Shale Gas Development in Canada – A Federal Perspective

Brussels Forum

John Foran, Energy SectorNatural Resources Canada (NRCan)

January 22, 2013

Presentation Summary

Canadian Energy Policy/Regulatory/Market Overview Jurisdiction & Energy Policy NRCan Mandate Resources Technologies

Canadian concerns with shale gas development: Groundwater use and contamination Greenhouse gas emissions Induced seismicity

Conclusions

Understanding Energy Jurisdiction

Provinces own and manage the resources Production, gathering, processing infrastructure

and intra-provincial pipelines

Single jurisdiction pipes are provincial Federal government responsibilities

inter-provincial and international trade (market structure)

Cross jurisdiction pipelines exports/imports

LNG facilities are generally provincially-regulated

Canada’s energy policy is market oriented – deregulated prices- Markets determine supply, demand, prices and infrastructure

investments Targeted interventions and regulations help achieve specific objectives:

- Encourage cleaner energy, efficiency- Human health/safety- Science and technology - Regulated rates on pipelines

Both Federal and Provincial gov’ts have jurisdictional powers that are important in energy issues

Canada requires aboriginal consultation on decisions that may impact aboriginal rights or title

Canadian Energy Policy Framework

NRCan Mandate, Role of Public Servants

Natural Resources Canada (NRCan) Mandate Federal energy department – responsible for energy policy1

Ensure the sustainable development and responsible use of the country’s natural resources; maximize benefits to Canadians; strengthen conditions for Canada’s economic success

Provide sound environmental leadership, and ensure public safety and security

Code of Public Service Assist Ministers, under law, to serve the public interest; give

honest and impartial advice; political neutrality.

1. And other things – mining, forestry

6

Canada is a global energy leader

Third largest producer of natural gas (144 Bcm) 4th largest exporter

Sixth largest producer of oil (~3 million barrels/day) Third largest producer of hydro power Second largest producer of uranium Own nuclear power technology (CANDU) More than 75% of power generation non-emitting Vast renewable and clean energy potential

- e.g. wind, biomass, solar, marine and geothermal

Large Canadian Natural Gas Resources

Liard discoveries

Alberta and Saskatchewan > 300 TCF OGIP

3

TOTAL > 1400 TCF OGIP

Based on conventional natural gas, in 1970s Canada became world’s third largest global gas producer, and fourth largest global gas exporter.

Allowed Canada to develop world-leading natural gas drilling, processing, and pipeline expertise and infrastructure, as well as world-leading regulators and regulations.

Technology breakthroughs in shale and tight gas have now doubled Canadian resources.

OGIP=Original Gas in Place

Canadian Marketable Resource Estimates

0

200

400

600

800

1,000

1,200

1,400

2000 2010(Low)

2010(High)

Tri

llio

n C

ub

ic F

ee

t (T

cf)

Conv.

CBM CBM

Conv. Conv.

Shale & Tight (343)

Shale & Tight (819)

733 Tcf

1,304 Tcf

Source: Cdn.Society for Unconventional Resources

Technology doubled Canada’s natural gas resource base – still rising

Shift to shale gas - the new low cost supply of energy in Canada

US export market expected to become self-sufficient

Canada pursuing market diversification via LNG exports to Asia

New Technologies Make Shale Gas Economic

Source: Alberta Venture

Horizontal wells

+

Multi-stage fracs

+

Pad drilling

=

Economic Development

>1km

Public Concerns

Public Concerns

Public concern and opposition to shale gas development exists, particularly in non-traditional hydrocarbon producing provinces such as Quebec and New Brunswick

Concerns include i) water use and contamination (incl. frac fluid disclosure); ii) air emissions (incl. GHGs); iii) induced micro-seismicity

Some shales are located under populated or agricultural areas and below key Canadian aquifers, which has increased these concerns.

Groundwater Schematic

Source: Environment Canada

What’s Under GroundwaterFresh groundwater is usually in the first 100-200 m. Brackish or saline groundwater is usually below 300 m. Below the deepest freshwater aquifers, porosity is filled with: i) saline water; ii) natural gas; or iii) crude oil. Technology and regulations must be used to prevent communication of deep fluids or drilling/completion fluids with near surface groundwater.

NRCan Research Groundwater Geoscience Program (2009 – 2014) characterizes regional aquifer

systems and makes the data available through the Groundwater Information Network Program aims to map and assess 30 key aquifers to provide scientific knowledge

on GW resources for water management and protection. In 2012, NRCan implemented new shale gas studies including:

the potential impacts of shale gas development on surficial aquifers induced seismicity related to hydraulic fracturing and/or deep aquifer re-injection of

post-frack wastewater. Under the Geoscience for New Energy Program, NRCan is characterizing shale-

hosted petroleum reservoirs to better understand the quality and behaviour of these reservoirs, to develop a standardized resource assessment methodology.

Council of Canadian Academies The Sustainable Management of Groundwater in Canada, May 2009 Environmental Impacts of Shale Gas Development - in progress

Risks to Groundwater

Environment Canada and Natural Resources Canada have considerable groundwater expertise and mapping and monitoring programs.

In Canada, surface activities have been identified as posing the largest risks to groundwater. E.g. municipal landfills, industrial waste disposal sites,

leaking gasoline storage tanks, leaking septic tanks, accidental spills, run off from road salt, fertilizer, pesticides, livestock wastes etc.

Facts on Hydraulic Fracturing in Canada

Hydraulic fracturing used in North America since the 1940’s. Over 175,000 wells fractured in Alberta alone.

Regulations govern wellbore construction to ensure steel casing and cement barriers separate the wellbore and nearby water sources.

Fracturing of pay zone typically extends less than 300 metres above the stimulated zone (which is typically deeper than 1,000 metres), making it extremely unlikely for fractures to impact potable groundwater. In Canada, there have been very few incidents, and no proven cases

of water well contamination resulting from hydraulic fracturing. An incident in 2012 contaminated a near surface water-bearing

zone, due to improper completion work. The zone is not a source of potable water.

Greenhouse Gas Emissions

Lifecycle greenhouse gas emissions from shale gas being produced in Canada are on average 4 percent greater than those from conventional natural gas 29 to 38 percent lower than other fossil fuels such as gasoline, diesel and coal.

Procedures to prevent methane releases during well completion. Fugitive methane emissions from shale gas production are unlikely to vary significantly

from conventional gas production.

Natural gas is a transition fuel for a low-carbon economy as it is cleaner burning than any other fossil fuel and is in abundant supply. The increased use of natural gas (incl. from shale), in place of more greenhouse gas-

intensive fuels, is consistent with Canada’s climate change mitigation efforts.

www.ghgenius.ca

Induced Seismicity

Induced seismicity refers to seismic events caused by human activities (in comparison with naturally occurring earthquakes).

Hydraulic fracturing activities in British Columbia may have caused seismic events with magnitudes ranging up to 3.8. Studies are ongoing to increase the understanding of potential linkages between fracking and induced seismicity.

In Canada, no damage has been documented as a result of induced seismicity associated with shale gas development sites.

NRCan scientists are active in research and speak to public concerns in this area.

Conclusions

The regulation of shale gas development is primarily provincial. New technologies are leading to natural gas production from

previously non-productive rocks (shale) and from new regions Estimated Canadian natural gas resources have grown dramatically Canada is targetting new markets for natural gas via LNG,

particularly as the US becomes more self-sufficient Considerable public concern has been expressed about potential

negative environmental and health impacts of hydraulic fracturing. NRCan has observed that hydraulic fracturing, using the

technologies employed in Canada, and governed by Canadian regulatory requirements, has not resulted in significant negative environmental impacts.

EXTRAS

•BC: Commercial Production•New Regulatory Framework•Enormous Resources•Targeting LNG exports

•Qc: Utica Shale – experimental stage•BAPE recommendation for environmental review•No shale gas developmentuntil Strategic EnvironmentalReview is concluded

•NB: 5 wells targeting shale•NG Steering Committee •No referendum on issue•Blueprint for dev’t coming soon

•AB: 15 shale gas formations•850 tcf identified •ERCB further evaluatingshale gas resource potential•Shale gas development in early stages

•NS: Two gas wells in Horton Bluff Shale•3 wells fractured in the Kennetcook area•Provincial review by 2014

•SK/MB: PIRA expects SK/MBshale oil production to grow from 75kb/d in 2010 to 700kb/d in 2025

2011 WCSB Natural Gas Production

•ON: active identifyingprospective shale units

•Anticosti/NF: shales are being evaluated

Shale Gas in Canada

CBM Tight Shale Conv. TotalAB 5.4% 26.6% 0.0% 39.6% 71.7%BC 0.0% 12.9% 3.5% 8.8% 25.1%SK 0.0% 1.5% 0.0% 1.6% 3.1%YK 0.0% 0.0% 0.0% 0.1% 0.1%

Total 5.4% 41.0% 3.5% 50.1% 100.0%

Large Canadian Natural Gas Resources

Canada has world-leading natural gas drilling, processing, and pipeline expertise, infrastructure, regulators and regulations.

Pursuing LNG exports to Asia and Europe

Western Canada

Eastern Canada

www.Shaleresourcecenter.ca

Resource Jurisdiction: a Shared Responsibility

The direct ownership, management and regulation of most natural resources fall under provincial jurisdiction

Issues of interprovincial, national, or international concern fall under federal jurisdiction

Federal Jurisdiction

•International and interprovincial issues e.g. EXPORTS

•Uranium/nuclear power•Federal lands in North, offshore and Crown lands

•Works declared to be for the general benefit of Canada (e.g. science and technology)

Provincial Jurisdiction

•Resource ownership, management and royalties

•Land-use planning and allocation

•Laws regarding the exploration, development, conservation and use of natural resources within provincial boundaries

Natural Gas Pipelines and Prices

2012 Canadian Statistics Prod’n = 13.8 Bcf/d Exports = 8.4 Bcf/d Imports = 2.9 Bcf/d Alberta price = $2.31

Cdn$/GJ Current Alberta price =

$3.00 Cdn$/GJ US becoming self

sufficient, Canada pursuing export market diversification via LNG export projects

LNG Exports and Pipeline Proposals

Proposed Liquefaction terminals

Proposed Pipelines

TCPL / Shell 3.4 bcf/d

LNG CanadaUp to 24 MT/yr or 3.2 Bcf/d

In service: 2019Shell, Mitsubishi, Kogas, Petrochina

Export licence under review

Ridley IslandPipeline will provide up to 4.2 Bcf/d

In service:2019Spectra / BG Group

Regulatory applications pendingPacific Northwest LNG

18 MT/yrPetronas/Progress

Spectra / BG 4.2 bcf/d

Kitimat LNG Operating Gen. Part. Up to 10 MT/yr or 1.3 Bcf/d

In service: 2017Encana, Apache, EOG

Export license approvedBC LNG Export Co-operative Up to 1.8 MT/yr or 0.25 Bcf/d

In service: 2014 Export license approved

Pacific Trails 1.4 bcf/d

Prince Rupert 3.6 bcf/d

Public Concerns (con’t)

NRCan consulted regulators, geoscientists, government departments, and experts to gather factual information and shares the IEA view that: “The technologies and know-how exist for

unconventional gas to be produced in a way that satisfactorily meets these challenges but a continuous drive from governments and industry to improve performance is required if public confidence is to be maintained or earned.”