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Pacific Northwest as a Gateway to AsiaEnergy Export Opportunities

Canadian Energy Research Institute

Peter HowardPresident and CEO

Canadian Energy Research InstitutePacific Northwest Gateway to Asia

October 28, 2014

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Canadian Energy Research InstituteOverview

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 in energy and related environmental issues. A central goal of CERI is to bring the insights of scientific research, economic analysis, and practical experience to the attention of government policy-makers, business sector decision-makers, the media, and citizens in Canada and abroad.

Core members of the Institute include the Canadian Government, the Government of the Province of Alberta, and the Canadian Association of Petroleum Producers (CAPP). In-kind support is also provided by the University of Calgary and the Alberta Energy Regulator (AER).

All of CERI’s research is publically available on our website at www.ceri.ca

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The Canadian Energy Research Institute’sRecently Released and Pending Studies

4

Land AcquisitionCrown Land Sales

Evaluation

Construction

Operation and Maintenance

Production

Wages

Royalties

Western Canada’s Energy Sector

Land AcquisitionCrown Land Sales

Conventional Drilling

Completion and Tie in

Operation and Maintenance

Production

Wages

Royalties

2013 Expenditures: $63.8 billion 2013 Expenditures: $54.8 billion

Oil and Gas Drilling Oil Sands Developments

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LNG : not for the weak of heart

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North American NGL PathwaysLNG Exports: Pacific Northwest LNG

Pacific Northwest LNG• Petronas• Japex• Indian Oil Corp.• Pet. Brunei• SINOPECCapital Cost $9-$11 Billion

Prince Rupert Gas TransmissionTransCanada Pipelines

Capital Cost $6.5 billion

Progress Energy project metrics:• 1100 wells (2014-2018)• 7360 wells (2019-2038)• Gathering Systems• Field Processing plantsAssuming Montney Horizontal Well• Vertical Depth: 1850 m• Horizontal Length: 1650 m• Rig Crew: 12-15 (302 People employed per site: PSAC)• Rig-in to Tear out: 28 days• Cost per well: $6.2 million (2014 $)• Economies of scale $3.1 million (2014 $)Field Expenditures• $3 billion for wells(2014-2018)• $2 billion for field facilities (2014-2018)• $26 billion for wells (2019-2038)• $10 billion for field facilities(2019-2038)

Pacific Northwest LNG ProjectUpstream $42 + Billion CDN

Pipeline $ 6.5 billion CDNLNG Facility $10 billion CDN

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Asian market Suppliers

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ChinaKoreaJapanIndia

Alaska LNG Up to 3.5 bcf/day

Kitimat LNGLNG Canada

Pacific Northwest LNGWest Coast LNG

Prince Rupert LNGWoodfibre LNG

Up to 17 bcf/day

Jordon CoveOregon LNG

Sabine PassFreeport LNGCameron LNG

Dominion Cove LNGLake Charles LNG

Corpus Christi LNGUp to 30 bcf/day

Australia OperatingAustralia Under Construction

Australia Proposed(now 2.5 bcf/day)

RussiaSakhalin Island LNG

(now 1.1 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)

MozambiqueAnadarko

Shell Up to

(6.5 bcf/day)

West AfricaIndonesiaMalaysiaOthers

3.2 – 13.5 – 16.0 bcf/day

Pipeline: 3.2 – 6.4 bcf/day

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20112012

20132014

20152016

20172018

20192020

20212022

20232024

20252026

20272028

20292030

0

10

20

30

40

50

60

United States Potential LiquefactionOther supply sourcesEast Africa Potential LiquefactionCanada LiquefactionUnited States LiquefactionAustralian LiquefactionMiddle East Liquefaction Asian LNG Demand

BCFP

DNorth American Natural Gas Demand PathwaysReference Case: LNG Export Potential to the Pacific Basin

9.7 Bcf/day (75% to Asian Basin)

BC LNG Projects2 Projects (AFID)

Up to 3.2 bcf/dayMaybe!

Lower 48Sabine Pass (UC)

Freeport (UC Q4 2014)Cameron LNG (UC Q4 2014)

Oregon LNG (SC 2015)Jordan Cove LNG (SC 2015)

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Natural Gas Liquids

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LNG = Liquefied Natural GasMethaneEthane Propane Butane

LPG’s = Liquid Petroleum GasesPropaneButane

Diluent = Diluent/CondensatePentanes plus

Terminology

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Anacortes, WA AltaGas, PetroGas, Idemitsu (30,000 b/d)

Portland, OR Pembina (40,000 b/d)

Port of Longview, WA Sage Midstream (47,000 b/d)

Prince Rupert, BC

Kitimat, BC

NE BC

NW, WC AB

Liquids R

ich

Shale

Resource

s

LPG :Lost Opportunity

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Oil and Oil Sands

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OIL

New Brunswick

OIL OIL

WCSB Crude Oil: “Where oh where should the oil go?”

North, South, East or West

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Kinder Morgan Edmonton Rail Terminal to expand to 250,000 bbls/day“The continued interest in this facility, and additional volume being contracted for with this announcement, further demonstrates how important it is for our customers to secure crude oil take away capacity using a variety of transport options including both pipeline and railway capacity to ensure crude oil reaches market”John Schlosser: President Kinder Morgan Terminals

Western Canada rail loading capacity will reach 1,350,000 bbls per day by 2017

CERI

The company (TransCanada) is contemplating a “rail bridge” from the oil sands area to a crude oil hub in either Cushing, Oklahoma or Steele City, Nebraska where it can tap into south bound pipelines. (Daily Oil Bulletin)Russ Girling: CEO TransCanada

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WCSB Crude Oil Equivalent Volumes vs Transport System Study 141 Oil Pathways (July 2014)

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,0005,5006,0006,5007,0007,5008,000

05001,0001,5002,0002,5003,0003,5004,0004,5005,0005,5006,0006,5007,0007,5008,000

Existing Production(*) Under Construction ApprovedAwaiting Approval Announced Existing Export CapacityRail Systems AB Clipper Exp I AB Clipper Exp IITCPL Keystone XL Kinder Morgan TMX Exp Northern Gateway

Volu

me

(bbl

s/da

y)

* Includes existing Bitumen + Diluent + WCSB Conventional + Cold Bitumen production - Domestic Refinery needs (AB,SK) CERI July 2014

“Given the current existing export pipeline capacity and accounting for the proposed expansions to the Enbridge mainline and assuming a ramp up in rail transport capacity from the current level of 120,000 barrels per day to 700,000 barrels per day by 2017, market access for Western Canadian oil and oil sands volumes will be market challenged starting in 2017”

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Oil Sands Forecasts and Economic Impacts (Sept. 2014)Economic Impacts for the period 2014 to 2038

• “Oil Sands bitumen production (upgraded and non-upgraded) is forecasted to grow from the current level of 1.98 million barrels per day (2013) to 3.7 million barrels per day by 2020 and 5.2 million barrels per day by 2030. Conventional Oil production will reach 1.5 million barrels per day by 2030”

• “Total investment in new Alberta oil sands projects and re-investment (sustaining capital) in existing oil sands projects will exceed $514 billion (2013 Canadian dollars). Operating revenue over the same period will exceed $2,506 billion (2013 Canadian dollars)

• “The sum of initial capital, sustaining capital and capital required for operations is expected to average $55 billion per year (2013 Canadian dollars).”

• “For every direct job (1) generated in the Alberta Oil Sands, 1 additional job is generated by indirect association and 1.5 jobs by induced association, ALL in Canada.”

• “Oil sands related taxes (indirect, personal and corporate) will pay to the British Columbia Provincial Government a total of $9.5 billion (2013 Canadian dollars)”.

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HOWEVER The Gateway maybe closing

WCSB Hydrocarbon Developments: Crude Oil / Bitumen, LNG, LPG’sInvestment opportunity, Employment, GDP growth, Taxes, Royalties

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Canadian Energy Research Institute

Thank you for your timePlease visit us atwww.ceri.ca

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2013 Facts about Canadian CrudeProduction:

• Western Canada (AB,BC,SK,NWT) Conventional LIGHT Crude 694,775 bbls/day• Western Canada (AB,BC,SK,NWT) Upgraded Bitumen 961,084 bbls/day • Western Canada (AB,BC,SK,NWT) Condensate (C5+) 147,770 bbls/day• Western Canada (AB,BC,SK,NWT) Conventional HEAVY Crude 451,618 bbls/day • Western Canada (AB,BC,SK,NWT) Non-Upgraded Bitumen 1,019,810 bbls/day • Eastern Canada (NF/LAB,ON) Conventional LIGHT Crude 235,566 bbls/day • Total 2011 Production of Crude Oil and Equivalent 3,510,643 bbls/day

Exports:* • PADD I (74% Light, 26% Heavy) 196,327 bbls/day• PADD II (21% Light, 79% Heavy) 1,737,246 bbls/day• PADD III (12% Light, 78% Heavy) 124,790 bbls/day• PADD IV (17% Light, 83% Heavy) 230,137 bbls/day• PADD V (61% Light, 39% Heavy) 199,027 bbls/day• Non-US (67% Light, 33% Heavy) 84,119 bbls/day• Total US (28% Light, 82% Heavy) 2,571,165 bbls/day

Imports:* % of Imports

• Eastern Canada Light 612,017 bbls/day (93%)• Eastern Canada Heavy 44,449 bbls/day (7%) • Total Canadian Imports 656,466 bbls/day* 2013 Average January to September

2013/2008

+ 30%

+ 44%

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2013 Facts about Canadian Natural Gas, NGLsAll 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