pace. • LNG exports are not a notable factor in the other cases. Source: CERI,ICF International

  42. North American Natural Gas Demand Pathways Canada LNG Exports • Canada LNG exports consistent with US exports, but at half the volume. • In LNG Tsunami and Full Speed Ahead, Canada LNG exports reach 5 Bcf/d, but the pace of growth differs. • In this study, Canada LNG export terminals are located near the Port of Kitimat in British Columbia. Source: CERI,ICF International

  43. 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

  44. North American Natural Gas Demand Pathways Henry Hub Gas Prices • The weak economy in Nowhere Fast extends currently depressed gas prices into the future. • In Power Wave, Henry Hub price remains in the $4/MMBTU ballpark, as a sluggish economy and lack of LNG exports hinders development of gas markets. • Gas prices “cycle” in LNG Tsunami, riding the wave of LNG exports. • In Full Speed Ahead, gas prices “bounce back” strongly, buoyed by robust economic activity. Source: CERI,ICF International

  45. CERI North American Natural Gas Pathways Summary: What Does this Mean for Canada?

  46. North American Natural Gas Demand Pathways Provincial Production Forecast by Narrative • Alberta: • Production varies from a low of 8 Bcf/day to a high of 12 Bcf/day • British Columbia: • Production varies from a low of 2 Bcf/day to a high of 9 Bcf/day

  47. North American Natural Gas Demand Pathways Selected Export Pipeline Flow Forecast • TCPL Mainline (SK Border): • LNG Tsunami and Full Speed Ahead display the most impact on border flows • Northern Border: • LNG Tsunami and Full Speed Ahead display the most impact on border flows

  48. CERI North American Natural Gas Pathways • A View from 2006 • What Drives WCSB Drilling Today • Overview of the Project • Description of the 4 Narratives • North American Future Demand • North American Future Supply • The Future of Power Generation • LNG in the Pacific Basin • The LNG Tsunami Story • Comparing the 4 Narratives • Questions

  49. Canadian Energy Research Institute Thank you for your time Please visit us at www.ceri.ca

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