The Urgent Need for Unconventional Gas to sustain Canada s Natural Gas Production Dave Russum, P.Geol. AJM Petroleum Consultants and Geo-Help Inc CSUG/PTAC Presentation, 18 th November 2004
The Reality of 2004! World fixation on oil price! Getting close to World oil peak?! North America s situation is more critical! Reached(?) natural gas peak production! Canada: the swing producer for North American gas for the past decade! Peak of Alberta gas portends peak in Canadian and North American gas production! Flat or Declining gas production! good news for Unconventional gas! bad news for consumer and economy of North America
Presentation Format! Gas Resources and Reserves! Gas Production and Drilling! Canada s Position in the World of Natural Gas! Predicting the Future! A Comprehensive model for future production! NEB view! My assessment! Questions and Feedback
Canada s Natural Gas Resources and Reserves
Resource Triangle Unconventional Reservoirs Conventional Reservoirs Oil Shale Tar Sands Obvious Traps Subtle Traps Heavy Sour Oil Gas W.C.S.B. CBM Small Resource High Quality Difficult to find Easy to develop Low cost High margin Tight Gas Gas Hydrates Basin Maturity Better Technology (Higher prices) Large Resource Low Quality Easy to find Difficult to develop High cost Low margin
Canada s Resources and Reserves Natural Gas (Conventional data adapted from CGPC 2001)?1000 stcf Ultimate Resources Total Conventional + Unconventional 592Tcf 340Tcf 204Tcf Discovered Raw Gas Sales Gas?>1,000Tcf Rate of Conversion: Accessibility Technology Price Motivation Remaining Reserves Unproduced 58 Tcf
Canada s Remaining Accessible, Proven, Marketable Gas Reserves (Estimated December 2003) Total: 57.8 Tcf 2.2 5 12 38.6 (Includes 0.027Tcf CBM) Alberta BC Other WCSB E Coast
Orphaned Conventional Resources (Skipper, 2001) Canadian Shield? Green-Amber-Red Resource Assessment
Understanding Remaining Gas Resources Accessible and Economically Available Accessible Accessible with restrictions Inaccessible Available at current prices Presently Available Resources Future Available Resources Unavailable Resources Available at higher prices Future Available Resources Future Available Resources Unavailable Resources Russum, CSEG Recorder, June 2003
Approximate distribution of Unproduced Natural Gas Resources Present Post 2010 >2025 57.8Tcf Disc. +?Tcf Undisc.? 9.5Tcf +?Tcf Undisc. 1,000 stcf Working with the CGPC to fill out the table for 2005 The? will depend on Unconventional Resources
Canada s Gas Production
Canada:! 3 rd Largest Natural Gas Producer! 2 nd Largest Natural Gas Exporter! 1% of World Natural Gas Reserves! ~20% of World Drilling Rig Count
Canada s Natural Gas Production (Bcf/d Adapted from CAPP Data) 20.0 18.0 16.0 14.0 E Canada Rest WCSB Alberta? Bcf/d 12.0 10.0 8.0 6.0 4.0 2.0 0.0 1947 1950 Production Growth controlled by pipeline capacity 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004E
Alberta Remaining Reserves and R/P (Reserves to Production Ratio) 70 60 Remaining Reserves (Tcf) 50 40 30 20 10 Peak Reserves (1982): 65Tcf, R/P: 28 2003 Reserves 38.6 Tcf R/P: 7.5 0 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003E Found more gas than produced only 3 years since 1982
Where did Alberta s Gas Go in 2002? (AEUB ST-3) Shrinkage Injection Total: 6025 Bcf Sales: 4657 Bcf 2654 Bcf 57% USA Rest of Canada Flared + Fuel Alberta 760 Bcf 16% 1243 Bcf 27%
Alberta New Gas Drilling and Daily Sales Gas (CAPP Data) 12,000 Total New Gas Wells 11,067 6,000 10,000 Daily Bcf 9,165 5,000 Annual # of Gas Wells Drilled 8,000 6,000 4,000 2,327 4,103 2,782 2,664 3,318 4,510 6,009 7,506 6,923 4,000 3,000 2,000 Daily Sales Gas Bcf 2,000 1,000 1,110 721 0 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003E High activity, high price and declining production = Red Flag
Alberta Gas Trends 1992-2002! Average IP down 61%! Average Decline rate up 21%! Average well <1/3 rd as productive as 10 years ago! Average well depth 1151m in 1992, 1100m in 2002! An ever increasing number of wells required to sustain production
Canada s Position in the world of Natural Gas
World Gas Reserves (BP, 2004) Total 6206Tcf SE Asia Can USA Mex S&C America Africa Europe FSU Mid East Canada: 1% of Reserves North America: 4% of Reserves 29% of Production 29% of Consumption Currently a landlocked resource, LNG could make gas a world commodity
North America Reserves 2003 vs 1981(BP 2004 Data) -80% 14.7 Tcf Total 258 vs 365Tcf 35.2% 58.7Tcf 184.8Tcf USA Canada Mexico 7.4%
North American Gas Production 80.0 Peak? 75Bcf/d 70.0 60.0 50.0 40.0 30.0 20.0 Mexico Canada USA Unconventional USA Conventional Production Bcf/d 10.0 0.0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
Reserves to Production R/P or RLI! 1% of the proven Natural Gas reserves in the World (18th place)! R/P:! Total World: 67.1 Years! Russia 81.2 Years! USA 9.5 Years! Canada 9.2 Years! UK 6.2 Years (Peaked in 2000)! Alberta s R/P is 7.5 (28 in 1982)! Does not mean we will run out of gas in 7.5 years!!!! Cannot sustain production rate as reserves decline
Reserve Replacement Cost 2002 $US/BOE (Adapted from:john S. Herold / Harrison Lovegrove & Co.) $9.00 $8.40 $8.00 $7.00 $6.50 $7.10 $6.00 $5.30 $5.00 $4.00 $3.00 $2.50 $3.10 $2.00 $1.00 $0.00 Asia- Pacific Africa & M.E. S&C America Europe United States Canada
Don t worry - Canada is less explored than the US! Every Basin and geologic trend has different potential! The WCSB has been more efficiently exploited than any other Basin in the World! Some of early Unconventional knowledge evolved in Canada (Deep Basin=BCG, Shallow biogenic gas) Should not assume we will see the same trends in Canada as have occurred in the USA
Texas (on shore) vs. Alberta Production in Bcf/day 12000 10000 8000 6000 4000 2000 0 1950 1952 1954 Gas Production Producing Gas Wells (Decline 5% per year) Tight gas Incentive Texas 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Area: 269,000 Sq Miles. 0 # Producing Wells Bcf/Year 12000 10000 8000 6000 4000 2000 0 1950 1952 1954 AB Gas Production AB Gas Wells 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 255,000 Sq Miles Peak: 1971 2001 Rem. Res: 43Tcf Annual Prodn: 5.6Tcf 38.6Tcf R/P: 7.7 8.0 Cum Prod: 319Tcf 4.8Tcf 116Tcf Alberta Texas is richer in natural gas than Alberta! 2002 70000 60000 50000 40000 30000 20000 10000 0 # Producing gas wells
Comments! As pass peak: gas price vulnerable to fluctuations in supply and demand! Canada s long term position as a natural gas producer is weakening has significant political and economic implications! Washington has a far clearer understanding of the implications than Ottawa! Vital that we accurately predict future supply! Want to show a model that improves prediction
Predicting the Future Dave Russum Geo-Help Inc June 2003
Natural Gas In Canada Where are we going? GLOBAL FUTURE? Kyoto? El Nino? NAFTA? OPEC? LNG? Politics? Terrorism? N.Am Economy? Energy alternatives? SUPPLY: Exploration Remaining Reserves DEMAND: Production, Exports Time Prices
Resource Development Model (RDM) 8 Stages 1. Discovery 5 2. Evaluation 3. Development 6 4. Growth 5. Peak 6. Decline Production 4 7 8 7. Reality 8. Abandonment 1 2 3 Time Knowing current stage of project can better predict future
Stage 6: Decline! Denial - Companies, workers, politicians, regulators and consumers expect continued growth in production! Current decline is temporary! Hockey stick predictions of future Production 6! Future predictions disconnected from current reality (often based on old data) Time! High Spending based on unrealistic expectations! Costs to maintain production increase Alberta s Conventional Gas Production is at this stage
Canada s Hydrocarbon Stages Stage 1 Disc 2 Eval 3 Dev 4 Grow 5 Peak 6 Dec 7 Real 8 Abn AB Gas BC Gas Sask. Gas E. Coast Gas Mackenzie Gas Coalbed Methane Shale Gas Gas Hydrates AB Oil - Light AB Oil - Heavy Tar sands - surface Tar sands in situ??
Predicting the future Resource Development Model + Current Production* + Decline Analysis* + Investment/Exploration/Drilling/Technology trends = Accurate prediction of future production * Data from PetroCube a new product from AJM Petroleum Consultants
The Future According to the NEB
The importance of up-to-date information! NEB recently published a resource estimate based on year end 2000 data.! Since that time:! Over 55,000 wells have been drilled! Over 23Tcf of gas has been produced! Ladyfern had one well on Production! Ladyfern Gas Production 800 700 Gas Production Well Count 700Mmcf/d 40 35 600 500 400 300 200 100 30 25 20 15 Gas MMcf/d 10 150Mmcf/d # Producing Wells 5 0 0 2003-12E 2003-10 2003-08 2003-06 2003-04 2003-02 2002-12 2002-10 2002-08 2002-06 2002-04 2002-02 2001-12 2001-10 2001-08 2001-06 2001-04 2001-02 2000-12 2000-10 2000-08 2000-06 2000-04
Canadian Gas Supply NEB Forecast 1999 (Bcf/Yr) 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Production increase: 43% NEB Forecast 1999 2000 2002 2004 2006 2008 2010 2012 2014 2016
Canadian Gas Supply NEB Forecast 2003 (Bcf/Yr) 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Production Increase: 20% NEB Forecast 1999 NEB Forecast 2003 2000 2002 2004 2006 2008 2010 2012 2014 2016 Note: includes some LNG imports by 2008
Canadian Gas Supply NEB Forecast 2003 (Bcf/Yr) 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 2001 Production Level Available for Export Domestic Consumption Increase: 47% NEB Forecast 1999 NEB Forecast 2003 Domestic Consumption 2003 2000 2002 2004 2006 2008 2010 2012 2014 2016 Note: includes some LNG imports by 2008
My View of Gas Supply
Future Marketable Gas: East Coast Conventional (Bcf/Yr) 7000 6000 5000 4000 3000 2000 1000 0 500Mmcf/d increasing to 1Bcf/d Sable Deep Panuke White Rose E Coast 2006 2004 2002 2000 2016 2014 2012 2010 2008 Dave Russum, 2003
Future Marketable Gas: Territories Conventional (Bcf/Yr) 7000 6000 5000 4000 3000 2000 1000 0 MacKenzie Pipeline 1 to 1.8 Bcf/d E Coast Territories 2010 2008 2006 2004 2002 2000 2016 2014 2012 Dave Russum, 2003
Future Marketable Gas: Sask. Conventional (Bcf/Yr) 7000 6000 5000 4000 3000 2000 1000 0 700Mmcf/d growing by 3%p.a. E Coast Territories Sask 2010 2008 2006 2004 2002 2000 2016 2014 2012 Dave Russum, 2003
Future Marketable Gas: BC Conventional (Bcf/Yr) 7000 6000 5000 4000 3000 2000 1000 0 2.5Bcf/d growing to 3.2Bcf/d E Coast Territories Sask BC 2012 2010 2008 2006 2004 2002 2000 2016 2014 Dave Russum, 2003
Future Marketable Gas: Alberta Conventional (Bcf/Yr) 7000 6000 5000 4000 3000 2000 1000 0 Actual 3% Decline to 2005 5% Decline after E Coast Territories Sask BC Alberta 2008 2006 2004 2002 2000 2012 2010 2016 2014 Dave Russum, 2003
Future Conventional Marketable Gas Prediction (Bcf/Yr) 7000 6000 5000 4000 3000 2000 1000 0 $ Export to US Rest of Canada Alberta Demand $$$ E Coast Territories Sask BC Alberta 2006 2004 2002 2000 2010 2008 2016 2014 2012 Dave Russum, 2003
What can you deliver?
Future Marketable Gas Prediction (Bcf/Yr) 7000 6000 5000 4000 3000 2000 1000 0 Assume: 1Bcf/d by 2009 (10,000 successful Wells) 2.2Bcf/d 2016 NEB 2003 Expectation +5.5Bcf/d CBM E Coast Territories Sask BC Alberta 2004 2002 2000 2010 2008 2006 2016 2014 2012 Dave Russum, 2003
Gas Prediction 2003-2013! Supply will be tight! Decade of wildly fluctuating prices! Average price will climb steadily! Reality of situation will encourage:! LNG! Development of higher cost gas! Conservation! Energy alternatives! Import of LNG and energy alternatives may be cheaper than Canadian gas in future Dave Russum, June 2003
Our Challenges in Canada:! Just in time Industry focused on short-term results! We have become risk averse! Not investing in enough research for exploration and extraction! Escalating COF&D! Governments have taken a hands-off approach to energy (no overall energy management or plan)! Obligations to NAFTA! Increased demand for energy to extract oil
Summary! Canada is not running out of gas resources! Rapidly depleting our accessible, low cost gas reserves! Alternatives exist take research, time and money! We need to be very conscious of costs and economic viability in relation to a North American and World market! The need for Unconventional gas will be huge at the right price!
Welcome your feedback Contact Dave Russum Email: daver@ajma.net More Information: www.ajma.net www.geohelp.net Thank You