Alberta’s Energy Markets: Opportunities and Challenges Matthew Foss Alberta Department of Energy Economics and Markets Branch Presented to Economic Real Estate Forum May 2012

The Big Picture Key findings in the IEO 2011 Reference case: • World Energy consumption increases by 53% between 2008 and 2035 with half of the increase attributed to China and India • Renewables are the world’s fastest growing energy source, at 2.8% per year, renewables share of world energy grows to roughly 15% in 2035. • Fossil fuels continue to supply almost 80% of world energy use in 2035. • Liquid fuels remain the largest energy source worldwide through 2035, but the oil share of total energy declines to 28% in 2035, as sustained high oil prices dampen demand and encourage fuel switching where possible and modest use of liquid biofuels.

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Alberta’s Natural Gas Resources World Proved Natural Gas Reserves (Tcf): • • • •

Russia: 1,680 Iran: 1,046 Qatar: 896 Saudi Arabia: 276 100 Tcf

Global Natural Gas Production (Bcf/d): • • • •

United States: 59.1 Russia: 57 Canada: 15.5 Iran: 13.2

82 Tcf

Alberta’s Natural Gas Industry is Well Placed with Abundant Resource Opportunities

141 Tcf

Source: Energy Resource Conservation Board, Petrel Robertson, Gas Technology Institute (GTI) GIP: Gas in Place is the total gas volume believed to be contained in the reservoir. NGC: Natural gas from coal (CBM)

Source: Canadian Society for Unconventional Gas

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Alberta’s Crude Oil Proved Reserves World Oil Reserves State owned or controlled

Accessible Oil Reserves

Accessible Canada’s Oil Sands

51%

49%

Other Accessible Reserves

Alberta’s Oil Sands represent more than half of the world’s oil resources that are 4

Alberta’s Crude oil and Natural Gas Activity

5

Investment On the Rise

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Alberta P & NG Land Sales

Millions

Bonuses $4,000 $3,500 $3,000 $2,500 $2,000

AB BC

$1,500

SK $1,000

MB

$500 $2011

2010

2009

2008

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Alberta Drilling Activity

Source: GeoScout

• Increasing horizontal drilling reflecting shift towards unconventional oil and gas development in shale and tight plays • Activity has shifted towards tight oil in Alberta 11

Focus Areas Horizontal Wells

Vertical Wells Total Wells Drilled Jan - Feb 2011 = 1326

20%

Jan - Feb 2012 = 1064

Jan - Feb 2011 Vertical Wells Drilled = 848

36%

Jan - Feb 2012 Vertical Wells Drilled = 542

Jan - Feb 2011 Horizontal Wells Drilled = 478 Jan - Feb 2010 Horizontal Wells Drilled = 522

Excludes oil sands wells

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9%

Alberta Natural Gas Production Forecast (not including unconventional natural gas) Total marketable gas production & demand

• • • • •

United States: 59.1 Russia: 57 Canada: 15.5 Iran: 13.4 Qatar: 11.3

17.8 2012 YTD Actual: Down 1.5% 2012 Forecast: Down 5.3%

450

16.0

400

14.2

Alberta gas removals Other Alberta demand

350

12.4

Commercial demand Residential demand

300

10.7

250

8.9

200

7.1

150

5.3

100

3.6

50

1.8

0

0.0 2000

2002

2004

7

2006

2008

2010

2012

2014

2016

2018

2020

Production and demand (bcf/d)

Global Production (Bcf/d)

Production and demand (106 m3/d)

500

Alberta Conventional Crude and Oil Sands Production Alberta’s total oil production: 2.05 million b/d • 0.700 of bitumen • 0.800 SCO • 0.460 conventional

World oil production as of November 2011: 88.1 million barrels per day

Alberta’s Crude Oil Production is Ramping Up 8

Conventional Crude Oil Production Forecast 12

2012 YTD Actual: Up 17.2% 2012 Forecast: Up 10%

Source: Energy Resource Conservation Board

Horizontal Drilling/Shale Oil Production to outperforming expectations

Alberta’s Crude oil and Natural Gas Markets

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Current Alberta Natural Gas Markets New Shale Gas Production Impeding on Alberta’s Traditional Eastern Markets WCSB 14.4 Bcf/d

Alberta production in 2010: 11.5 (bcf/d)

Alberta Disposition – 2010

US Rockies 10 Bcf/d

Legend Light Blue– WCSB Gas Production Dark Blue – US Gas Production Source: Source: WoodMcKenzie 2009 ; ERCB 2010,

Bison

Marcellus 1 Bcf/d

Barnett & Haynesville 6 Bcf/d

Gulf 15.8 Bcf/d

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Market

Bcf per Day

PADD 1

0.26

PADD 2

2.87

PADD 3

0.00

PADD 4

0.40

PADD 5

1.26

Eastern Canada

1.76

Western Canada

1.07

Total

7.63

Global Natural Gas Prices and LNG Infrastructure

Source: FERC. “World LNG Estimated April 2012 Landed Prices”. March 6, 2012.

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Current Alberta Crude Oil Markets Market PADD 1

Alberta Exports (Barrels Per Day 000’s)

Enbridge Mainline Capacity: 2.3 m b/d (60% AB crude) 50% heavy/light crude

Crude Oil Demand from Western Canada (refinery capacity in parenthesis) Barrels per day 000’s

1,167

PADD 3

78

PADD 4

218

PADD 5

106

Eastern Canada

252

Western Canada

47

Kinder Morgan Express Capacity: 280,000 b/d (98% AB Crude) 35% light crude, 65% heavy

PADD 5 148 [2,730]

Currently, there is ample amount of pipeline to carry Alberta crude to its current market (PADD 2) However, refinery capacity and increased North American crude production are the limiting factors in PADD 2 for the future

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PADD 2

Total

Kinder Morgan TMX Capacity: 300,000 b/d (80% AB Crude) 80% light crude, 20% heavy, small amount of refined products

Eastern Canada 258 [398]

PADD 4 238 [613] PADD 2 1,215 [3,711]

1,927

Source: CAPP – 2011 Crude oil Market Outlook

PADD 1 62 [1,394]

Increased heavy crude oil refining capacity

Alberta’s Crude Oil Market Limited to U.S. Mid West – Huge Potential in U.S. Gulf Coast

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PADD 3 107 [8,928]

Increasing supplies from Bakken, heavy crude from Alberta, and crude oil from PADD III

Global Crude Oil Prices North Sea Brent $122.05

Alaska North Slope $121.39

Suez Blend $116.74

ESPO $120.95

Japan Cocktail $116.26 WTI USGC $104.08 Arab Light $118.63

Masa Venezuela $116.53

Colombia Cusiana $122.60

April 2012

West Africa Strip $121.87

Saharan Blend $121.08

Australia Cossack $124.45

Current Alberta Refined Products Markets (Diesel, Gasoline and Jet Fuel) Alberta Exports

Unlike Crude Oil, Alberta Has Limited Access to U.S. Mid West for its Refined Products

Eastern Canada Exports PADD 4

0.01 MBD

PADD 2

PADD 5

PADD 1

0.08 MBD

PADD 3

2.1 MBD

Source: EIA, 2011 data

Global Imports

Alberta Refined Products Refining Capacity Alberta Refineries - Capacity

2005

36,000 B/D by pipeline; 14,000 B/D by truck

200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 -

B

2005

Jet Fuel

2011

30,000

A 38,000 B/D by pipeline; 3,000 B/D by truck/rail

Trucked/Railed volumes are estimated

Barrels Per Day

C

2011

Diesel

Barrels Per Day

A) Imperial – 187,000 B/D B) Suncor -135,000 B/D C) Shell – 110,000 B/D

Barrels Per Day

Gasoline 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 -

25,000 20,000 15,000

10,000 5,000 2005

Alberta consumption Alberta Production

Source: StatsCan, Enbridge, Kinder Morgan

2011

Other province Consumption

Thank You

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