North American Natural Gas Security: Gaining Public Support for Action

Mike ClelandCanadian Gas Association

March 21, 2005

2

The challenge of ensuring public support

Natural gas industry has focused on upstream access and regulatory issues

We take as givens:• Demand growth is a reality • Need improved land access and regulatory efficiency to ensure

supply But are they givens? Public support for policy actions needed to bring on

supply should not be taken for granted

3

What we know

Key attributes of the energy economy are widely understood by industry:• Security and reliability of the energy system is critical

to our society• Steady decline in energy intensity is not enough to

eliminate demand growth• There is a long term trend toward greater supply

diversity but carbon based fuels are with us for many decades to come

• Natural gas will be a large and essential part of the supply picture

4

Growth of energy demand – Canadian perspective

Energy, Population, and Economic Growth

1.0

2.8

-1.5

1.4

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

Population GDP Growth Energy Useper $ of GDP

EnergyDemand

Source: Environment Canada, NRCan, StatsCan, CGA

Avg

. An

nu

al %

Gro

wth

( 1

99

0-2

00

3)

Most outlooks envisage population and economic growth over the next two decades not significantly changed from last decade

Although the Canadian economy uses less energy today per dollar of GDP, economic growth has driven total energy use higher.

5

Growing diversity of energy supply – Canadian perspective

Diversification of Energy Supply Options

0

10

20

30

40

50

60

70

80

90

100

1871

1886

1895

1905

1915

1925

1935

1945

1955

1965

1975

1985

1995

1997

1999

Source: NRCan

% o

f Ene

rgy

Tota

l Sup

ply

Petroleum

Nat. Gas

Coal

Hydro

Nuclear

Wood

Age of Wood based Energy

Age of Oil based Energy

Age of Coal based Energy

Age of Div ersity in Energy Supply

Historical trend is toward supply diversity.

Next generation of fuels & technologies even more diverse

Natural Gas and technologies that use natural gas will be a key part of that future.

6

What the public thinks – or what the politicians think they think

Polls may not reveal what the public will really do But they do likely reveal what the public thinks And they have growing influence on policy decisions A lot of polling results reveal a public which does not

share our perceptions of reality For example, some extracts from a recent US/Canada

comparison…….

7

Most important energy priority

More efficiency and renewables

More exploration, development, new power plants

Source – Ekos Research Associates Inc, January 2005

US – 78% Canada – 80%

US – 21% Canada – 17%

8

Top priority for governments

Protect environment and health

Uninterrupted supplies

Low prices

Source – Ekos Research Associates Inc, January 2005

US – 61% Canada – 68%

US - 21% Canada – 15%

US – 15% Canada – 16%

9

Most important new source for the future

Hydro

Solar

Wind

Gas

Nuclear

Source – Ekos Research Associates Inc, January 2005

US – 28% Canada – 22% US – 25% Canada – 26% US – 15% Canada – 37% US – 17% Canada – 6% US – 6% Canada – 4%

10

What we sometimes hear around Ottawa

Energy debate is wholly dominated by environmental issues – getting a seat at the table requires that you stake a claim to being “sustainable”

Gas is not renewable so it doesn’t count as sustainable Emissions of any sort in any quantity are out - and gas

produces emissions At today’s prices gas doesn’t look like an economic

alternative so why worry anyway Besides, we are running out of gas so why plan for gas

as a long term option

11

New supply will require policy support

Land access Siting Regulatory approvals Fiscal treatment Helping maintain public confidence

12

Which we can’t take for granted

Sporadic, ad hoc support for many major projects But an uphill struggle much of the time And reliable, widespread and systematic policy support

is harder to count on Public attitudes probably moving in a negative direction

13

Do we need to try to reposition gas?

In Canada, everything increasingly turns on “sustainability”

Not always clear what that means but it influences the political climate – and likely to grow in influence

Sustainability “debate” is dominated by conservation and renewables (whether or not anyone really understands what those terms mean)

Fossil fuels – including gas – need to be better understood as part of a sustainable future

14

We need to get the debate back in perspective

Sustainability needs to be better understood for what it is and is not

If the energy system fails to deliver secure reliable energy then everything else is moot

Sustainability doesn’t equate to “environment” – nor to “renewable”

Sustainability, if its really a guide to policy, has to be viewed in multiple dimensions – long term, integrated at the level of systems and communities

15

Attributes of a Sustainable Energy Mix

Environmental Performance• Mitigable land, water, air impacts.• Low life cycle emissions.

Inherent Efficiency• In production, transformation, and end use• Maximizing productivity of resources and capital.• Right energy in the right application

Reliability• Transportable & storable, responsive on-demand delivery when and

where needed. Adaptability

• Scalable applications, inter-fuel complimentarity, ease of siting, multiple end-use capability.

Long Term Security• Resources adequate for relevant investment horizon

16

Natural Gas: A Unique Confluence of Attributes

Environmental performance

Inherent efficiency

Reliability

Adaptability

Long term security

17

Natural Gas: Environmental Performance

Lowest GHG emissions of all fossil fuels.

Low or zero emissions of air contaminants.

Upstream footprint small & can be managed.

Strong compliment to renewable energy sources.

Emissions Comparison for New Power Generation

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Coal Oil NaturalGas

GTCC GTCHP Bio IGCC

Kg/MWhr

SO2

NOx

PM

Emissions Comparison from Various Power Generation Plants

0

200

400

600

800

1000

1200

Coal Oil Gas GTCC GTCHP Bio IGCC

Source: Environment Canada

Kg/MWhr

CO2

18

Natural Gas: Inherent Efficiency

Transportable & storable with moderate loss of energy potential.

High direct combustion efficiency and adaptability to combined (heat, cooling, power) applications.

Untapped efficiency potential in end use (eg., appliances and equipment) and conversion (eg., power generation) applications.

Potential can be tapped through more effective DSM

Appliance Natural Gas Overall

Efficiency

Electricity Overall

Efficiency

% Difference

Furnace-Mid

0.68 0.42 38%

Furnace-High

0.76 0.42 45%

Water Heater

0.46 0.34 26%

Source: Canadian Gas Association

Overall Efficiencies of Residential Appliances Fuelled by Natural Gas and Electricity

19

Natural Gas: Reliability

AECO

Henry Hub

Kingsgate

Sumas

Stanfield

Malin

Opal

Topock

Socal

SanJuan

Permian

Niagra

VenturaChicago

Boston

Source: EIA, ARC Financial

Dawn

Continent-wide, transmission and distribution network.

Dense delivery network combined with storage capability handles peaks and disruptions.

Responsive, on demand deliverability.

20

Natural Gas: Adaptability

Applications can be scaled with little loss of efficiency.

Strong inter-fuel compatibility and substitutability.

Compliment for both renewable sources and traditional large scale base load electrical generation.

Siting flexibility for distributed power generation allows combined applications and more efficient use of power grid

21

Natural Gas: Long Term Security

North American proven reserves are 9 times annual consumption.

North American discovered resources are 15 times annual consumption.

North American total remaining natural gas resources are 75 times current annual consumption.

North American Natural Gas Reserves & Resources

246,000

541,000

1,406,000

2,193,000

26,9370

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Pro

ven

rese

rve

s

Dis

cove

red

Re

sou

rce

s

Un

dis

cove

red

Re

sou

rce

s

To

tal

Re

ma

inin

gR

eso

urc

es

20

03

Na

tura

lG

as

Co

nsu

mp

tion

Source: NRCan

Bill

ion

s o

f cu

bic

fe

et

Total North American Annual Natural Gas Production in 2003.

26,755 bcf

22

Long Term Security: Global Gas Reserves

Global natural gas proven reserves total 6270 trillion cubic feet.

North America proven reserves account for 4% of this total.

Global resources base increasingly available.

Imported LNG will be a key part of NA supply by 2010

272

250

418

1980 445

2156

Source :BP Statistical Review of World Energy

World Natural Gas Reserves (Tcf)

750

23

Long Term Security: Hydrates

Estimate of gas in hydrate reservoirs greatly exceeds the volume of known conventional gas reserves.

Widespread in permafrost regions and in offshore marine sediments.

Still many engineering and cost challenges

Future Reserves & Resources: Hydrates

246 541 1,406 2,193 6,205

100,000

270,000

0

50,000

100,000

150,000

200,000

250,000

300,000

N.A

. Pro

ven

rese

rve

s

N.A

. Dis

cove

red

Re

sou

rce

s

N.A

.U

nd

isco

vere

dR

eso

urc

es

N.A

. To

tal

Re

ma

inin

gR

eso

urc

es

Wo

rld

Pro

ven

Ga

sR

ese

rve

s

Ga

s H

ydra

tes

(min

)

Ga

s H

ydra

tes

(ma

x)

Source: USGS, World Energy Institute, NRCan

Tril

lion

s o

f cu

bic

fee

t

Total North American Annual Natural Gas Production (2003)

26.8 Tcf

24

Conclusion

Current market tightness combines with environmental issues to produce perverse public attitudes respecting support for new supply

Public does not obviously share industry’s perspective on importance of gas to our long term energy future

Ensuring reliable policy support rests in good measure on reliable public support

Industry (and government) need to articulate why gas passes the test of sustainability (in multi-decade context) and how we are working to ensure that

Need a more systematic approach and need to get governments – and other communities - working with us