Predictions for Canada’s Natural Gas Production

Canadian natural gas is important in a number of ways: It provides 17% of total US NG consumption and today contributes roughly 11% [see calc at bottom] of the energy content in a barrel of tar sands oil (which will only increase with in-situ recovery growth). By no means (conventional or unconventional), can Canada be considered to have lots of natural gas, yet, we produce more than our fair share. Accurately predicting Canadian NG supply is, of course, important for all the usual North American energy security reasons and, among others: It would be nice to know if Canadians will have NG for things other than tar sands and exports to the US. Half of all Canadian homes are heated primarily by natural gas and about 6% of Canada's electricity sector relies on natural gas, a lot of which is used as peak electricity generation.

It’s well known that Canadian conventional gas peaked around 2001, but according to a continuing trends prediction case from the National Energy Board, it doesn’t appear as if unconventional gas will be playing a big part, at least compared against 2001 peak production levels. Below I summarize some predictions for future production of Canadian natural gas and try to estimate how much of Canada's natural gas will be left over for regular Canadian citizens.

Here is the EIA’s take on Canadian natural gas:

In 2004, Canada provided 85 percent of gross U.S. imports of natural gas. Although Canada’s unconventional and Arctic production both are expected to increase over the projection period, and LNG imports into Eastern Canada are expected to begin by the end of the decade, those supply increases are not expected to be sufficient to offset a decline in conventional production in Canada’s largest producing basin, the Western Sedimentary Basin. Gross U.S. imports of LNG are projected to exceed gross pipeline imports from Canada after 2015, and Canada’s share of gross U.S. imports is projected to decline to 25 percent in 2030.
In Canada, natural gas consumption in the residential and commercial sectors is expected to increase steadily at rates of 0.5 and 0.7 percent per year, respectively. Strong growth rates of 2.2 percent per year in Canada’s consumption of natural gas for electricity generation and 2.1 percent per year for industrial uses—including vast quantities of natural gas consumed in the mining of the country’s oil sands deposits—are the main contributors to Canada’s projected consumption growth.

In short, Canadian production decreases while consumption increases and LNG imports start while we’re still exporting. From an energy security stand point, this is not good and will be felt over a broad range of industries. Canada will become a net natural gas importer, which will require new LNG terminals, some new pipeline connections and maybe even a reversal of the flow of gas from east to west depending on where the LNG will be coming from.

As far as Canadian exports to the US go, this is linked to production through NAFTA. NAFTA requires that Canada continue to export about 60% of its gas production to the US, and based on the EIA’s predictions of Canadian NG imports, it seems as if the US will be holding Canada to this clause.

How much Canadian gas will be produced?

I’ve painstakingly dug up some good historical NG production data for Canada and compiled a small list of predictions from the NEB and EIA. I’ve put all of the data here for the world to enjoy (aside: why oh why don’t my Canadian tax dollars pay for a good centralized service like the EIA for energy stats?).

Fig 1. Past natural gas production in Canada (data points), predicted future gas production including unconventional sources, excluding imports (broken lines) and my Hubbert model for gas depletion (solid line).

Sources for the historical data are:

  • Stats Canada (two data sets: 1911-1980, 1970-2002 paid service thanks to TOD:C advertising revenue)
  • EIA (1980-2005)
  • NEB (2002-2008)
  • IEA (1999-2008)

Sources for the outlooks:

Most of these predictions come from the National Energy Board of Canada (NEB). The NEB seems to be playing it pretty safe with their predictions, which makes it hard to find a take home message from their work: The difference between their “Fortified Islands” projection and their “Triple E” projection by 2030 is 14.3bcf/d, 37% more gas than what Canada exports to the US now at close to peak production and most of which would come from unconventional sources. The predictions in Fig 1 do include unconventional natural gas as well as any gas that may come online from the Mackenzie Valley pipeline (not expected until 2015 and produces at most 0.5 bcf/d) and any Arctic sources (not expected until 2022, if at all, and produces at most 1 bcf/d). These scenarios also have some rather optimistic price predictions for oil and gas. No scenario sees WTI oil going above $85/bbl by 2030 and the highest Henry Hub gas price prediction is $12/MMBtu.

Continuing Trends

This scenario is one of little change. In Continuing Trends, Canada experiences the most rapid economic growth and moderate oil and gas prices. As a result, energy demand, energy production and GHG emissions growth continue to be high.

WTI oil price: flatlines at $50 after 2010
NG Henry Hub price: flatlines at $6.65/MMBtu after 2010

Triple E

The scenario seeks a balance of economic, environmental, and energy (Triple E) objectives. This scenario is the mid-case for Canadian economic growth, has the lowest oil and gas commodity prices, and includes numerous energy demand management programs and policies. Consequently, energy demand growth flattens. This is the lowest energy production scenario and GHG emissions decline.

WTI oil price: flatlines at $35 after 2020
NG Henry Hub price: flatlines at $5.50/MMBtu after 2020

Fortified Islands

Fortified Islands is the scenario wherein national energy security concerns are emphasized. Geopolitical unrest, a lack of international cooperation and trust, and protectionist government policies characterize this scenario. Fortified Islands reflects the lowest Canadian economic growth and the highest oil and gas prices. This combination of factors ensures that this scenario has lower energy demand growth and lower GHG emissions growth than the Continuing Trends Scenario. It also results in the strongest domestic oil and gas production scenario.

WTI oil price: flatlines at $85 after 2010
NG Henry Hub price: $12/MMBtu

In reading these descriptions, it sounds as if the NEB is taking the approach of whatever the demand may be, production will keep up, not uncommon for these sorts of predictions although if you read through the report, they do focus on production. The Triple E scenario has the lowest production of NG and at the same time, the lowest commodity prices, as if somehow demand for NG will all of a sudden plummet. Fortified Islands has the most expensive commodity prices and as a result, it becomes viable to bring more unconventional gas online (64% of total 2030 production under this scenario is unconventional gas).

Natural gas usage by tar sands

The table below shows the predicted volumes of bitumen and SCO production (MMbbl/d):

Year Continuing Trends Triple E Fortified Islands
2010 1.415 1.415 1.415
2015 1.827 1.757 1.972
2020 2.124 1.787 2.390
2025 2.415 1.764 2.782
2030 2.664 1.800 3.078

Using these tar sands production numbers, I’ve estimated how much gas the tar sands could be using, assuming: 1) the 2005 average natural gas usage of 638 cf/bbl (which falls between the high and low estimates of NG use by the strip mining process of the tar sands) and 2) a high estimate of natural gas usage by strip mining of 988 cf/bbl (in an attempt to account for increased in-situ tar sands development). The results are in the figure below.

Fig 2. Estimate of the natural gas consumption by the Canadian tar sands. Error bars represent the various scenarios of tar sands production from the NEB Outlook.

In short, full gas production from Mackenzie and Arctic sources (1.5bcf.d total by 2022) will not be enough to sustain tar sands production alone. Since most of Canada’s bitumen is only available by in-situ mining techniques, which are expected to consume anywhere between 900-1200 cf/bbl, I might be generous in using a tar sands NG utilization value of 988 cf/bbl for the high end of my calculation. There is always the possibility that other energy sources, such as coal or nuclear (starting 2017 at the earliest) will contribute to the mining of the bitumen though.

Natural gas exported to the US

Under NAFTA, Canada must export ~60% of total gas production to the US. The table below compares expected exports to the US based on my Hubbert model and the expected imports used in the EIA’s Energy Outlook.

Year US imports of Canadian gas predicted by the EIA Exports predicted by Hubbert model and 60% proportionality clause
2010 7.88 9.38
2015 7.33 7.91
2020 4.71 6.15
2025 3.78 4.57
2030 3.20 3.22

Interestingly, it seems as if the EIA is either more pessimistic about Canadian production than my Hubbert curve or they’re giving Canada a break from the proportionality agreement (perhaps so they can have more oil).

What’s left over for Canadians?

This is where a lot of assumptions accumulate and can stand to be refined with proper statistical techniques, but here's a rough go at it. First, I'm taking the Hubbert curve of Canadian NG production to be a rough estimate of how much gas will be produced. This production matches fairly closely with one of the NEB's predictions AND it appears as if the EIA has a scenario in which they predict less Canadian gas production (back calculated from the proportionality clause and their expected imports from Canada). Another assumption, probably a good one, is that the priority for Canada's natural gas will be the tar sands and exports to the US.

With this we can now estimate how much Canadian natural gas is actually left over for your average Canadian citizen (defined here as Canadian production - tar sands consumption - exports to US):

Fig 3. An estimate of Canadian gas left over for Canadian citizens (not including tar sands consumption)

Here I’ve compared two cases. The first, which I call the good case for Canadian citizens, uses the lowest NG consumption values that I’ve calculated from the tar sands as well as the lowest NG export numbers to the US. The bad case for Canadian citizens uses the highest NG consumption numbers from the tar sands and the highest NG consumption numbers for NG exports to the US.

As stated above, Canada’s residential sector is expected to increase its natural gas usage by 0.5% per year. By 2010, this corresponds to a residential NG use of 1.87bcf/d up to 4.97bcf/d 1.55bcf/d up to 1.71bcf/d [thanks jorn] by 2030. Based only on residential use, tar sands production and exports to the US, Canada will need to become a LNG importer or ramp up unconventional gas production between 2015-2020 2025-2030 (actually before this if we account for commercial NG use as well). The somewhat comforting news (if you we can say that becoming dependent on foreign LNG is comforting) is that 5.8bcf/d of LNG terminals is in the works and could be online by 2012 (the first will be online in 2009).

I'll end this post with a brief mention of some new unconventional gas finds in Canada. Within the last couple of month's there have been some new natural gas finds in British Columbia and in Quebec. The BC find could be 6 tcf of gas reserves and rival those of the Mackenzie Delta, and the one in Quebec could be 2.5tcf, but both quite expensive to develop.

2005 bitumen production = 1.36 million bbl/d @ 6.1GJ/bbl
NG used by tar sands in 2005 ~ 0.87 bcf/d @ 1.1E6 GJ/bcf
NG energy content/upgraded bitumen energy content = 0.115
Average NG used per bbl tar sands oil: 18m3
Source: Alberta Energy and Utilities Board

Thanks for your work on this!

I am not sure whether Hubbert peak applies as much to natural gas. In the US, we have seen more of flat production for many years, followed by a fall off of conventional, and rise of unconventional. It seems like the situation may be more complex, but I agree it doesn't look good.

Regarding NAFTA, I think there was talk earlier in the US election cycle of renegotiating NAFTA, if one of the Democratic candidates win. It seems like there could also be pressure from Canada in this regard. A NAFTA renegotiation would almost certainly come out better for Canada. The change may not be fast though. If Canada is to keep more of its production, it would seem like it would need more west-east pipelines, and this could take several years to build.

Hubbert was quite far off with his NG predictions in the US. In this case at least the peak has already happened wrt conventional NG.

There are definitely a lot of different forces acting on NG production. The Mackenzie Valley pipeline won't happen any time soon since Imperial Oil seems to want a lot of subsidies to build the pipeline. In any case, we're going to start importing LNG well before the pipeline will be built and I think LNG imports will also come at the expense of some unconventional production.

As far as NAFTA is concerned, it's just not discussed a lot in the Canadian news (other than when Obama/Clinton made those comments). I'd be surprised if this actually is a priority for Obama if he wins. Maybe if the proportionality agreement stays, this could also influence more LNG imports at the expense of unconventional NG, since the LNG imports wouldn't count towards Canadian production.

In the US, at least among populists, NAFTA is the favorite whipping boy for structural changes to the economy which have been tough on the lower and middle classes. I would be surprised if 1% of the opponents have any inkling of the requirements put on Canadian, and Mexican energy, and the fact that these could be sacrificed by renegotiation. I doubt any national politician, after being informed about the issue will pursue renegotiation.

Thanks for the very interesting article. I have one question/comment:

You write: "As stated above, Canada’s residential sector is expected to increase its natural gas usage by 0.5% per year. By 2010, this corresponds to a residential NG use of 1.87bcf/d up to 4.97bcf/d by 2030." The increase from 1,87 bcf/d to 4.97 BCF/d will only be reached if the annual growth rate is 5%. With 0.5% annual growth the consumption would go up to 2,07 bcf/d. I would also expect that with large price increases the residential consumption will stagnate or will be shrinking a bit.
However with nothing left for residential consumption because everything is going into US export or tar sand production this does not really make a difference.

Jörn Erbguth're right...hrm. Sorry about that guys.

I would be very interested in your opinion as to the potential source for the LNG you mention might be imported into Canada. The world market looks very tight-- it would seem to make more sense for Canada to re-negotiate NAFTA proportionality clause, leaving US high and dry (undoubtedly there would be consequences!) and perhaps slow down bitumen production until other heat sources than gas can be developed.

Well, the newest LNG terminal in Canada (Canaport) has a deal with Repsol to supply LNG. It seems as if Repsol will be getting the LNG from Trinidad and Tobago. It seems as if they are already talking of the potential of supply issues.

All you have to do is read Mary's columns from T&T and one can see the writing on the wall. T&T is planning for a peak gas production market. They know it won't last. So for us to put more and more eggs into that basket is not wise either.

My point about LNG in N. America is that it is going to assert more and more global pricing on the domestic supply. If there are domestic production shortfalls, the price will have to increase to be equal to LNG or else the imports will not come to port as recent events have shown.

How can you expect to pay $10/Mbtu for LNG when other countries will pay $19/Mbtu? The domestic retail supply price will have to rise to pay for the blended rate. The math isn't that hard.

The other major concern are those utilities that are counting on LNG for future energy supply (i.e. Puget Sound Energy). Call me simplistic, but I see the risks of this plan are magnitudes greater than counting on domestic supply.

Have you a link to 'Mary from T & T?'
Who she? :-)

I used to know a Jane from S&M if you want a link.

So that is why your credit card is maxed out!

I've been trying to find her op-eds. IIRC, she was a minister in the government and I seem to remember her as Mary. I think 06-Aug-07 TOD link to

doesn't come up because the paper only makes the last 30 days available.

Or, I could just call her "the Lady in the hat".

Dave, taking up Ebonics? "Who she?"

When I lived in the States for a while, the only people I could actually understand were African Americans, as I lived previously in an area of England with many Jamaicans!
They played pool like me as well, as I come form a snooker playing nation just like Canada so stitch shots are natural - I nearly got a pool cue across the head playing those against the red-necks!

There is a difference in LNG prices. One can contract for firm capacity at a fixed price (more or less) or one can buy cargos on the spot market. One would expect firm capacity to be cheaper most of the time since it reduces the commercial risk or at least shares it between producer and consumer.

Internally, LNG can supply only the peak loads at prime prices. That's why to current US terminals sat under-utilitized for years while production and delivery costs were under the annual AVERAGE price.

I will agree that long-term, prices will seek equalibrium over the globe corrected for transport costs. Price for LNG will also tend to track petroleum product prices too with less of a premium for oil than in the past.

So why and how would Gazprom and its mostly Siberia LNG be competitive landed in Quebec? Does that presuppose global warming and an open Northwest Passage or would they ship via the Gulf of Finland?

Several things fairly leap off the page to this reader. The assumptions on energy prices going forward are stunning in their unrealistic absurdity. It looks like the same people who made the future low estimates of energy prices in Gordon Brown's administration provided similar estimates to Canada! Even the fortified island scenario looks too low to be realistic. My second point: Who on earth signed off on providing 60% of NG to us here in the US under NAFTA? What were they thinking? Good deal for the US and a bad deal for Canada. Does this obligate Canada to provide it at ANY price? Why can Canada not start to charge 2X or 5X Henry Hub price at any time? You Canadians need to wake up and start thinking about keeping some of your reserves for Canada or in 50 years or so Canadians will be huddling in the dark and becoming very cold.

NAFTA simply states that Canada has to treat North America as a single market and if it doesn't then it must continue to supply the US in proportion to what it was providing. As long as we aren't showing preferential treatment to domestic consumers the domestic consumers can outbid the US consumers for all of the domestic supply. There is also however an emergency clause that allows Canada to decare an emergency and do what ever it likes.

Fundamentally NAFTA laid out that Canada should treat all of North American consumers equally and that there would be no National Energy Board successor. Since the NEB is political dynamite in the west I don't think Canada gave up that much when they said they wouldn't institute another NEB.

I've been looking at this issue with regards to energy projects in BC. It is my assertion that the different electrical energy production modes are price competitive. Many don't see it that way as they tend to still think of the energy modes in their respective silos. Hydro is hydro, gas is gas, coal is coal, etc.

I was also alarmed at the long range pricing absurdity like the rest of you when I read BC Hydro's Natural Gas Price Forecast and the sister document Long Term Acquisition Plan (LTAP). Both use the EIA data stated in benk's article as foundation data. I wrote a nice email to the long range planning team at BC Hydro of which I received a nice long reply stating essentially, "You're points may be valid, but the EIA is the EIA and we've put all this work into these planning documents - how can we be wrong!"

This debate is not over by any stretch and I will have the opportunity to reiterate my case with the BC Utilities Commission (BCUC) whom regulate all the utility pricing including NG in the province.

About all that gas going south, ya well..., Canadians are going to get blindsided by selling it all off in the insane myopic rush to generate revenue - now! I'm sure the Brits are thinking the same about the squandered North Sea oil. Matter of fact, that big-ass pipe line system goes right past our proverbial back door here in Prince George.

With the recent news about GM shutting down truck plants in Ontario, I think we would welcome reopening NAFTA. Now that auto manufacturing is contracting in N. America, Canada does not hold any advantages with NAFTA and can start using the energy exports to the U.S.(oil, NG, electricity) as a great big negotiating stick much the same as the Russians are inclined to do. (See Vlad, we do pay attention!).

And in this intra-continental dynamic there is one lurking giant elephant in the room and that is water. More than oil and gas, we've always known exporting water to the U.S. was the slipperiest of slippery slopes; and thus, have never opened that precedent. They want to make it a part of the SPP, but Canada is holding fast to excluding the water. If the status quo holds, I expect most of the international agreements to fall into non-compliance within five years as the U.S. does what it wishes with the Great Lakes. But we have a long history of the U.S. not honoring the trade agreements, and doing what it feels like regardless of the trade law.

When will we learn??

It wasn't the National Energy Board (NEB) that was hated in WESTERN CANADA, but the National Energy Policy (NEP). The Free Trade Agreement was written the way it was, or Alberta would never have agreed to it.

To put it simply better to have your neighbour take your resources at full price, than have your brother steal them.

The issue with water is not supply but cost. Actually, not even absolute cost but the change in cost.

Potable water is delivered to your home for 50 cents a ton (I hear.) Nothing else comes close in price per unit weight. We can deliver all the water you want anywhere you want it (pretty much) - you just have to pay for it and the biggest part of the price is energy.

What we are bemoaning is really the step change in price that would follow its increasing coupling with energy.

If you liked this piece, don't forget the "share this" button! :) The reddit and digg entries will take you all of about five seconds.

You've put the guy who signed the NAFTA agreement in jail, right?

Actually, just to rub our own noses in how pathetic we are... We made him a member of the Order of Canada.

Remember the jokes: when you shove a Canadian out of the way... we immediately apologize!

Apologize? Had to look it up -- don't use it down here.

Thank you. I was wondering if it was Brian Mulrooney who sold Canada up the creek. I think you should throw him out of the Order of Canada and we'll reinstall him where he belongs, the Order of the United States

The RCMP tried for years to get him but he is too slippery-he should do commercials for safety deposit boxes-he would have told Spitzer-"always deal in cash".

In addition to LNG coming from Trinidad & Tobago, a deal was recently signed with Gazprom to build an LNG terminal in Levis, Quebec --to be supplied with NG from Russia starting in 2014 --a prospect that hardly feels secure, given the increasing tightness of Russia's own NG supply.

It is my opinion that severe as peak oil will be, it will be overwhelmed by the larger, looming catastrophe of peak natural gas. I am just a numerically literate outsider looking at the numbers and I just don't see how North America's electrical grid, home heating can pull through this one. South America's NG situation looks iffy too.

Further down the road, natural gas's connection to the fertilizer sector (where prices have gone up several hundred percent in a year) will probably put a choke on feed grain production too. But it looks like the US and Canada are going to go through a baptism of fire with respect to NG before the rest of the world does.

Some may wish to consider relocating to zones where neither much heating nor air conditioning is required.

The Canadians who allowed the 60% NG clause in NAFTA are traitors but then so are the politicians who allow Americans to be put out of work by cheap imports, who squandered a bounty of oil on SUVs, etc.

The UK will beat you to crisis on NG very comfortably.
We have around 25GW of electricity generating capacity coming off line in the next few years, out of peak capacity of 75GW.
Most homes are heated with natural gas, and we have been told by Norway that we are at the back of the queue as we do not negotiate long term contracts, so would be switched off in the event of shortages.
To make up for the fall in our NG we are relying on LNG imports, and have built several terminals for this at a cost of billions.
They are barely used.

All these empty, hopeful LNG terminals springing up around the former First World are beginning to remind me a bit of the cargo cults -- only it is our own energy-rich past that we are trying to entice the Gods to restore to us.

Beautiful metaphor, earlyAdaptor, just beautiful!

That is a delicious image. Also excellent ammo to use when explaining Peak Oil to the panglossian people who believe "the market will take care of it".

Wow, brilliant analogy!

Once apon a time in Alberta the provincial government required that a 10+ yr supply of gas was put aside for Alberta homes at a regulated rates. Now under NAFTA and the "Alberta Advantage" we get gouged like everybody else. As reported on TOD a couple of days ago even though we use very little gas during the summer our gas bills will double to $90+. There is poor planning even in the land of export gas. I cringe to think what happens here when conventional gas no longer meets our internal needs

you said cringe. Did you mean "shiver"?!

I'm not sure that Albertans are entitled to cheap natural gas. Flip the problem around: If you own a natural gas well, how would you feel about being forced to sell to Albertans on-the-cheap before exporting to markets willing to pay higher prices.

Frankly, I can't even see how the 10 year reserve supply would work. Who would produce it if they could do the same elsewhere at a higher price? What would stop Canadians from flocking to Alberta to get in on cheap natural gas? Any way you look at it, it's just a natural gas subsidy. And we all understand that subsidizing consumption of a dwindling resource is not prudent.

But the house I'm building won't even have a natural gas feed (passive solar and active solar heating with wood backup), so I might just be feeling smug.

Good analysis.

As other commenters have noted, the Henry Hub price projections are very wishful thinking. Today's price exceeded $12 USD per mmBTU.

I share the worries about becoming dependent on LNG for electricity fuel, especially from Russia. Here in California, we get a major share of our natural gas from Alberta (23% in 2006) but "our" only LNG terminal is across the border in Mexico. Initially, the source will be Indonesia but the stage two expansion underway will receive LNG from Siberia and Gazprom.

Back in the 1950s, the original thinkers about nuclear power argued that a major justification for nukes was to preserve hydrocarbons for petrochemical use. Burning methane was a huge waste when uranium was a substitute. Reading about the fertilizer shortages makes me think they were Cassandra-like in their thinking.

Maybe I'm missing something, but I think it is the other way around. I hear lots about the western sedimentary basin or WSB, which magically stops at the provincial borders of BC and Alberta, and also about the Mackenzie delta and basin. Same with coal which also stops and then reappears in Alaska. Given that there were working wells at Norman Wells halfway between during WW2, I'm going to guess that the geology is pretty continuous from west Texas all the way to the North Slope. Some pinhead drawing lines on a map in Ottawa a century ago has nothing to do with geological reality.

Without a pipeline, gas is stranded. Without a sizeable deposit worthy of a pipeline and/or a hefty price, or a looming supply shortfall, natgas just sits there. I'm all in favor of conservation, but I'm not about to take the whole 'issue' seriously without a good analysis of the prospects in the NWT and Yukon areas given that a pipeline down from Prudhoe Bay along the foothills is inevitable. Expensive, but inevitable. Exxon seems to be hoping for a subsidy - surprise! - to make it financially viable. BAU.

Until they hit the ocean, I'm just watching the game as it unfolds.

So let me see if I get this. 60% of Canadian gas production has to go to the US because of the proportionality clause. But figure 3 above suggests that within a couple of decades the remaining 40% will be burned in order to extract oil from the tar sands, and that oil is itself mainly exported to the US. So effectively almost all of the gas ends up in the US.

I suppose it is too much to hope that the NAFTA agreement would consider gas burned to produce oil for export to the US as part of that 60% commitment?

Invest in insulation...lots of it. I have been working on my house and cut my bills in half. I hope to cut them in half again

Adding proper venting in the attic is very cheap and can do wonders to keep a house cool.

The direction I am moving is retrofitting towards a Passivehouse:

" ultra-low energy buildings that require little energy for space heating or cooling"

Superinsulation is the key...R60!

Some parts of my house are already R85.

I have built flat-plate solar collectors to heat the swimming pool. Once the design and materials have been further refined, more will be added and they will heat the house for all but the coldest winter days.

While we are concerned about the amount of natural gas being used by oil sands production, don't forget that the technology in oil sands is changing.

The Long Lake JV between Opti and Nexen is using the asphaltenes proportion of each barrel of bitumen extracted (about 15%) to generate steam, electricity and hydrogen for their bitumen recovery and synthetic crude oil production system.

This will change the game if/when picked up by others. As the price of natural gas rises, the uptake of this proprietory technology will probably grow.

By definition it will only grow once supplies of cheap NG are exhausted.
So I'd say this approach conserves NG that no longer exists.

This does mean for a price the oil sands can continue to be extracted after the NG runs out.
Its also probably EROI positive.

For example one use for CTL plant near a coal mine would be to supply the diesel used in the mine

This is also doable. Both approaches generally lead to increased CO2 emissions vs using NG.

In the case of the coal mine and the tar sands its a scalability and time to scale issue.

For a price I think that globally we still have a lot of energy resources that could be exploited
but once your approaching 20-30% of GDP allocated to energy or more it does not make a lot of sense
to run a high energy intensity economy.

Effectively you make more money moving to a lower energy lifestyle. Next if your energy requirements are a lot lower making investments in fixed cost PV/Wind etc renewable energy sources makes a lot more sense.

To take it down to a more personal level at some point its simply not a good use of income to drive a car so you will decide to live a different way. Once enough people make this decision it quickly does not make sense to maintain the infrastructure for the few that wish to drive cars. Wasting land on freeways and broad streets becomes a issue.

The point is you need to be a bit careful about longer term energy plays investing in something that may not be profitable until 2012 or later needs a lot of thought esp approaches with a high C02 footprint as global warming progresses and the "ugly" side of peak oil starts to become obvious. I would really be surprised to see the tar sands operation continuing into 2015 simply because of above ground factors.

Between now and then we stand a good chance for one of those monster holding ponds failing for example once that happens it game over. Its the 3 mile island of the oil industry.


Generally good work but doesn't consider possible Gas substitution alternatives enough so leads to conclusion: "Gas is used to produce oil, gas is running low, we're stuffed". (Sounds familiar to the food argument for fertilizer...)

The Hyperion Nuclear battery can generate 70MW of thermal and could be mass produced and deployed rapidly if gas prices rise. 50% Uranium conversion to thermal energy for 10 years in a unit not much more than 2 metres cubed...

"...They have many good features Hyperion also offers a 70% reduction in operating costs (based on costs for field-generation of steam in oil-shale recovery operations), from $11 per million BTU for natural gas to $3 per million BTU for Hyperion. The possibility of mass production, operation and standardization of design, allows for significant savings..."

IMO the biggest limit to Tar Sands/Shale production is going to be water (and possibly environmental issues if we still care by then...)


wondering how they plan to inject co2 at a high enough pressure(above critical)without hydraulically fracturing the shale ?

AFAIK initially they are planning to use it on oil sands rather than shales, as a more efficient heat source.
Presumably you could still power it by nuclear means if you wanted to, although since it uses much less power I don't know if they would bother.
I'm not sure why you should think fracturing the shale would be a problem - the whole idea is to reduce the viscosity and allow it to flow out?
Bear in mind I am not an engineer! :-)

the problem with fracturing is that the fluids would migrate out of zone, possibly all the way to the surface.

continuous injection into a hydraulic fracture above the fracture pressure will cause the fracture to grow until an equilibrium is reached (flow into the fracture equals flow out). in the case of a vertical fracture, at a shallow depth, equilibrium may occur when the fracture reaches the surface.
a horizontal fracture would result in a direct path from injector to producer. i'm guessing that at a shallow depth, an hydraulic fracture would be horizontal.

NAFTA requires that Canada continue to export about 60% of its gas production to the US


Go read it for yourself. In particular, Article 315 and Article 603, and the referenced GATT Article XI and Article XX.

All NAFTA says is that the Government of Canada is not allowed to impose measures like export duties or quotas if such duties would reduce the proportion exported - the two markets need to be treated equally by government policy, even in the event of a shortage. If the result is that Canada exports 60%, or 40%, or 0% of its natural gas production, that's perfectly fine - the US is not "entitled" to any portion of it.

Claiming that Canada will be forced to export 60% of its natural gas production is nothing more than uninformed scare-mongering. All NAFTA means is that Ontario pays the same for Alberta and BC's gas as Michigan does.

Thank you Pitt. I read it but to be intelligible someone needs to translate it from Canadian into English. I seriously wonder when and if Resource Nationalist will come to Canada and when they will stop apologizing every time the US knocks them down.

Pitt, while it is true that Canada is not forced to export 60% of its natural gas production directly by the proportionality clause, it cannot impose measures that would restrict exports to less than that percentage (actually, the percentage in effect for the 36 months preceding implementation of any restrictive measure) as you note. That effectively means that Canada must make available for export purchase at least 60% (using the current approximate export ratio).

In practise it is the large gas wholesalers and distributors who have the right to decide, through their purchases, where the gas will go. Since many of these companies are continental in operation and subject to US law and political pressure the question arises as to how they will allocate natural gas resources in the event of shortages.

What is clear is that as long as NAFTA is effect, Canada has resigned its right to control of its own energy resources. Canada has become not an "energy superpower", as our Prime Minster likes to say, but an energy colony of the US.

For those interested in the history of the proportionality clause and a discussion of its implications, you should read the recent paper by the Parkland Institute Over a Barrel (pdf).

That effectively means that Canada must make available for export purchase at least 60%

Yes. Like I said, the two markets are treated largely equally. With the level of integration between them, it would be difficult to do otherwise.

In practise it is the large gas wholesalers and distributors who have the right to decide, through their purchases, where the gas will go.

No, it will be producers who decide where to sell. If there's a shortage, it won't be a buyer's market, now will it?

Since many of these companies are continental in operation and subject to US law and political pressure the question arises as to how they will allocate natural gas resources in the event of shortages.

The largest natural gas producer in Canada, Encana, is headquartered in Calgary, so it seems unlikely US law and pressure will be of paramount concern to most Canadian natural gas production.

What is clear is that as long as NAFTA is effect, Canada has resigned its right to control of its own energy resources.

Natural resources are under provincial jurisdiction, meaning there's only so much the federal government would be able to do anyway, NAFTA or no.

For those interested in the history of the proportionality clause and a discussion of its implications, you should read the recent paper by the Parkland Institute Over a Barrel

They draw misleading conclusions from contrived and overly-simplistic scenarios. Why would imports and demand remain fixed during a voluntary production cut? Why do the authors think the federal government has the authority to mandate what private companies do with provincially-administered natural resources? Have they not considered the political firestorm that would erupt if Alberta was ordered to ship oil to Ontario and Quebec?

They make the same mistake as almost every breathless condemnation I see, confusing "entitled to bid on" with "entitled to import".

Moreover, it's largely irrelevant. It doesn't really matter except in the event of severe shortages, in which case government measures can be enacted anyway. The US can then take it to a NAFTA panel, which - as lumber showed us - takes years. If the US is unable to get its energy situation under control after years of shortages, the spillover damage to the Canadian economy is likely to be far more severe than whatever tariffs NAFTA would allow to be levied in retaliation, making it largely a moot point.

Fundamentally speaking, it's just not nearly the issue it's being made out as. It's a bad treaty clause, but it's an essentially irrelevant one.

PRoduction - exports to US - TarSands = Cdn Consumer. And do you really imagine that there will be no political repercussions in Canada when the consumer is last in line. No! consumers are taxpayers and voters. They will not stand last in line. What is more likely to happen is that NAFTA gets scrapped in the hard times and the TarSands get limited supplies. Then Canadians will be able to continue to heat their homes. So the real equation will be Production - Cdn Consumer - Tar Sands = exports to US.

Hey Benk,

A wonderful analysis.

They always used to tell me that Fort Brag just across the border from Ottawa was put there specifically in case Canadians decided not to do what the US wanted. An hours drive and Canada would be taken over.

I thought NAFTA was a Canadian sell out. We had constant arguments when they doublecrossed us on softwood and etc.

We are Woosies and cannot say no. In 2030, my children will need the natural gas we are exporting now, much more than the few imported dollars they are spending on their present mindless consumption.

My point is (I am guilty too) that we can do a beautiful analysis of how we are depriving our children and certainly our grand children of their resources so we can make a few bucks.

At what point do we and all those other Export Land Models get to realize that our earned profits will be gone the day after the resources are gone. Siberia and Canada are two places that should never ever sell any BThU's.

Can we not see that Nauru Island is the reality model.

Hi Benk,

Great article! The WCSB is critical for both Canada and the US. I have some trivia you might be interested in. The NEB Energy Futures to 2030 went to press *before* the Short Term 2007-2009 Outlook, which is more pessimistic. The issue that seems to have sideswiped all the predictions is how fast drilling costs have risen. The next short term outlook should be out this fall. We will see if the recent rise in prices revives drilling rates.

The issue is how fast will drilling have rise to keep production flat. And to answer that, you need to know how the size of the average nat gas pool is shrinking. The Canadian Gas Potential Comittee has this data, but it costs $4,000 for a copy. They collect well data and then analyze for the size of future finds.

David Hughes gives a summery of the findings in a global public media presentation here:

So, roughly 90% of what's left of the undiscovered resources are contained in probably 250,000 pools. It takes us two wells to find each one - that's 500,000 wells to find the last 30% of Canada's gas. To put that in perspective: we've drilled 300,000 wells to find the first 70%, so we can see that's the treadmill, the law of diminishing returns

Seems to me that the discussion of Oilsands using up all of Canada's natural gas reserves are ignoring the potential of the new Toe-to-Heel inground gasification / recovery technique to eliminate that as an input. Appears to work well, and should eliminate most current problems with tar sands oil recovery except the CO2 emissions issue, though if they started using pure oxygen as the oxidizer rather than air, then the resulting pure CO2 could even be easily sequestered.

I am glad to read an honest report. Mind you, you forgot to mention that for YEARS CANADA EXPORTED OUR "EXCESS" NATURAL GAS TO America FOR FREE until America chose to not embarrass itself and pay Canada a small STIPEND. Personally I should like to take the "blue collar workers" in Ohio especially and THROTTLE them re our Canadian part of NAFTA(also Mrs. Clinton and the Mr. Obama) None of these people have an inkling of what America gained in NAFTA and what Canada gave up and these information is correct. Canada MUST SUPPLY AMERICA equal heating as Canadians use even if there is none left for Canadians. The other is that America can CLAIM CANADA'S CLEAN WATER RESOURCES IF AMERICA RUNS OUT OF WATER. As a Canadian I would IMMEDIATELY TEAR UP THIS ONE SIDED AGREEMENT and as an American AND Canadian economist stated, "If the U.S. runs out of fuel they will be cool BUT IN CANADA WE SHALL FREEZE TO DEATH!!" We have FREE TRADE and yet Canadians STILL MUST PAY TARIFF ON PRODCTS COMING FROM THE AMERICA!! WHY!!!

Canada has GIVEN AWAY its natural resources to America and others without regard to home supply for the future. Now it is COSTING TO DEVELOP AND GET AT THESE RESOURCES. These resource giants Give NOTHING TO CANADA AND LEAVE CANADIAN TAXPAYERS FOOTING THEIR POLLUTION CLEANUP BILLS!!

I shudder to think of what my children and now my GRANDCHILDREN will have to do to survive in this new economic reality with continuing corrupt governments who worry about party loyalty and their personal BOTTOM LINES without any regard for Canada's future. Sell everything as fast as we can until there is NOTHING LEFT and NO PLACE TO IMPORT FROM!! We are just beginning to pay the price for the rape of Canadian resources and the LIES AND MISINFORMATION

Yet I feel for America who had to save the world from at least 2 world wars and this doesn’t even touch all the subsidizing of various countries of the world who receive billions of dollars of free money and food aid etc., and these countries have the nerve to throw sand in America’s face for helping them to cope. Yet who helps America in disaster- basically no one. If I were America I would withdraw much of this free aid to countries if they bad mouth America because America does not deserve the ongoing nasty criticism they receive from these little potentates who use America’s aid to line their corrupt government POCKETS with very little going to the people in need!! America has always been far too generous and it is NOW COSTING THEM AND THE WORLD.



Timothy Kritsch