CANADIAN NATURAL GAS Security of Supply

Graham FlackAssociate Assistant Deputy Minister, Energy Policy

Natural Resources Canada

Forum on Continental Energy

Monday, March 21, 2005Woodrow Wilson Center

Washington, D.C.

Presentation Outline

• Canada’s Contribution to North American Security of Natural Gas Supply

• Ensuring Future Adequacy of Natural Gas Supply– Role of Market

– Role of Governments and Regulators

• Conclusions

Undiscovered Resources

Adequacy of Natural Gas Resources (Tcf)

Other Canadian Frontiers

WCSB (includes Ontario)

ArcticIslands

Onshore Territories

MacKenzie Delta/Beaufort Sea

138

121170

46

1

6

1

4

36

12

28

9

52

18

32 1

57

Newfoundland Offshore

Scotian Shelf

Remaining Reserves

Gas Basin

Produced

Discovered Resources

9B.C. Offshore

Security of Natural Gas Supply – Canada’s Contribution

• Canada has a very high level of natural gas supply and is a major contributor to the North American security of supply picture:– Net exporter - nearly 60% of Canadian natural gas production

is exported to the U.S.• Represents about 17% of total U.S. natural gas consumption

• About 94% of total U.S. natural gas imports are from Canada

– Canada produces nearly 25% of total North American natural gas supplies

Midwest: 8% of U.S. Demand

West: 4% of U.S. Demand

Northeast: 4% of U.S. Demand

Adequacy of Pipeline Infrastructure

Canada’s Future Natural Gas Supplies

• While conventional natural gas supplies are increasing only moderately, demand continues to grow at a steady pace.

• Together, this implies that new sources of natural gas will be required

• New supply sources of natural gas emerging:

– coalbed methane– Mackenzie Delta and Alaska– east coast offshore– west coast offshore?

(moratorium)– liquefied natural gas– compressed natural gas

(offshore Newfoundland)– methane hydrates

0 .0

1 .0

2 .0

3 .0

4 .0

5 .0

6 .0

7 .0

8 .0

2 0 0 4 2 0 0 6 2 0 0 8 2 0 1 0 2 0 1 2 2 0 1 4 2 0 1 6 2 0 1 8 2 0 2 0

0 .0

1 .0

2 .0

3 .0

4 .0

5 .0

6 .0

7 .0

8 .0

L N GN e w fo u n d l a n dN o v a S c o t i aU n c o n v e n t i o n a lT e r r i to r i e s / M a c k e n z i e D e l taS a sk a tc h e w a nB r i t i sh C o l u m b i aA l b e r ta

T c f T c fC a n a d i a n N a t u r a l G a s S u p p l y G r o w t h

S o u r c e : N E B , C a n a d a ’s E n e r g y F u t u r e : S c e n a r io s fo r S u p p ly a n d D e m a n d t o 2 0 2 5 , J u ly 2 0 0 3 .

Ensuring Future Adequacy of Natural Gas Supply

• In the long-term, the prospects for ensuring adequate supplies of natural gas will depend on the ability of, and incentives for stakeholders to:• Develop resources; and,

• Develop infrastructure required to connect resources to market

• Ensuring the adequacy of natural gas supply in North America for the long-term requires an:– Active role by market participants; and,

– Active role from government and regulators

Role of Government

• To ensure that a favorable climate for investment in natural gas resources and infrastructure exists requires that government:

1. Continue to endorse a market-based energy policy

2. Promote initiatives to foster long-term security of natural gas supply

3. International collaboration

4. Create a smarter regulatory framework that is clear, predictable and efficient

Role of Government

1. Our market-oriented energy policy framework is designed to:

• Attract investment and stimulate economic growth;

• Protect the environment; and,

• Ensure a secure and competitively priced supply of energy for both domestic and export markets

• Strong success in these areas:

• Oil and natural gas industry invested about $27 billion in 2003; more investment than any other sector or industry

• Our energy policy framework will continue to evolve in response to changes in global energy markets and the needs of industry and consumers

Role of Government

2. Promote initiatives to foster long-term security of natural gas supply

• Continue to promote innovation, technology and energy efficiency improvements

• Continued commitment to R&D initiatives

• Promote the diversification of natural gas supply, and all energy sources, including renewable energies

Together, these initiatives support our continued commitment to the sustainable development of Canada’s energy resources

Role of Government

3. International Cooperation• North American Energy Working Group

• The NAEWG, a group of senior officials from Canada, the U.S. and Mexico, has been successful in fostering cooperation among the three nations

• Last month, the NAEWG released North American Natural Gas Vision, the first report of its kind to amalgamate public information on natural gas in all three countries.

• Memorandum of Understanding – National Energy Board and Federal Energy Regulatory Commission

Role of Government

4. Regulatory Initiatives• Our system of regulation serves us well, but our needs are

constantly changing

• Examples of regulatory cooperation or initiatives designed to ensure an efficient regulatory environment

• Smart Regulation Initiative

• Atlantic Energy Roundtable

• Mackenzie Valley Cooperation Plan

Conclusions

• Canada has an abundance of natural gas resources and the necessary infrastructure to deliver natural gas to market

• Our market-oriented energy policy framework has been successful in providing us with a competitively priced, secure source of natural gas supply

• Mature conventional North American natural gas basins, ever-increasing demand, and higher prices are attracting investment

• New sources of natural gas supply – coalbed methane, liquefied natural gas, Mackenzie Delta, Alaska, and methane hydrates – will arrive

• Governments and regulators have a role to play in creating a favorable climate for investment in resources and infrastructure