1. Canadas Natural Resources – Now and for the Future 1 North American Shale Gas Revolution Presentation to APEC By Dan Cowan – Petroleum Resources Branch, Natural Resources Canada May 10, 2011

2. Canadas Natural Resources – Now and for the Future 2 Outline Natural gas and energy in Canada Energy policy and jurisdiction North American gas market Shale gas at a glance How has the game changed? Cdn. unconventional resources Challenge of commercializing resource Canadian supply forecast

3. Canadas Natural Resources – Now and for the Future 3 Energy - important to Canadas economic prosperity 3 rd largest producer & exporter of natural gas Only OECD country with growing oil production Stable and secure energy supplier $84 billion exports in 2009, primarily oil and gas: 23.4% of total exports In 2009, energy represented 6.7% of GDP, with direct employment of about 263,000 people Energy as a Percentage of Canadian Total (2009)

4. Canadas Natural Resources – Now and for the Future 4 Federal Energy Framework and Jurisdiction Reliance on competitive markets for determining supply, demand, prices, and trade Shared jurisdiction over natural resources Federal Jurisdiction International and interprovincial issues North, offshore and Crown lands Works declared to be for the general benefit of Canada (e.g. science and technology) Nuclear, uranium Provincial Jurisdiction Resource ownership, management and royalties Land-use planning and allocation Laws regarding the exploration, development, conservation and use of natural resources within provincial boundaries

5. Canadas Natural Resources – Now and for the Future 5 North American Natural Gas Market 74 Bcf/d - fully integrated market Supply and demand centers connected via extensive pipeline network Canada is a major producer and net exporter Provides 85% of US imports Majority of reserves located in Western Canada Far from premium markets incl. Boston and H.H. Surging U.S. shale gas production Prices expected to remain relatively low Ongoing efforts to build and diversify markets

6. Canadas Natural Resources – Now and for the Future 6 Technology is unlocking shale gas potential Shale is an unconventional natural gas Resource development not previously economical due to low flow rates Combining long-reach horizontal drilling with multi-stage hydraulic fracturing has made the resource viable

7. Canadas Natural Resources – Now and for the Future 7 Shale Gas - Production and Resource Profile Shale gas development began in the US where production grew from <1 bcf/d in 2000 to about 15 Bcf/d today More than 20% of North American production Shale gas widely expected to compose a third of North American natural gas production by 2020 Canadian Society for Unconventional Gas estimates 700 to 1300 Tcf of natural gas in Canada (largely unconventional) At unconstrained prices, North America estimated to now have 100-200 years of supply

8. Canadas Natural Resources – Now and for the Future 8 2008- Present Demand-driven market, lower drilling, 100-200 years supply Lower prodn costs and prices, reduced volatility Decoupling from oil prices Redrawing the energy map Surplus LNG import capacity Industry advancing LNG export projects 2000-2007 Supply-limited market High drilling levels, concern about supply High prodn costs, high and volatile prices, linked to oil Falling WCSB conventional prodn Falling exports to US Canada looking to import LNG How is shale gas changing the game?

9. Canadas Natural Resources – Now and for the Future 9 Forecast Oil (WTI) and Natural Gas (Henry Hub) Prices Source: Various private consultants on retainer to the department and publically available forecasts. Natural Gas prices converted into per barrel equivalent using a value of 1 barrel oil = 5.8 MMBtu WTI H.H.

10. Canadas Natural Resources – Now and for the Future 10 Major Unconventional Gas Basins Canada has major unconventional gas resources 50% of currently defined potential exists within Horn River and Montney Both among lowest cost basins in North America Challenged by distance to domestic markets and current low prices

11. Canadas Natural Resources – Now and for the Future 11 Producer Challenge: How to increase netbacks? Cost reductions, stimulate demand etc. Focus on the liquids rich plays Exploring gas-to-liquids opportunities Diversify export markets (via LNG) AECO $3.84 NBP $8.99 LNG >$11.00 H.H. $4.11 Oil-based LNG

12. Canadas Natural Resources – Now and for the Future 12 Canadian Gas Supply Forecast – February 2011 Source: CAPP, Price assumption: $5.50/mcf Tight Gas Shale Gas

13. Canadas Natural Resources – Now and for the Future 13 Conclusions Surging US unconventional natural gas prodn caused significant over-supply in North America Canada has enormous shale gas potential Industry aggressively developing shales in BC and other provinces Industry exploring new business models including boosting demand, gas-to-liquids technology, and diversifying export markets via LNG.