Focus on Geopolitics N.A. Shale & Export Options

- A Canadian View

International Gas Union October 17, 2012 – Ottawa, ON

Dave Collyer, President, CAPP

North American Natural Gas – Supply Outlook

• Shale gas supply a game-changer …100+ years supply.

• Technology success (horizontal drilling, fracturing, completions).

• Implications:

Abundant, affordable energy.

Significant shift in S / D dynamics

Changes in p/ l flows.

Emerging stakeholder challenges (env. & social).

Western Canada – Resource Plays

Source: TransCanada

100 Years + Supply

0

2

4

6

8

10

12

14

16

18

20

22

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Eastern Canada

Alberta Shale

Horn & Cordova

Montney

CBM

Conventional

Canadian Natural Gas Production – Two Price Scenarios (bcfd)

Note: Prices do not exceed $4.00/GJ over the forecast period

Note: Prices recover to at least a level of $5.50/GJ

Price Recovery Case

Continued Low Prices Case

CAPP 2012

Required NYMEX Natural Gas Strip for 10% IRR

Natural Gas Supply Costs (Representative Single Well Economics – Established Plays)

Source: Morgan Stanley Research August 19, 2010

& CAPP (Forward Strip Price)

$0

$1

$2

$3

$4

$5

$6

$7

Pine

dale

(Cre

st)

Mar

cellu

s W

et (c

ore)

Pine

dale

Mar

cellu

s D

ry (c

ore)

Faye

ttevi

lle (3

.4 B

cf)

Gra

nite

Was

h (H

oriz

onta

l)

Mon

tney

(10

stag

e fr

ac)

Hur

on S

hale

Dee

p B

ossi

er (E

. Tex

as)

Eagl

e Fo

rd (C

onde

nsat

e Zo

ne)

Can

a-W

oodf

ord

(Cor

e)

Pice

ance

(Val

ley

- Cor

e)

Bar

nett

(Tie

r 1)

Hor

n R

iver

App

alac

hian

-CB

M

Hay

nesv

ille

Nik

anas

sin

Mar

cellu

s dr

y (ti

er 2

)

Eagl

e Fo

rd (G

as)

Faye

ttevi

lle (2

.8 B

cf)

Jona

h

Woo

dfor

d (A

rkom

a)

Wat

tenb

erg

(Cor

e)

Uin

ta (S

hallo

w)

Pice

ance

(Hig

hlan

ds)

Rat

on (C

BM

)

Alb

erta

Sha

llow

Gas

War

wic

k (W

. Tx

Ove

rthr

ust)

Mon

tney

(4 s

tage

frac

)

Bar

nett

(Tie

r 2)

Pow

der R

iver

(CB

M)

Alb

erta

Dee

p B

asin

Jean

Mar

ie (T

ight

Gas

)

Hor

sesh

oe C

anyo

n (C

BM

)

Canada is resource rich, competitively challenged.

2 year forward strip: $3.66/MMBTU

(September 14, 2012)

5

Canadian Natural Gas Exports, 2011 Impact of Shale Gas on N.A Gas Flows

West 2.4

bcf / d

Mid-West 5.1 bcf / d

Northeast 1.4 bcf / d

LNG

Marcellus

Haynesville, Fayetteville, etc.

Horn River, Montney

U.S. Rockies

New Supply Areas

Increased Flow

2011 Canadian Exports 8.9 bcf / d

• Existing infrastructure serves N.A. markets.

• Changing S/D dynamics necessitate market growth:

• N.A. (transportation, power)

• Exports (LNG for price & takeaway)

Projected Net Natural Gas Imports (Bcf/d)

Source: EIA 2011 International Energy Outlook

World Natural Gas Prices

0.002.004.006.008.00

10.0012.0014.0016.0018.0020.00

North America Europe Japan

$US/

MM

btu

Source: World Bank

Favourable Project Economics Associated with Serving Asian Natural Gas Markets

0

2

4

6

8

10

12

14

16

18

Gas Price WesternCanada

Transportation Costto Coast

Liquefaction Cost Shipping Cost

Japan LNG Price 2010

Japan LNG Price 2011

Japan LNG Price 2012

$/M

Mbt

u

Proposed Canadian West Coast LNG Terminals

Sponsors Location Timing Capacity Status Kitimat LNG Apache; EOG; Encana Kitimat BC 2017 1.4 Bcfd

Phase 1 & 2 total Permits Received Awaiting Final Investment Decision

Douglas Channel Energy Partnership

LNG Partners & Haisla Nation Limited Partnership

Kitimat BC Q4 2013/Q1 2014

0.25 Bcfd Export Permit Received

LNG Canada Shell Canada, Korea Gas, Mitsubishi and PetroChina

Kitimat BC 2020 2.0 Bcfd Early Project Development stage, applied for export license

Petronas Progress; Petronas Prince Rupert

2018 1.0 Bcfd Conducting Feasibility

Nexen/Inpex Nexen/Inpex TBD TBD TBD Conducting Feasibility

Positives Asian market growth Proximity to Asia Deep water port(s) Robust supply Gov’t & stakeholder support

Potential Challenges

Multiple competing projects Global scale Cost escalation Market window

● Competitiveness Aligned policy (federal & provincial)….sense of urgency. Efficient regulatory framework (upstream, infrastructure, export

licenses). Stable, competitive fiscal regime. Timely enabling infrastructure development. Win – win relationship among producers and markets.

● Social License Continuous performance improvement – environmental & social. Recognition of environmental benefits of use in export markets. Addressing local “on the ground” issues. FN & stakeholder support.

…… A significant opportunity for Canada requiring shift from N.A. to global competition to realize market window.

Summary - What’s Needed to Make It Happen?