1. Relevant Independent Objective www.ceri.ca 1 “Canadian Oil and Gas Industry: What lies ahead” Presented by Dinara Millington Vice President, Research Canadian Energy Research Institute June 10, 2015

2. Relevant Independent Objective www.ceri.ca 2 Canadian Energy Research Institute Overview Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, non- profit research institute 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. Our core supporters include the Canadian Government (Natural Resources Canada), the Government of Alberta (Alberta Energy), and the Canadian Association of Petroleum Producers (CAPP). In-kind support is also provided by the Alberta Energy Regulator (AER) and the University of Calgary. All of CERI’s research is placed in the public domain and can be accessed via our website at www.ceri.cawww.ceri.ca

3. Relevant Independent Objective www.ceri.ca 3 Agenda  Canadian Oil and Gas Resources  Contribution of the Industry to Canadian Economy  Oil and Oil Sands: Why Market Access is Critical!  Natural Gas: Is the Market Truly Disappearing?  LNG: Build it Now or Not at All?  Conclusions

4. Relevant Independent Objective www.ceri.ca 4 Oil Reserves and Natural Gas Resources Source: ERCB ST-98. “Alberta’s Energy Reserves 2013 and Supply/Demand Outlook 2014-2023”, June 2014. Source: National Energy Board (NEB), “Canada’s Energy Future 2013: Energy Supply and Demand Projections to 2035”, November 2013

5. Relevant Independent Objective www.ceri.ca 5 Oil Proved Reserves by Country (billion barrels and % of total at end-2013) Source: BP Statistical Review of World Energy, June 2014 96% (167.1 billion barrels) of Canadian reserves are in the oil sands World Oil Proved Reserves - 1,688 Billion barrels (at end of 2013) 80 % are state-owned or controlled

6. Relevant Independent Objective www.ceri.ca 6 World Oil Production by Country (million barrels per day and % of total world crude production) Source: BP Statistical Review of World Energy, June 2014.

7. Relevant Independent Objective www.ceri.ca 7 World Gas Production by Country (billion cubic feet per day and % of total world gas production) Source: BP Statistical Review of World Energy, June 2014.

8. Relevant Independent Objective www.ceri.ca 8 Canadian Economy Annualized GDP by Industry or Sector (as of January 2014) Source: Statistics Canada. At a Glance…. Real estate and rental and leasing is the largest segment of Canada's economy. Manufacturing is still a very large portion of GDP and is the second largest component at 10%. The oil and gas sector has long been a significant contributor to Canada’s economy accounting for 8% of GDP and 550,000 direct and indirect jobs.

9. Relevant Independent Objective www.ceri.ca 9 What Does Canada Export? Source: Statistics Canada. At a Glance…. Goods exports amount to 30% of GDP (service exports ~5% of GDP) The largest category of goods exports is Energy Products (oil, natural gas and other) at 24% of total exports. The United States still accounts for the vast majority of Canadian exports at 75% share.

10. Land Acquisition Crown Land Sales Evaluation Construction Operation and Maintenance Production Wages Royalties Western Canada’s Energy Sector: Net Cash Expenditures Land Acquisition Crown Land Sales Conventional Drilling Completion and Tie in Operation and Maintenance Production Wages Royalties 2013: $73.5 billion (11% higher than 2012) 2013: $59.3 billion (16.3% higher than 2012) Oil and Gas DrillingOil Sands Developments 10

11. Relevant Independent Objective www.ceri.ca 11 6098 Bitumen Wells 4392 Oil Wells 3303 Gas Wells 40% BC

12. Relevant Independent Objective www.ceri.ca 12 Oil and Oil Sands: Why Market Access is Critical!

13. Relevant Independent Objective www.ceri.ca 13 2013 Facts About the Canadian Crude Market Canadian imports in 2013 – 656,609 bpd.

14. Relevant Independent Objective www.ceri.ca 14 Western Canadian Transportation and Export Volumes

15. Relevant Independent Objective www.ceri.ca 15 Existing and Proposed Pipeline Infrastructure

16. Relevant Independent Objective www.ceri.ca 16 Proposed Pipeline Construction and Expansion PipelineOperatorCapacity (kb/d) On-stream Date ProposalStatus AB ClipperEnbridge+120 – Phase 1 +230 – Phase 2 2014/2015Expansion of existing Line 67 (existing capacity – 450 kb/d) US Permit delays Keystone XLTransCanada8302017?1,900km export line from Hardisty to Steele City, NB. Southern leg of KXL complete. Awaiting US Approval Northern Gateway Enbridge525 – crude 193-diluent n/aA 1,200 export line from AB to Kitimat, BC coast. A parallel diluent line from BC to AB. Strong opposition from BC and First Nations (BC’s 5 conditions) NEB Approved, subject to 209 conditions TMXKinder Morgan +5902017Expansion and twinning the current line (300 kb/d) from AB to Burnaby, BC. Tanker exports from BC. Under NEB Review Energy EastTransCanada1,1002018Conversion of gas mainline to ON; expansion to QC and NB to carry 500-850 kb/d. Total line will be 4,460km, of which 3,000km is existing gas line. Under NEB Review Line 9BEnbridge+602015A reversal and expansion of existing 639km line to carry 240-300 kb/d from North Westover, ON to Montreal for refining and export. NEB Approved, subject to 30 conditions

17. Relevant Independent Objective www.ceri.ca 17 Natural Gas: Is the Market Truly Disappearing?

18. Relevant Independent Objective www.ceri.ca 18 2013 Facts about Canadian Natural Gas, NGLs All volumes expressed as average day Production: Western Canada (AB) Marketable Natural Gas 9,740 mmcf/day Western Canada (BC) Marketable Natural Gas 3,759 mmcf/day Canada (other Provinces) Marketable Natural Gas 620 mmcf/day Total 2013 Production 14,119 mmcf/day Exports: To United States 8,800 mmcf/day Imports: Pipeline gas from the United States and LNG imports 2,600 mmcf/day Natural Gas Liquids: Recovered Ethane 200,000 bbls/day Recovered Propane 145,000 bbls/day Recovered Butane 64,000 bbls/day Recovered Pentanes + 101,000 bbls/day

19. Relevant Independent Objective www.ceri.ca 19 Changing Natural Gas Market Dynamics in North America have resulted in increasing natural gas (NG) and NGLs availability in Canada Rapid increase in US shale gas production US domestic demand fails to keep up with increasing production Supply Shock: Shale Gas Revolution NG import requirements in the US decrease Costly overseas (LNG) imports displaced first (subject to contracts’ flexibility) Canadian pipeline gas imports follow suit Supply and Demand Imbalance Lower NG prices and erosion of market share for Canadian producers Lower CAD export volumes and increasing NG transportation tolls Curtailing production in Western Canada Meanwhile, spread between (regional) natural gas and (global) crude oil prices is widening Price fluctuation/uncert ainty Canadian producers need to remain competitive Price takers and marginal suppliers in NA NG market Focus on finding new markets and enhancing profitability Adapting to change Diversify markets: LNG: Look West (Asia- Pacific) & East (Europe), not South (US) Grow local demand: Power generation, industrial demand, petrochemicals, … Finding new markets Cutting costs through process efficiencies Maximize revenues by monetizing NGLs Enhancing profitability Focus on NGLs- rich areas has lead to increasing availability of surplus NGLs in Canada. The options are to use domestically (petrochemical feedstock/other), export to global markets (LPG exports), or curtail (reject) extraction Opportunities to increase use of NG in industrial applications (oil- sands, power generation, etc.) or as a feedstock for the production of petrochemicals (methanol) and refined petroleum products (GTL) LNG project opportunities Increased US NGLs production Lower NGLs import dependency. Including CAD supplies (LPG) Increasing NGLs exports to Canada (C2/LPG/C5+) and the world (LPG/C5+) Increased availability of NGLs in CAD CAD south-bound LPG volumes looking for new markets US NGLs increasingly available in Western and Eastern CAD

20. Relevant Independent Objective www.ceri.ca 20 New Market Opportunities for Canadian Gas

21. Relevant Independent Objective www.ceri.ca 21 LNG: Build it Now or Not at All?

22. Relevant Independent Objective www.ceri.ca 22 BC LNG Projects within the Global LNG Game Global LNG trade (2013): 237 MMtpa or 31 bcf/d -31% of global NG trade, or 10% of global NG production Global liquefaction capacity (2013): 291 MMtpa or 38 bcf/d -Global iquefaction utilization rate (2013): 81% North American Natural Gas Production (2013): 87 bcf/d (27% of total) (United States: 66.5 bcf/d; Canada 15 bcf/d; Mexico: 5.5 bcf/d) 57 LNG export projects proposed for the United States and Canada with 666 MMtpa or 89 bcf/d of export capacity -2.3x current global liquefaction capacity/same size as NAM market 20 projects proposed in BC with 301 MMtpa (40 bcf/d) of capacity -BC LNG export project proposals’ capacity is equivalent to the existing global liquefaction capacity, and about 1/2 of the total NG production in North America: are these prospects realistic?

23. Relevant Independent Objective www.ceri.ca 23 China Korea Japan India SE Asia Alaska LNG Up to 2.6 bcf/day Kitimat LNG LNG Canada Pacific Northwest LNG West Coast LNG Prince Rupert LNG Woodfibre LNG Up to 40 bcf/day Jordon Cove (0.9) Oregon LNG (1.3) Sabine Pass Freeport LNG Cameron LNG Dominion Cove LNG Lake Charles LNG Corpus Christi LNG Up to 36 bcf/day Russia Sakhalin Island LNG (now 1.1 bcf/day) Pipeline: 3.2 – 6.4 bcf/day Competition to Supply LNG in the Asia-Pacific Basin Qatar LNG (8 Operating) (Total 9.5 bcf/day) (now 7.5 bcf/day) Mozambique Anadarko Shell Up to (6.5 bcf/day) West Africa Indonesia Malaysia (now 7.4 bcf/day) Australia LNG Operating: 3.8 bcf/d Under Construction: 7.7 bcf/d Australia Proposed: 4.9 bcf/d Total: 16.4 bcf/d

24. Relevant Independent Objective www.ceri.ca 24 Canadian Advantage: Short Transport Times Mozambique 13,000 km 17 days Australia West 6,855 km 9.5 days Australia East 7,000 km 9.5 days Canada 7,300 km 10 days US Gulf Coast 17,145 km 23.5 days

25. Relevant Independent Objective www.ceri.ca 25 BC LNG Export Projects’ Development Pipeline: Large potential…but no FID… yet Data from various sources. Figure by CERI Total potential: 40 bcf/d (301 MMtpa) Realistic estimate: 4 to 6 bcf/d (31 to 46 MMtpa)

26. Relevant Independent Objective www.ceri.ca 26 Competition and Canada’s LNG Opportunity Increased competition from suppliers will give bargaining power to buyers! Price competitiveness of LNG supplies will be very important!

27. Relevant Independent Objective www.ceri.ca 27 Conclusions  Canada’s proved oil reserves are third only to Venezuela and Saudi Arabia and marketable gas resources are within the Top 5.  Canada has transparent regulatory and legal regimes and a stable economy with a long-term potential for energy development.  Canada has competitive fiscal regimes.  Canadian energy resources are not state-controlled.  Pipeline expansions and new pipelines will allow Canadian crude, gas and NGLs to penetrate existing and new markets.  LNG development and subsequent production growth will allow gas producers to capture higher gas prices in Asian markets.

28. Relevant Independent Objective www.ceri.ca 28 Canadian Energy Research Institute Thank you for your time Please visit us at www.ceri.ca