1. 1 An Overview of Canada’s Natural Gas Supply – Past, Present and Future George Eynon, P.Geol. CERI - Vice President geynon@ceri.ca James A. Baker III Institute for Public Policy - Rice University NATURAL GAS IN NORTH AMERICA: MARKETS & SECURITY November 16, 2007

2. 2 Canadian Energy Research Institute Not-for-profit energy and environment economics research Established 1975… Funded by governments and private sector… Energy economics research… Short courses and training… Industry conferences… Public & Media interaction… Independent - Objective - Relevant

3. 3 Balancing Natural Gas Policy, NPC (2003) WCSB Supply Region Source: CERA 6 Tcf per year i.e., supplies ~24% of Canada/US consumption

4. 4 Canada Marketable Natural Gas Bcfpd

5. 5 WCSB Gas Production & R/P Ratio

6. 6 WCSB natural gas supply “treadmill” More activity; lower rate and fewer reserves Increasing costs have slowed drilling activity Regulatory and Royalty changes How is industry meeting the challenges? Drilling and Gas Supply Trends

7. 7 The treadmill's a good machine for politicians because you run like hell and you get nowhere Ralph Klein (ex-Premier of Alberta) Brixton Prison ca. 1800-1825

8. 8 Competing Forces Production Lost Production Rate X Composite Decline Rate Rate Additions (replacement) New Wells X Rate Added per Well

9. 9 # producing wells & MMcfpd production MMcfpd per producing well 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 1990199119921993199419951996199719981999 0 0.200 0.400 0.600 0.800 1.000 1.200 1.400 Number of producing wells MMcf per day per producing well MMcf per day total production Increasing production in early 90s did not need proportionately more wells… WCSB Wells and Production

10. 1010 # producing wells & MMcfpd production MMcfpd per producing well 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 1990199119921993199419951996199719981999 0 0.200 0.400 0.600 0.800 1.000 1.200 1.400 Number of producing wells MMcf per day per producing well MMcf per day total production but wells required increased dramatically as production grew in late 90s… WCSB Wells and Production

11. 1 # producing wells & MMcfpd production MMcfpd per producing well 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 1990199119921993199419951996199719981999 0 0.200 0.400 0.600 0.800 1.000 1.200 1.400 Number of producing wells MMcf per day per producing well MMcf per day total production And average production per producing well fell… WCSB Wells and Production

12. 1212 # producing wells & MMcfpd production MMcfpd per producing well 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 1990199119921993199419951996199719981999 0 0.200 0.400 0.600 0.800 1.000 1.200 1.400 Number of producing wells MMcf per day per producing well MMcf per day total production

13. 1313 WCSB: Production Replacement Bcfpd 1 Bcfpd ~2 Bcfpd ~3.5 Bcfpd

14. 1414 Rate Additions by Year Onstream Additions 1.7 Bcfpd 1990; 3.9 Bcfpd in 2001; avg 3.6 Bcfpd 2001-2005; connections increased 69% since 2000

15. 1515 Supply by Period Onstream Total production UP >70% 1990 - 2001 Flat at best since 2001 Wells onstream 1989-> produce 85% of gas Probable decline in 2007 - reduced gas drilling

16. 1616 Activity by Deliverability Class event count as % of 1990 base

17. 1717 Low Deliverability = 37% of rate additions 42,370 zones connected

18. 1818 High Deliverability = 15% of rate additions 242 zones connected

19. 1919 WCSB Gas Production year-end 2004 Conventional 67% Shallow 14.86% CBM 0.80% Deep/tight 17.27% Shale 0.11% Unconventional 33%

20. 2020 Canadian Rig Utilization

21. 2121 Western Canada Active Rigs

22. 2 Alberta’s New Royalty Framework New Natural Gas Crown Royalty rates –Single graduated sliding scale –Minimum 5 % to Maximum 50 % Currently 0-35 % –Varies with Market prices, Well productivity, and Depth Shallow Rights “Reversion”

23. 2323 Alberta’s New Royalty Rate (%) vs Price ($/GJ)

24. 2424 Other Natural Gas Supply Issues East Coast Offshore –Sable Island – Exxon-Mobil –Deep Panuke – EnCana + Nova Scotia Government New fiscal structure Mackenzie Valley Pipeline delayed yet again –Rapidly increasing capital costs –>C$18 Bill full field development + pipeline etc –Regulatory process bogged down –Earliest on-stream = 2012? Arctic Islands –Delivery as LNG, GTL of CNG? Demand from Oil Sands development

25. 2525 Alberta’s Oil Sands

26. 2626 Alberta‘s Oilsands Total Resources –~1694 bill BO Cold Lake –~200 bill BO Athabasca –~1300 bill BO Peace River – ~150 bill BO Established reserves –~178 bill BO

27. 2727 World Oil Reserves billion barrels of proven oil reserves

28. 2828 Oil Sands Gross Bitumen Production

29. 2929 Natural Gas Use for Oil Sands

30. 3030

31. 3131 Alternative Fuels for Oil Sands’ Steam Production and Electricity Generation… Gasification –coal –petcoke –asphaltenes Bitumen emulsion (Quadrise MSAR) Uranium and nuclear power Geothermal

32. 3232

33. 3 An Overview of Canada’s Natural Gas Supply – Past, Present and Future George Eynon, P.Geol. CERI - Vice President geynon@ceri.ca James A. Baker III Institute for Public Policy - Rice University NATURAL GAS IN NORTH AMERICA: MARKETS & SECURITY November 16, 2007