CANADIAN OIL SANDS AND CONVENTIONAL OIL AND GAS PRODUCTION FORECAST, SUPPLY COSTS AND EMISSIONS

Transcription

1 CANADIAN OIL SANDS AND CONVENTIONAL OIL AND GAS PRODUCTION FORECAST, SUPPLY COSTS AND EMISSIONS Allan Fogwill, CEO Canadian Energy Research Institute June 2018 Relevant Independent Objective

2 Overview Canadian Energy Research Institute 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 research of energy and environmental issues to benefit business, government, academia and the public. CERI publications include: Market specific studies Geopolitical analyses Commodity reports (crude oil, electricity and natural gas) In addition, CERI hosts an annual Petrochemical Conference.

3 Canadian Energy Research Institute CERI receives financial support from its core funders which include Natural Resources Canada, AB Energy and the Canadian Association of Petroleum Producers. In addition, the institute benefits from funds provided by donors which include: AB s Industrial Heartland Chemistry Industry Association of Canada Government of SK Ivey Foundation University of Calgary Canadian Energy Pipeline Association CERI also receives in-kind support from the following contributors: AB Energy Regulator Atlantic Institute for Market Studies Lithuanian Energy Institute Petroleum Services Association of Canada Deloitte Canada Ltd. Advisian Worley Parsons Group 360 Energy Inc. Bow Valley College Canadian Council for Aboriginal Business

4 Presentation Outline Background Production Outlook Supply Costs Emissions Downstream Markets

5 Background

6 Changes in the oil market The WTI oil price rebounded to more than $70 just recently from $40s in September 2016 OPEC compliance to cuts is 162% as of May 2018 OECD inventories returned to 5 year averages Source: Bllomberg

7 Imminent undersupply and price volatility? Source: IEA Towards the end of 2022 available spare production capacity will fall below 2 million b/d if there is no significant growth in investments (IEA, March 2017)

8 Challenges in the Canadian oil and gas industry Lack of market access to international and US markets Changes in regulatory processes (EIA process, redesign of NEB) Widening price differential between Western Canadian Select and WTI Production and price risks from the upcoming regulation change in the shipping industry regarding Sulphur levels Concerns of lower competitiveness compared to new US tax system Depressed service industry due to reduction on drilling Source: Statistics Canada, CANSIM Table

9 (Mb/d) Total Canadian oil production 11.1% Atlantic ON MB SK AB AB -Bitumen & SCO BC NWT Source: Statistics Canada, CANSIM Table

10 (Mb/d) US Crude Imports from Canada 4,000 3, % 3,000 2,500 2,000 1,500 55% 57% 59% 59% 59% 60% 62% 61% 66% 1, Light Sweet Light Sour Medium Heavy Sweet Heavy Sour Source: US EIA

11 Source: JWN, NEB Market access and crude by rail

12 Canada s Gas Production, Exports and Imports Canada's Gas Exports and Production, bcf/d Gas Production Gas exports to US Gas imports (from US) Net exports Source: JWN, NEB

13 Source: EIA US Gas Industry Developments in 2017

14 The Battle for the Central Canada Gas Market -63% +170% Dominion Hub minus Henry Hub Eastwards throughput of TransCanada Mainline (at the Prairie point) fell from 5.97 bcf/d in 2006 to 2.17 bcf/d in 2017 (-3.8 bcf/d) Imports from US increased for the same period (+1.6 bcf/d) Source: CERI, EIA

15 Source: CERI, EIA The Battle for the US Gas Market

16 Current Canadian Gas Production AB 70% BC - 28% SK 2% NS 1% Changes Deep Panuke declining Hydraulic Fracturing bans QC, NB and NS Source: CERI, EIA

17 Production Outlook

18 ('000 bpd) Canadian Oil Sands Production 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Source: CERI, Canoils Total Bitumen (Production, High Case) Total Bitumen (Production, Low Case) Total Bitumen (Production, Reference Case)

19 ('000 b/d) Canadian Oil Sands Production by Type 6,000 5,000 4,000 3,000 2,000 1,000 - Mined Bitumen Extraction Total In-Situ Bitumen Extraction Total Bitumen Extraction - CAPP Source: CERI, Canoils

20 Canadian Conventional Crude Oil Production Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP

21 Total Canadian Oil Production Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP

22 Canadian Natural Gas Production Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP

23 Production Costs

24 Real 2017 CDN$/bbl WTI Equivalent costs Bitumen Supply Costs $44.70 $50 $40 SAGD USD $60.17 $28.66 $30 Expansion USD $51.57 $20 $10 SAGD 10% ROR (a) Expansion SAGD 10% ROR (a) Fixed Capital (Initial & Sustaining) $19.33 $9.67 Operating Working Capital $0.41 $0.21 Fuel (Natural Gas) $4.57 $4.57 Other Operating Costs (incl. Elec.) $9.02 $7.65 Royalties $7.81 $4.43 Income Taxes $2.87 $1.45 Emissions Compliance Costs $0.67 $0.67 Abandonment Costs $0.03 $0.01 $0 Source: CERI, Canoils

25 Conventional Oil Supply Costs ($/bbl) $28 $58-$25 $56-$20 $40-$32 $43-$30 Horn River Montney Spirit River Duvernay Cardium Viking Bakken $32 $46 $52 $45-$40 $80-$39 $73-$51 $59 Legend: $X (Vertical)-$Y (Horizontal)

26 Natural Gas Supply Costs ($/mmscf) $2.7 $2.5-$1.6 Horn River Montney Spirit River Duvernay Cardium Viking Bakken $1.4-$1.6 $2.2-$1.8 $1.8-$1.7 $1.7-$1.9 $1.8-$1.7 $1.8 $1.7-$2.9 Legend: $X (Vertical)-$Y (Horizontal)

27 Emissions

28 CO 2 eq. Emissions from Oil Production (tones/yr) Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP

29 CO 2 eq. Emissions from Gas Production (tones/yr) Source: CERI, BCOGC, AER, Government of SK, Government of MB, CNLOPB, PSAC, CAPP

30 Downstream Markets

31 '000 b/d Western Canadian Crude Supply and Market Access 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Total Western CDN Conventional Export Supply SCO Dilbit Keystone XL Kinder Morgan TMX Expansion Enbridge Line 3 Replacement Existing Export Capacity

32 Conclusions Reasonable growth expected in Oil Sands and conventional oil in Canada Offshore NL will require new investment to maintain growth Growth in Western Canada challenged by Market Access Canadian Natural Gas will have to find new markets LNG remains the largest opportunity for NG NG market will affect NGLs and petrochemical investment

33 Thank You for Your Time CANADIAN ENERGY RESEARCH UPCOMING STUDIES: Competitive Analysis of Canadian LNG Carbon Management Impacts on Electricity Markets An Economic Assessment Of The International Marine Organization Sulphur Regulations On Markets For Canadian Crude Oil