Canadian Gas Association

1. Natural Gas: A Foundation Fuel for CanadaPaul CheliakSenior Advisor CGA Taxation Committee MeetingJune, 2010

2. Canadian Gas Association Founded in 1907, CGA is the voice of Canada's natural gas delivery industry Members deliver gas to 6.1 million homes, businesses and industries Members include gas distribution, transmission and service providers

3. Overview • Natural gas in Canada • Gas in the Energy Mix, Canadian Gas Snapshot, Pipelines, Prices, Supply/Demand, Resources • End use trends • Industrial, Residential, Commercial, Power Generation, Transportation • The policy landscape • CGA Policy Initiatives • Energy Framework Initiative • Canadian Natural Gas Initiative • QUEST

4. Natural Gas In Canada

5. Natural Gas in the Energy Mix First Canadian well drilled in 1889 Canada is the world’s third largest gas producer and exporter. Produce 6 Tcf/yr, export 3 Tcf to US markets Gas provides 25% of Canada’s total energy demand 48% residential 45% commercial 32% industrial <1% transportation Export revenues between $20-30 billion/year Motorcycle Gas Delivery – 1920’s

6. Canadian Natural Gas Snapshot 2008 Supply Breakdown Power 13% SE 7% 20% Commercial 27% Residential BC 13% Demand 45% 40% Industrial 20% West 55% Exports 55% AB 80% Mid-West 25% East Note: SE = Sask + East Coast Production Exports to US Canadian Sales

7. A Reliable Supply Network • Over 480,000 km of pipeline forms an interconnected North American pipeline network that provides reliable and safe delivery of natural gas. • Backstopped by storage facilities that can hold 55 days of average daily North American natural gas consumption. • Market supply: • 78% of supply from US • 21% from Canada • 2% LNG.

8. The Natural Gas Market Landscape • Prices • Disconnect between crude oil and natural gas prices since 2005 with gas currently lagging by 50%. • Gas and coal competing for some market share in electric market • Natural Gas Supply • Shale gas has been a game changer putting gas on the map as a key fuel in the future energy mix • Renewable natural gas garnering interest • Natural Gas Demand • Stable or declining core and industrial markets • Growing gas in power generation • Growing interest in transportation

9. Changing Prices: Oil and Gas Split • Natural gas prices track each other because of market integration. • Gas to remain an excellent value due to domestic resource abundance • Crude to maintain price premium due to high world demand and tighter supply.

10. Changing supply/demand portfolio • Supply portfolio becoming increasingly unconventional (20% by 2020) driven by shale and other unconventional gas and the north. • Future demand to be driven by power generation and industrial (oil sands). • New residential and commercial gas users outweighed by furnace efficiency gains.

11. Changing Resource Picture

12. Canadian Gas Balance to 2020 • Canadian production falls from 6.5 Tcf in 2000 to 5.8 Tcf in 2020 as conventional fields decline. • Demand grows from 3 Tcf in 2000 to 4 Tcf in 2020 driven by oil sands and electric power. • Residential and commercial demand growth offset by gains in efficiency. • Net exports fall from 3.2 Tcf in 2000 to 1.8 Tcf in 2020.

13. LNG Exports From Canada • Kitimat LNG proposal to export up to 0.7 bcf/d by 2014 – equal to 20% of current BC production. • Kitimat has initial upstream (Apache) and takeaway (Kogas) contracts. • The project hinges on success of BC shale gas production and differential between oil and gas.

14. Changing Supply Basins • Shales are located across Canada and the US – both in traditional gas areas and areas new to gas development. • Shale basins economic the new low cost basis – 8 fold increase between 200 and 2008. • Shale to grow to 20% of NA gas by 2020 from 10% in 2009. • Maritimes shale – Horton Bluff. Some initial work being done.

15. Changing GHG Emission Objectives BEFORE 220 lbs AFTER 176 lbs 2020 Target 2050 Target 2008

16. How Gas Can Help • Help meet ambitious GHG reduction targets • Gas is available, clean burning and efficient • Help re-define power generation • 50% cleaner than coal • Compliment renewable generation • Help provide heat • Very efficient means to provide heat • Very good value • Help as a clean transportation fuel • 25% less emissions than diesel in a heavy duty truck application • Help economy • New production, pipelines, installations, create jobs and royalties

17. Natural Gas End Use Trends

18. Changing Natural Gas Use Trends 1990- 2007 Growth: 43% 1990- 2007 Growth: 12%

19. Industrial Sector Trends • Increased industrial gas demand has been driven by increased use in upstream mining (oil sands +745%). • There have been significant declines in major use sectors (pulp and chemicals). • Increased energy efficiency and conservation playing a major role as well.

20. Residential Sector Trends Total -11% • Natural gas meets close to 50% of residential energy demand . • 70% of residential natural gas use is for space heating, 27% is for water heating. • Gains in efficiency have led to an 11% decline in per customer residential natural gas use since 1990. Appliances +22% Water Heating - 21% Space Heating - 6% Source: NRCan National Energy Use Database

21. Investing in Solutions:DSM and Energy Efficiency

22. Commercial Sector Trends Intensity – Manitoba 1.47 GJ/m2 Intensity – Canada 1.38 GJ/m2 .32 GJ/m2

23. Power Generation Trends • Power generation energy demands have increased by 28% since 1990. • Natural gas use for power generation has increased by 345% since 1990.

24. Transportation Trends • Natural gas is a marginal transportation fuel at this point in time (0.1%). • Return to base urban and road freight transportation is the area with most potential for natural gas use. • Diesel represents over 72% of road freight transportation energy use.

25. A Changing Utility

26. The Policy Landscape

27. Policy Landscape for Natural Gas • The Energy Debate • Until recently natural gas was a blank to policy makers except to the extent that it was a fossil, running out, too expensive, GHG producing • But new supplies and capacities to produce has sparked interest in gas • Shift from climate driving energy to idea that if you get energy right the greenhouse gases will follow. • Think tanks and Senate (Energy Environment and Natural Resources Committee) struggling to find a coherent story and a way forward. • CGA working with others to tell the positive gas story • CGA working to position natural gas as a fundamental fuel • Energy Framework Initiative • Canadian Natural Gas Initiative (CNGI) • QUEST

28. CGA Strategic Initiatives - Linkages Less Specific Big Energy Discussion EFI Principles CNGI Principles Asks QUEST Asks Utility of the Future More Specific Broader Narrower

29. Energy Framework Initiative (EFI) An Energy Framework for Canada Security / Reliability / Affordability / Innovation / Sustainability • Six Pillars of Policy Activity • 1. A Commitment to Sustainable End-use of Energy • 2. A Commitment to Sustainable Energy Resource & Extraction, Production & Transmission Capability • 3. Ensuring a Sustainable Approach to Energy & Climate Change • 4. An Ongoing Social License to Build & Operate • 5. A Continuous Improvement in Capacity • 6. A Collaborative Approach on Intergovernmental Engagement Environmental Foundation Social Foundation Economic Foundation

30. Canadian Natural Gas Initiative (CNGI) • A nation-wide advocacy & communications initiative supported by the natural gas value chain in Canada to: • develop objective, fact-based educational materials on natural gas; • raise understanding among decision makers of the role that natural gas should play in achieving Canada’s energy, environmental, and economic objectives; and • demonstrate that natural gas is a smart foundation for Canada’s evolving energy mix and encourage supportive policy. • Target audience includes the public and key policy makers.

31. canadiannaturalgas.ca | gaznaturelcanadien.ca CNGI – Website and Brand

32. QUEST: Who and What • QUEST is a coalition for action drawing from a diverse group: • All three levels of Government • Energy & Renewable Industries • Environmental Groups • Developers & Builders • Academics & consultants • QUEST Vision: “By 2050 every community in Canada is operating as an integrated energy system, and accordingly, all community development and redevelopment incorporates an integrated energy system.”

33. The Opportunity in Canadian Communities Communities represent about 50% of Canadian energy use and GHG emissions. Communities are themselves energy using (and producing) entities. An integrated approach – energy systems embedded in the community fabric of land use, density, transport, water and waste can deliver GHG reductions . Just as importantly this creates more resilient & adaptable energy systems delivering safe, reliable , affordable energy services. In short, a more sustainable approach.

34. Gas Demand in Scenarios

35. Regulator Industry Dialogues • The R/I Dialogue has held eight self-financed sessions to-date including: • Demand Side Management (4) • Carbon Pricing (3), and most recently • The Utility of the Future (1).   • Next dialogue is in Vancouver in 2010. • Focus will be on the Utility of the Future • Providing new services through energy convergence • Operating in a carbon constrained world

36. Gas Value Chain Tax Positions • Supportive Canadian fiscal policy is needed to underpin and stimulate competitive development and transportation of Canadian natural gas supplies across North America. • In General Gas Value Chain seeks a fiscal structure that helps Canadian natural gas supplies compete in the competitive North American marketplace • Ensure similar fees and duties and/or exemptions for gas exports to the US.

37. Thank you