Common menu bar

Breadcrumb

Home > Speeches and Presentations > Speeches and Presentations 2009 > Assessing the Supply and Regulatory Environment for Northern Gas Development

Assessing the Supply and Regulatory Environment for Northern Gas Development

Presented by
Pradeep Kharé
Chief Operating Officer
National Energy Board

The Canadian Institute's 9^th Annual Arctic Gas Symposium
Calgary, Alberta

4 March 2009

Assessing the Supply and Regulatory Environment for Northern Gas Development

My intent is to give you some background and an overview of the NEB's structure, responsibilities, and activities;

To talk about our activities in the north, regulating exploration and production, (including the topics of monitoring petroleum activity and data management);

To discuss some of the other developments in North American natural gas markets that may have an impact on northern gas development.

Introduction to the NEB

The National Energy Board, is a federal, quasi-judicial regulatory tribunal that has been operating for almost 50 years. It functions similar to a court when making decisions about certain projects - public hearing, panel of Board Members who render a decision.

Federal-provincial separation of responsibilities under the constitution. NEB is federal.

Though we report on our annual activities to parliament, the Board Members' decisions related to projects are independent - decisions of the Board are made by the Board without influence from other arms of government or politicians.

The Board has a staff of about 340, all based here in Calgary. We employ a range of specialists that act as advisors to the Board and carry out the Board's regulatory activities, including economists, engineers, environmental and socio-economic specialist, legal counsel, geologists, market analysts, financial specialists, lands specialists, consultation specialists, communications specialists, etc.

Our annual budget is approximately $34M. Our legislation allows us to cost recovery about 90% of that $34 million from the companies we regulate. The part of our budget that is not cost recovered is work we do to regulate exploration and production activities in the north.

Mandate and Purpose

Three main acts from which the NEB's mandate is derived: National Energy Board Act, Canadian Oil and Gas Operations Act, Canada Petroleum Resources Act. The latter two acts govern our activities in "frontier" areas.

The NEB's purpose is to promote safety and security, environmental protection and efficient energy infrastructure and markets in the Canadian public interest within the mandate set by parliament in the regulation of pipelines, energy development and trade.

Division of responsibilities

This map shows the division of responsibilities in areas that are not within a province in Canada. That includes 2 of the territories (not Yukon) and the offshore area. In April of 1998, management of resources in the Yukon devolved to the Government of Yukon under the Yukon Oil and Gas Act.

The yellow areas are overseen by federal authorities - government departments issue rights for oil and gas and the National Energy Board regulates the activities and infrastructure in these frontier lands.

The offshore Accord areas, in red and blue, are overseen by co-management boards, joint federal/provincial agencies. These "Offshore Accord Boards" (as they are known) have very similar powers to the NEB.

Areas of Responsibility

Under its regulatory mandate, the board is primarily responsible for

Inter-provincial and international pipelines, physical and financial regulation of pipelines that cross provincial & international boundaries
Physical regulation of certain international power lines
International trade in oil, natural gas and electricity
Exploration and production of petroleum in the Frontier areas

In its advisory capacity, the board

Monitors energy markets
Provides advice to the federal government
Issues reports on energy issues

Cooperation & Coordination

So as you have seen, the framework for energy regulation in Canada is very complicated, involving both federal, provincial and territorial governments as well as settled land claims. In some cases, there are co-management regimes among two or more of these. Frequently, this system can be confusing to the public, but governments have gone to great lengths to reduce unnecessary overlap and to simplify processes due to the willingness of parties to collaborate to find the "right" solution when issues cross multiple jurisdictions.

Cooperation and coordination are made possible by the fact that all of the different regulatory bodies share a more or less common goal, the furthering of the public interest. This goal is to protect the safety of citizens, their property and the environment, and to create the conditions for an innovative and competitive economy.

As a committed partner in Canada's responsible energy development, the NEB has entered into agreements with a number of different governments and agencies. These include:

Agreements with other regulators, to do parallel assessment processes - essentially have a single hearing with two (or more) regulators hearing the facts at the same time and then making independent decisions
Often, several governments or agencies have environmental assessment responsibilities. In these cases, we work with them to try to have a single assessment process that all can use. The Mackenzie Gas Project involves 14 Agencies with environmental and regulatory responsibilities and we have worked together to create a coordinated process for reviewing this complex project
Memorandums of Understanding with government agencies and regulatory agencies to coordinate operational work. We have agreements in place with
- Indian and Northern Affairs
- Canada Natural Resources Canada - expert advice on regulations
- Mackenzie Valley Environmental Impact Review Board - cooperation to reduce duplication
- Transportation Safety Board - incident investigation
- Yukon Territory Department of Economic Development - technical advice
- Northwest Territories Water Board
- Alberta Energy and Utilities Board - incident response
- Human Resources & Social Development Canada - application of OHS regulations
- Canada Nova Scotia Offshore Petroleum Board
We also have agreements with international regulators, including the Comisión Reguladora de Energía and the Federal Energy Regulatory Commission, to enhance inter-agency cooperation and harmonization, for projects that could cross international boundaries.

Canada Oil and Gas Operations Act and Canada Petroleum Resources Act

Under COGOA, NEB regulates

geological and geophysical activities
oil and gas well drilling
production facilities and operations
pipelines in Frontier areas not otherwise under the NEB Act, such as intra-territorial pipelines (once a pipeline crosses a provincial or territorial border, it falls under the NEB Act)

Under CPRA, the NEB is responsible for

providing technical review expertise for Significant and Commercial Discovery Declaration Applications and making the decision whether a Declaration should be made
reporting decisions to INAC and the public

Ongoing Northern Production Operations

Crude oil is produced at Norman Wells. Natural gas associated with oil production is consumed in operations.

Natural gas produced at Ikhil is consumed in Inuvik.

Natural gas produced at Cameron Hills is delivered into the Alberta pipeline grid.

North American Natural Gas Markets

Mackenzie & Alaska Gas Pipelines

Canada is ready to deal with any filing with respect to a proposed pipeline on Canadian land to carry Alaskan gas to North American markets. NEB staff remains in touch with people potentially interested in regulatory process related to Alaskan gas. Relationships with key players have been built and will continue to be built. We remain ready.

I can't say much about the Mackenzie Gas Project because the proceedings are ongoing. I will simply refer to the Panel's concluding remarks in Yellowknife in September 2007:

We will receive and consider the Joint Review Panel report responsible for the environmental and socio-economic assessment of the project.
We will receive and consider the government's response to that report.
We will hear final argument. We expect to be convening for final argument about 4 months after receipt of the Joint Review Panel report.

Canada + U.S. L48 Natural Gas Supply

Natural gas production in Canada and the U.S. Lower 48 states has been relatively flat this decade, other than brief periods of supply disruptions due to hurricanes in the Gulf of Mexico or an occasional surge of LNG imports.

Canada is a major contributor to this natural gas supply, representing about 25 percent of the total.

Canadian production was flat from about 1999 to mid-2007, but has since begun a very gradual decline.

Canadian Natural Gas Supply Sources

Conventional natural gas from western Canada represents the majority of Canadian supply, but we are now beyond the halfway point in the ultimate recovery of these volumes. At this stage of maturity in the development, production rates for conventional gas are expected to gradually decline.

We have seen a strong increase this decade in the production of coalbed methane, and output is expected to stabilize and remain at around current levels in the coming years.

Lower permeability or tight gas currently accounts for roughly a third of Canada's output. Shale gas development is expected to contribute significantly to this category in future and could help to offset declines in conventional output.

Off Nova Scotia, the Sable project will be joined by a second development - Deep Panuke in 2010.

Other developments onshore in the Maritimes and the recent interest in shale gas in Quebec are expected to make important contributions to regional markets.

Looking longer term, there may be a larger role for LNG imports into the country. Canada's first foray into the global LNG market is represented by the Canaport facility in Saint John New Brunswick that will enter service this year.

Canada's north represents tremendous potential, as you have been hearing about throughout this conference.

Other prospective producing regions include offshore Newfoundland and Labrador, and the opportunity for future discoveries off Nova Scotia.

Should development be authorized at some point for the Gulf of St. Lawrence and offshore B.-C., these regions might also show promise as future producing regions.

Ultimate Potential: Conventional Gas

This slide shows Canada's hydrocarbon basins and resources of gas estimated for each. The total 520 Tcf is reported in our Saskatchewan Ultimate Potential report which was released last November.

You will note that more than half of the conventional gas resources from the WCSB have been produced with most of the remainder being, as of yet, undiscovered resources. The undiscovered gas is expected to be located in shallower zones or in relatively small deeper pools, which will require significant drilling to exploit.

Nonetheless, Canada has a sizeable endowment of natural gas resources for future use. Of course, the economics to develop some of these areas will be challenging.

Regarding unconventional gas resources, across the scenarios in the Energy Futures analysis we considered 26 to 50 Tcf for CBM, 13 to 26 Tcf for tight gas, and 5 to 13 Tcf for shale

U.S. Shale Gas Basins

An emerging supply source that may impact the requirement for northern gas is natural gas derived from shales.

U.S. shale plays are currently producing about 7 Bcf/d - this could grow to about 17 Bcf/d by about 2012 according to a recent study by Tristone Capital.

Key plays are the Barnett, Haynesville, Fayetteville, Woodford, Deep Bossier, and Marcellus.

All are well-placed relative to existing infrastructure - the rocks are all extensively documented from decades of drilling into the conventional reservoirs above, below and around them.

The Haynesville is the deepest (3200-4000 m) and likely the most technically challenging - but is also the largest with maybe 75 Tcf recoverable

The Marcellus is big with maybe 55 Tcf recoverable and not as deep (average of 1500 m), but is thin and widely dispersed and with plenty of land and water use challenges

Fayetteville is much like the Marcellus, but easier to get at - maybe 35 Tcf recoverable.

The Barnett is right in the sweet spot of parameters, also with about 35 Tcf recoverable

(All recoverable estimates from Tristone Capital)

Shale Gas in Canada

There have also been positive announcements of early results from shale gas plays across Canada. Shale gas represents a potentially huge resource, possibly comparable to the size of Canada's conventional gas reserves. Shales are the source rock for natural gas, but until recently only the gas that migrated out of the shale to more porous rocks was commercially recoverable. With new techniques, the shale rock can be broken up or fractured by using fluid under very high pressure and this can enable gas trapped within the shale to be produced successfully.

The Horn River basin is an emerging play in a remote area just south of the Yukon border. Company announcements suggest the play could have an estimated potential resource of 18 to 28 Tcf. These shales have been described as having a high concentration of natural gas within the rock (estimated at 2.5 times that of the Barnett Shale in the U.S.).

The Montney is not really a pure shale gas play but evolves from tight gas to more shale moving from east to west. While the eastern side of the play has experienced most of the development to date, there is tremendous interest in the tighter and more shaley western side of the play.

A different type of project is the shallow Colorado shale activity in southeast Alberta and southwest Saskatchewan that features fairly low cost wells, commingled production of conventional and shale gas, and low cost access to existing infrastructure.

Testing is also underway in the Utica shale in Quebec and in the Windsor Group shale in the Maritimes.

Montney & Horn River

The tight and shale gas in the Montney play is projected to represent the lions share of rising deliverability over the next few years.

Analysis by others has suggested that the Montney is cost competitive with major U.S. shale plays.

The contribution of Canadian shale gas to 2010 is likely to be constrained by the need to test alternative approaches, assess commercial viability, optimize operations, and build the necessary infrastructure.

The upper end of the estimate over this period is constrained by our estimate of available pipeline capacity out of these areas. Depending on the project, regulators like the NEB or our provincial counterparts will need to consider and then approve or deny the application for any new pipeline associated with moving these resources to market

Canadian Natural Gas Supply &Demand

This shows the natural gas supply/demand balance from the Continuing Trends scenario in our Energy Futures analysis.

Driven by the oil sands and power generation, natural gas consumption is expected to keep growing.

With Canadian production being flat to declining, this results in a significant tightening of the supply-demand balance, and by later in the projection, there is the potential that Canada could be importing more LNG than we are exporting domestic gas

LNG Supply Additions (Bcf/d)

There will be significant additions to LNG supply from 2008 to 2010 - adding an estimated 5 Bcf/d to the 25 Bcf/d already in service at the end of 2007

All are likely to serve Pacific markets - but this could displace Atlantic volumes currently going to Asia.

However, Atlantic Basin LNG from Snohvit in Norway has been intermittent and Algeria is down 20% over the winter.

Terminals in North America - over 11 Bcf/d of import capacity including the new Canaport terminal in St. John NB.

Also, import terminals in Brazil and Argentina are now operational and could compete for Atlantic Basin cargoes during the summer.

The availability of significant new amounts of LNG may result in periods when some volumes come to North America despite lower prices as a market of last resort. Should this occur, this could be a potential downward influence to North American gas prices in 2009-2010.

Challenges

Canada has tremendous potential as a natural gas supplier in North America.

Along with this potential come a number of challenges that must be successfully navigated to ensure responsible development of these resources.

These include:

Continual improvement to regulatory processes such as streamlining approvals and smart regulation
Ongoing focus on aboriginal issues including local benefits & agreements
Appropriate access to land & capital
Balancing economic and environmental responsibilities
Supporting innovation, science & technology
Addressing skilled workforce shortfalls
To the extent pipes are needed to connect the new supply to markets, the NEB along with other provincial regulators will hear the necessary applications and approve those that are in the public interest.

For more information please contact

If you are interested in knowing more about the topics I discussed today, you can talk to me, or: