CANADIAN OIL SANDS

CONVENTIONAL OIL AND GAS

PRODUCTION FORECAST,

SUPPLY COSTS, EMISSIONS AND

ECONOMIC IMPACTS

CERI Breakfast Overview

Allan Fogwill, President & CEO

Bow Valley College - Calgary

September 13, 2019

www.ceri.ca

Flagship Breakfast Overview Sponsor:

CANADIAN ENERGY RESEARCH INSTITUTE

Overview

Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization 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 and environmental research of energy issues to benefit business, government, academia and the public.

CERI publications include:

• Market specific studies

• Geopolitical analyses

• Quarterly market reports (crude oil, electricity and natural gas)

In addition, CERI hosts a series of study overview events, executive briefings for organizations and an annual Petrochemicals Conference.

2

CORE FUNDERS

3

DONORS

4

Ivey

Foundation

AGENDA

▪ Background

▪ Production Outlook

▪ Supply Costs

▪ Emissions

▪ Economic Impacts

5

RECENT CHALLENGES INTHE CANADIAN OIL AND GAS INDUSTRY

• Lack of market access to international and US markets

• Ongoing judicial / regulatory hurdles for Line 3, Trans Mountain,

Keystone XL, Coast Gas Link

• Differential between Western Canadian Select and WTI

• Depressed AECO-C gas prices for producers

• Changes in regulatory processes (EIA process, redesign of NEB)

• Production and price risks from the upcoming regulation change

in the shipping industry regarding Sulphur levels

• Depressed service industry due to reduction on drilling

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RECENT ACTIVITIES IN THE INDUSTRY

• Oil and natural gas production keeps growing (+8.5% oil 2017-18,

4.1% gas 2017-18)

• Canadian oil grows its presence in US (market share 39% to 48% in

total US imports), primarily because of oil sands

• FID for LNG Canada (1.9 bcf/d ), possibility for 3.7 bcf/d in expanded

• 300-million-barrel-reserves Bay Du Nord project approval (NL)

• New propane export facilities: Altagas in service, Pembina close FID

• PDH/PDP projects in Alberta: Interpipeline under construction,

Pembina close to FID

• Differential between Western Canadian Select and WTI came to

“normal level” due to AB curtailment

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GLOBAL MARKET SUPPLY AND DEMAND

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Source: EIA

Source: EIA

CANADIAN CRUDE OIL PRODUCTION

9

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

('0

00

bp

d)

Atlantic MB SK AB BC NWT AB-Bitumen and SCO

8.5%

Source: Statistics Canada CANSIM Table 126-0003

US CRUDE IMPORTS FROM CANADA

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55% 57%59%

59%59%

60%62% 61% 66%

68%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

('0

00

bp

d)

Light Sweet Light Sour Medium Heavy Sweet Heavy Sour

7.3%

Source: US EIA

GROWING CANADIAN SHARE INUS MARKETS OIL IMPORTS

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Source: US EIA

CANADA’S GAS PRODUCTION, EXPORTS AND IMPORTS

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Source: EIA Natural Gas Consumption, ARC Energy Institute

4.1%

CURRENT CANADIAN GAS PRODUCTION

• AB – 67%

• BC - 30%

• SK – 3%

• NS – 0.4%

• Changes

• BC grows at 6%, AB at 2% annually

• Deep Panuke decommissioned

• Hydraulic Fracturing bans – QC, NS

• Partial lifting of hydraulic fracturing ban - NB

13Source: CERI, EIA

CANADIAN OIL SANDS PRODUCTION BY TYPE

14

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

MBP

D

Mining In situ

Source: CERI, Canoils

CANADIAN CONVENTIONAL CRUDE OIL PRODUCTION

15Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP,

NEWFOUNDLAND AND LABRADOR OIL PRODUCTION FORECAST

16Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP

TOTAL CANADIAN OIL PRODUCTION

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Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039

Historical Outlook

('0

00

b/d

)

Non-upgraded Bitumen SCO AB-Oil

AB-Pentane Plus and Condensate Production SK-Oil BC-Oil

BC-Pentane Plus and Condensate Production MB-Oil NL-Oil

TOTAL CANADIAN OIL SUPPLY AND PIPELINES

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-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039

'00

0 b

/d

Total Western CDN Conventional Export Supply SCO Dilbit

Keystone XL Kinder Morgan TMX Expansion Enbridge Line 3 Restored

Existing Export Capacity

Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP, NEB, Canoils

CANADIAN NATURAL GAS PRODUCTION

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Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP

BITUMEN SUPPLY COSTS

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SAGD 10% ROR (a)Expansion SAGD 10%

ROR (a)

Fixed Capital (Initial &Sustaining)

$18.59 $9.67

Operating Working Capital $0.38 $0.20

Fuel (Natural Gas) $4.63 $4.63

Other Operating Costs (incl.Elec.)

$7.07 $7.07

Royalties $7.04 $4.18

Income Taxes $2.21 $1.17

Emissions Compliance Costs $0.67 $0.67

Abandonment Costs $0.03 $0.01

$0

$10

$20

$30

$40

$50

Rea

l 20

18

CD

N$

/bb

l

$40.61

$27.60

WTIeq. Costs:

SAGD –

US$52.84

Expansion –

US$45.88

Source: CERI, Canoils

CONVENTIONAL OIL SUPPLY COSTS ($/bbl)

$71- $40

$68-$36$81-

$40

Montney

Spirit River

Duvernay

Cardium

Viking

Bakken

$58-$31

$54-$25

$41-$25

$59

Legend: $X (Vertical)-$Y (Horizontal)

$22

$40-$33

NATURAL GAS SUPPLY COSTS ($/mmscf)

Horn River

Montney

Spirit River

Duvernay

Cardium

Bakken

Legend: $X (Vertical)-$Y (Horizontal)

$1.6-$1.7

$1.4-$1.3

$1.1-$1.4

$1.9-$0.9

$1.9

$4.6

$1.5-$1.5

CO2 eq. EMISSIONS FROM OIL SANDS PRODUCITON (mtonnes/yr)

CO2 eq. EMISSIONS FROM CONVENTIONAL OIL PRODUCITON (mtonnes/yr)

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CO2 eq. EMISSIONS FROM GAS PRODUCTION (mtonnes/yr)

ECONOMIC IMPACTS – INVESTMENTS AND OPERATIONS - OIL

ECONOMIC IMPACTS – INVESTMENTS AND OPERATIONS - GAS

ECONOMIC IMPACTS – GDP - OIL

ECONOMIC IMPACTS – GDP - GAS

ECONOMIC IMPACTS – EMPLOYMENT - OIL

ECONOMIC IMPACTS – EMPLOYMENT - GAS

CONCLUSIONS

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• Crude and oil sands producers continue to be challenged by market access

• Natural gas producers need to secure new markets

• Natural gas market will affect NGLs production and petrochemical investment

• Concerns of lower competitiveness compared to the US?

• Concerns of regulatory processes

• Growth in oil and gas production is predicated on growth in exports

• Crude oil production growth will be driven by condensates and in-situ oil sands projects

• Natural gas production growth is dependent on the LNG projects

• Costs of producing crude oil, bitumen, natural gas and LNG remain competitive

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THANK YOU

Canadian Energy Research Institute

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