BC LNG Reality Check David Hughes

B.C.
LNG and the

Shale Revolution
Myths and Realities
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J. David Hughes
Global Sustainability Research Inc.
Points to be covered:
- Some Global Context - The ENERGY
SUSTAINABILITY DILEMMA
-The SHALE REVOLUTION and
CONVENTIONAL WISDOM - a look at the fundamentals
with examples from major U.S. Plays
- Canadian gas supply forecasts and BC LNG drilling
requirements, environmental impacts and Canadian
energy security
- IMPLICATIONS for long term energy sustainability
World Consumption of Primary Energy by Fuel, 1965-2013

Other Renewables
238% Consumption Growth 1965-2013
12000
10000
Renewables
Hydro
Nuclear
Coal
Gas
Oil
310
+
o
r
Hyd lear
Nuc
8000
6000
Coal +167%
4000
Gas +414%
2000
0
1965
2.7%
6.7%
Non-Renewable 90.6%
Consumption (Million Tonnes Oil Equivalent)
14000
Oil +169%
1970
1975
1980
1985
1990
1995
2000
2005
2010
Year
Hughes GSR Inc, 2015
(BP Statistical Review, 2014; other renewables include wind, solar, biomass, geothermal and biofuels)
Global Primary Energy Consumption by Source in 2013

A Comparison to Total Non-Hydro Renewable* Energy
Renewable Energy by Source
345 MTOE
Total Energy by Source

12730 MTOE
Coal
30%
Nuclear
4%
Hydro
7%
Gas
24%
Oil
32%
Large Hydro plus Renewables = 9.4%

Total consumption has increased by 42%
more than all 2013 renewables since 2011
*excluding traditional biomass estimated at 9% (IRENA)
Percent of Total Consumption
Renewables
2.71%
2.5
Biofuels
Biomass/Geothermal
Solar
Wind
2
1.5
1
0.5
0
1995
Biom
rm
othe
e
G
/
ass
2000
al
2005
Year
Wind
2010
(data from BP Statistical Review of World Energy, 2014)
World Per Capita Annual Primary Energy

Consumption by Fuel 1850-2013
1.6
1.4
Nuclear
Gas
Oil
Coal
Hydro/Renewables
Wood
+814%
88% Non-Renewable
Tonnes Oil Equivalent Per Person
1.8
GAS
1.2
1
OIL
0.8
0.6
0.4
COAL
0.2
0
1850
HYDRO
WOOD
1870
1890
1910
1930
Year
1950
1970
1990
2010
(data from Arnulf Grubler, 1998;

BP Statistical Review of World Energy, 2014; EIA, 2014)
Cumulative % Consumed since 1850
100
90
80
Gas
Oil
Coal
70
90% of Fossil
Fuels have been
consumed
Since 1939
60
50
50% of Fossil
Fuels have been
consumed
Since 1987
3241 Billion barrels

Oil Equivalent
Cumulative Consumption of Fossil Fuels Since 1850

through Yearend 2013
OIL
40
30
20
COAL
10
0
1850
1870
1890
1910
1930
Year
1950
1970
1990
2010
(data from Arnulf Grubler, 1998; BP Statistical Review of World Energy, 2014)
World Energy Consumption by Source, 1990-2040

IEA World Energy Outlook 2014 New Policies Scenario
16000
14000
35% increase 2013-2040

Bioen
ergy
Hydro
Nuclear
12000
10000
Other
Renewables +89%
+81%
24%
Gas +53%
8000
6000
Oil +12.5%
26%
4000
2000
Coal +13.5%
Fossil Fuel 74%
Million Tonnes Oil Equivalent per Year
18000
Other renewables
Bioenergy
Hydro
Nuclear
Gas
Oil
Coal
Renewables 19%
20000
24%
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040
Year
(data from IEA World Energy Outlook, 2014, New Policy Scenario; % increase is from 2013-2040)
5847 Billion barrels

Oil Equivalent
Projected Consumption of Fossil Fuels Through 2040 as a

Percentage of Yearend 2013 Cumulative Consumption
Cumulative % Consumed since 1850
Relative to 2013
180
160
140
Gas
Oil
Coal
NEEDED
80% more or an
Additional 2606
Billion Barrels Oil
Equivalent to Cover
Next 22 years
120
100
80
60
40
OIL
CONSUMED
to Date
3241 Billion
Barrels Oil
Equivalent
20
0
1850
COAL
1870
1890
1910
1930 1950
Year
1970
1990
2010
2030
(data from Arnulf Grubler, 1998;

BP Statistical Review of World Energy, 2014; EIA IEO 2013Reference case projection)
Cumulative Consumption of Fossil Fuels versus Annual

Global Temperature, 1940-2013
90
80
Cumulative consumption of Fossil Fuels (%)

Average Temperature Anomaly
Upper 95% Confidence in Temperature
Lower 95% Confidence in Temperature
0.9
0.7
70
0.5
60
0.3
50
40
0.1
30
-0.1
20
1961-1990
10
0
1940
Temperature Variation Compared to

1961-1990 (Degrees Celsius)
Cumulative Consumption of Fossil

Fuels since 1850 (% of 2013 total)
100
-0.3
-0.5
1950
1960
1970
1980
Year
1990
2000
2010
(Temperature data from Hadcrut4 dataset

retrieved November 2014; fossil fuel consumption from BP , 2014, and Arnulf Grubler, 1998)
Crude Oil plus Condensate Production North America

versus the Rest of the World, 2008-2014
80
U.S. +49%, +2.91 mbd post 2011
70
Canada +18%, +0.55 mbd post 2011
65
Mexico -5.4%, -0.14 mbd post 2011
Rest of World 81%
Million Barrels per Day
World +3.4%, +2.6 mbd post 2011

North America 19%
75
U.S.
Canada
Mexico
Rest of World
60
Rest of World -1.1%, -.72 mbd post 2011
55
50
2008
2009
2010
2011
2012
Year
2013
2014
(data from EIA International Energy Statistics retrieved April 2015, 5-month moving average)
Natural Gas Production

North America versus the Rest of the World, 2000-2013
World +40% - 2000-2013
da -1
Cana
250
5%
U.S. +27%
200
Rest of World 73%
Billion Cubic Feet per Day
300
Mexico
Canada
U.S.
Rest of World
North America 27%
350
150
100
Rest of World +50%
50
0
2000
2002
2004
2006
Year
2008
2010
2012
(data from BP Statistical Review, 2014)
Change in Upstream Oil Capex and Oil Supply since 2000,

with 2000 Indexed to 100
Capex increased more than 100%

since 2005 for a crude oil
production increase of 3%
Canadian Consumption of Primary Energy by Fuel, 1965-2013

Consumption (Million Tonnes Oil Equivalent)
350
Other Renewables
186% Consumption Growth 1965-2013

300
250
Renewables
Hydro
Nuclear
Coal
Gas
Oil
27%
7%
6%
Hydro +234%
200
Coal +31%
150
28%
Gas +355%
100
50
0
1965
1.6%
31%
Oil +90%
1970
1975
1980
1985
1990
1995
2000
2005
2010
Year
Canada Primary Energy Consumption by Source in 2013

A Comparison to Total Non-Hydro Renewable Energy
Total Energy by Source
333 MTOE
Coal
6%
Gas
28%
Hydro
27%
Renewables
1.6%
Oil
31%
Large Hydro plus Renewables = 28.2%

Canadian consumption up 19% since 1995
or 10 times 2013 non-hydro renewables
production
Percent of Total Consumption
Nuclear
7%
1.8
Renewable Energy by Source

5.3 MTOE
Biomass
Biofuels
Solar
Wind
1.6
1.4
1.2
1.0
0.8
0.6
Biomass
0.4
0.2
Wind
0.0
1995
2000
2005
Year
2010
(data from BP Statistical Review of World Energy, 2014)
Per Capita Consumption of Primary Energy by Fuel and

Country in 2013
12
Canada 9.5 (5.3 times world average)
Tonnes Oil Equivalent
10
8
6
4
US 7.1 (4 times world average)
OECD 4.4 (18% of World Population

3.5 times Non-OECD nations)
Renewables
Hydroelectric
Nuclear Energy
Coal
Natural Gas
Oil
World 1.7
EU 3.3
Non-OECD 1.2
(82% of Population)
India 0.5
Country
(data from BP Statistical Review 2014 and UN population statistics for 2013)
Canadian Per Capita Consumption by Fuel, 1965-2013

12
Per Capita Consumption

(Tonnes Oil Equivalent)
10
Renewables
Hydro
Nuclear
Coal
Gas
Oil
61% Per Capita Consumption Growth 1965-2013
Other Renewables
1.6%
27%
Hydro +88%
7%
6%
6
Coal -26%
4
28%
Gas +156%
31%
Oil +7%
0
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Year
U.N. Population Projections for Canada, 1950-2100

80000
Population (thousands)
70000
60000
50000
Medium fertility
High fertility
Low fertility
Instant-replacement
Zero-migration
Constant-mortality
No change
Constant fertility
History
40000
30000
20000
10000
0
1950
1970
1990
2010
2030
Year
2050
2070
2090
(data from U.N. World Population Prospects: The 2012 Revision)
Percentage of Primary Energy Provided by Non-Hydro

Renewables by Country in 2013
Percentage of Total Consumption
25
Biofuels
Biomass
Geothermal
Wind
Solar
Denmark 20.3
20
Spain 13.1
15
Germany 9.9
EU 7.2
10
OECD 4.3 (18% of Population)

US 3.8
WORLD 2.7
India 2.0 Canada 1.6
Non-OECD 1.5
(82% of Population)
Country
(data from BP Statistical Review 2014 and UN population statistics for 2013)
Percentage of Primary Energy Provided by Non-Hydro

Renewables plus Large Hydro by Country in 2013
Percentage of Total Consumption
70
Norway 66.1
Large Hydro
Biofuels
Biomass
Geothermal
Wind
Solar
60
50
Brazil 40.9
40
30
20
Canada 28.2
OECD 10.0 (18% of Population)
Denmark 20.3
EU 12.1
WORLD 9.4
Non-OECD 9.0
(82% of Population)
US 6.6
10
Mexico 4.7
Country
(data from BP Statistical Review 2014)
Conventional Wisdom
The United States is on the verge of Energy Independence thanks
to the SHALE REVOLUTION.
Tight Oil will allow U.S. production to exceed that of Saudi Arabia
and U.S. imports will shrink to zero.
Shale Gas production will continue to grow for the foreseeable
future (2040 at least) and prices will remain below $5.00/mcf for
the next 10 years and below $6.00/mcf until 2030.
Shale Gas can replace very substantial amounts of oil for
transport and coal for electricity generation.
The way is clear for U.S. LNG exports to monetize the shale
bounty. Crude oil exports should be allowed to monetize tight oil
production.
The Shale Play Life Cycle

Discovery followed by leasing frenzy.
Drilling boom follows to meet held-by-production lease
requirements.
Sweet spots identified, targeted and drilled off.
Production rises rapidly and is maintained for cash-flow despite
potentially uneconomic full-cycle costs.
Sweet spots become saturated and well quality and field
production decline.
Plays like the Haynesville become middle aged after just five
years.
Haynesville Gas Production and Number of

Producing Wells, 2007-2014
3500
Peak January 2012
Decline
Gas Production
Number of Wells
3000
2500
Drilling Boom
2000
Production
Down 46%
1500
Leasing Boom
1000
Discovery
1
500
0
2007
0
2008
2009
2010
2011
2012
2013
Number of Producing Wells
Gas Production (Billion cubic feet per day)
2014
Year
(data from Drillinginfo, August, 2014, three month trailing moving average)
U.S. Natural Gas Supply Projection by Source, 2010-2040,

EIA Reference Case 2014
Trillion Cubic Feet per Year
35
LNG Imports
Alaska
Associated
Canada Imports
Coalbed Methane
Conventional
67% increase in
production by 2040
Shale Gas
Tight Gas
Offshore
Exports
duction)
ro
P
f
o
%
5
(1
30
U.S. domestic consumption
25
Shale Gas
(+150% 2011-2040)
20
Alaska
15
Coalbed Methane
Tight Gas
10
Associated
Conventional
Offshore
5
0
2010
53% of 2040 Production
40
2015
2020
2025
2030
2035
2040
Year
(data from EIA Annual Energy Outlook 2014, Tables 13 and 14, http://www.eia.gov/forecasts/aeo/er/excel/yearbyyear.xlsx)
U.S. Shale Gas Production by Play, 2000-2014

40
35
30
25
20
Marcellus
Eagle Ford
Bakken
Utica
Rest of US
Antrim
Woodford
Fayetteville
Barnett
Haynesville
15
5 Legacy Plays
Collectively Peaked
in August 2012 and
are now down 21%
Current Production
Top 2 Plays = 48%
Top 5 Plays = 78%
10
Marcellus
Barnett
Haynesville
0
2000
2002
2004
2006
2008
2010
2012
2014
Year
(data from EIA Natural Gas Weekly Update, September 24, 2014 )
Barnett Play Well Quality by Initial Gas Production
(map by John Van Hoesen based on data from Drillinginfo, August, 2014)
Barnett Gas Production and Number of

Producing Wells, 2000-2014
18000
Peak December 2011

6
16000
Gas Production
Number of Wells
14000
12000
10000
Production
Down 18%
8000
6000
2
4000
1
0
2000
2000
0
2002
2004
2006
2008
2010
2012
2014
Year
(data from Drillinginfo, August, 2014, three month trailing moving average)
Barnett Average Gas Well Decline Curves by Well Type

Gas Production (Thousand cubic feet /day)
1800
Vertical/Directional Wells
Horizontal Wells
Barnett Average
1600
1400
1000
First Year = 56%

Second Year = 27%
Third Year = 23%
Fourth Year = 20%
800
3-Year Decline = 75%
1200
600
400
200
0
1
11
16
21
26
31
36
41
46
Months on Production
(data from Drillinginfo, August, 2014)
Barnett Field Decline Gas Production from Horizontal

Wells Drilled Prior to 2013
5.5
14000
Total Gas Production
Number of pre-2013 Wells
12000
10000
4.5
8000
6000
First Year Field Decline = 23%

3.5
4000
2000
2.5
2008
Gas Production (Billion cubic feet/day)
0
2009
2010
2011
2012
2013
2014
Year
Barnett Gas Well Productivity by Well Type, Average

Production over First Twelve Months, 2009-2013
Average First Twelve Month Production
(Thousand cubic feet/day)
1400
Peak well productivity 2011

1200
1000
Average Well Down 17% from 2011 peak
800
600
400
Horizontal Wells
Barnett Average
Vertical/Directional Wells
Horizontal Wells were

nearly 8 times as
productive as
Vertical/Directional
Wells in 2013
200
0
2009
2010
2011
2012
2013
Year
Barnett Cumulative Gas Production By County
Peak 2012
Down 20%
Total Recovery to Date = 15.6 Tcf

Top County = 32% of production
Top 2 counties = 56% of production
Top 5 counties = 92% of production
Peak 2009
Down 43%
Peak 2012
Down 16%
Peak 2013
Down 7.5%
3147
Wells
3065
Wells
Tarrant
Johnson
Denton
Wise
County
3534
Wells
3848
Wells
Peak 2012
Down 5.6%
1596
Wells
Peak 2008
Down 18%
4448
Wells
Cumulative Production (Trillion cubic feet)
Parker
Other 19
Counties
Tarrant County Well Footprint
1 Mile
(data from Drillinginfo, February, 2014)
Barnett Gas Production Forecast in various Drilling Rate

Scenarios through 2040
6
Peak 2016 if
Drilling rate
Quintuples
Peak 2012
Without
Quintupling
Drilling
Recovery to date 15.6 tcf

Ultimate Recovery
35-47 tcf by 2040
50000
45000
40000
35000
30000
25000
3
20000
15000
2
1
0
2000
10000
Most likely Production

Triple drilling rate Production
Low drilling rate Production
Quintuple drilling rate Production
Most likely Wells 600/y declining to 500/y
Triple drilling rate Wells 1200/y declining to 600/y
Low drilling rate Wells constant at 400/y
Quintuple drilling rate Wells 2000/y declining to 1000/y
2004
2008
2012
2016
2020
2024
2028
5000
0
2032
2036
2040
Year
(data from Drillinginfo, August, 2014,
Barnett Gas Production Forecast in the Most Likely Drilling

Rate Scenario vs EIA AEO2014 projection through 2040
35000
Recovery to date 15.6 tcf
Ultimate Recovery
39.2 tcf by 2040
Peak late 2011

In Most Likely
6
Drilling Scenario
30000
25000
20000
EIA Cumulative Production

to 2040 = 56.4 tcf
an Extra 17.2 tcf
3
2
EIA AEO2014 Forecast

Most likely Production
Most likely Wells
1
0
2000
15000
10000
5000
0
2004
2008
2012
2016
2020
2024
2028
2032
2036
2040
Year
(data from Drillinginfo, August, 2014,
Most Likely Drilling Rate Gas Production from Major Shale

Plays through 2040
Peak 2016
35
30
25
20
Marcellus
Bakken
Fayetteville
Haynesville
Most likely Wells
180000
160000
Recovery to
date 47.5 tcf
Ultimate
Recovery
291.7 tcf by
2040
140000
120000
100000
Marcellus
80000
15
Eagle Ford
60000
Bakke
10
Woodfon
rd
40000
Fayettev
ille
Barnett
5
0
2000
200000
Eagle Ford
Woodford
Barnett
EIAWeekly Update
20000
Haynesville
2004
2008
2012
2016
2020
Gas Production (Bilion cubic feet/per day)
40
0
2024
2028
2032
2036
2040
Year
(data from Drillinginfo, September, 2014,
Most Likely Drilling Rate Gas Production from Major Shale

Plays through 2040 (applying 6% shrinkage)
Gas Production (Bilion cubic feet/per day)
60
EIA other plays

EIA AEO2014 additional for report plays
Plays covered in this report with 6% shrinkage
EIA AEO2014 forecast for report plays
EIA All shale plays Weekly Update
EIA AEO2014 Forecast for All Plays
50
EIA other plays

49.6 tcf 2014-2040
Peak 2016
40
EIA Forecast is an
Additional 147.4 tcf by 2040
from Plays in this Report
30
20
Plays in this Report
Recovered to date 47.5 tcf
Recovery 2014-2040
229.5 tcf
10
0
2000
2004
2008
2012
2016
2020
2024
2028
2032
2036
2040
Year
(data from Drillinginfo, September, 2014,
Shale Takeaways
High field decline rates mandate sustained high levels of drilling to
maintain production.
Shale gas production from seven plays constituting 89% of production is
likely to peak in 2017-2018 timeframe, depending on drilling rates.
Tight oil production from the top two plays constituting 62% of production
is likely to peak in 2016-2017 timeframe.
Increasing drilling rates significantly over current levels will increase
immediate supply and peak production levels and will move peak forward
but results in steeper declines after peak basically making the supply
situation worse post-peak.
High quality shale plays are not ubiquitous:
89% of shale gas production comes from 7 of 30 plays.
82% of tight oil production comes from 7 of 21 plays.
2013 B.C. Throne Speech

We have a [natural gas] surplus that can meet the real and pressing
needs of other economies, especially those on our Pacific doorstep. In
doing so, we can help protect our planet.
Once all facilities reach full production, there could be over 75,000 new
annual full time jobs.
For our province, two new major revenue streams can be created. To
protect this second stream of revenue for generations to come, your
government is establishing the British Columbia Prosperity Fund. This
could exceed one hundred billion dollars over the next 30 years.
Whether it is eliminating the provincial sales tax, or making long-term
investments in areas like education or vital infrastructure that strengthen
communities these are the kinds of opportunities the B.C. Prosperity
Fund can provide.
(B.C. Speech from the Throne, Globe and Mail, February 12, 2013)
Northern BC Proposed LNG Terminals

Stewart 30 mtpa
Kitsault 20 mtpa
Grassy Point 2 projects
Prince Rupert 6 projects
Kitimat 4 projects
(map from http://engage.gov.bc.ca/lnginbc/lng-projects/ )
Prince Rupert Area Proposed LNG Terminals
Aurora LNG 24 mtpa

Grassy Point LNG 20 mtpa
Orca LNG 24 mtpa
WCC LNG 30 mtpa
New Times Energy 12 mtpa
Prince Rupert LNG 21 mtpa
Watson Island LNG
Pacific Northwest LNG 19.2 mtpa
Kitimat Area Proposed LNG Terminals
Kitimat LNG Canada 24 mtpa
Douglas Channel LNG 1.8 mtpa
Kitimat LNG 10 mtpa
Cedar LNG 14.5 mtpa
Southern BC Proposed LNG Terminals

Campbell River Discovery LNG 20 mtpa
Squamish Woodfibre LNG 2.1mtpa
Delta Westpac 3 mtpa
Steelhead LNG 24 mtpa
Northern BC Proposed LNG Pipeline Projects
Spectra Primary
Pacific Northern
Prince Rupert Gas
Coastal Link
Pacific Trail
(map from BCLNGinfo.com)
Global LNG Trade compared to B.C. LNG Scenarios

350
18 Terminals
299 mtpa
Million Tonnes per Year
300
250
200
150
5 Terminals
82 mtpa
100
2-4 Terminals
34-50 mtpa
50
1 Terminal
17.7 mtpa
0
Entire
Total of B.C. Gov't B.C. Gov't CCPA
2013
High
Medium Medium
BC LNG
Global proposals
LNG trade
Scenarios
KPMG
Medium
CCPA
Low
(B.C. Government literature, CCPA)
Western Canada, Distribution of Wells with Current or

Historical Production, 1950-2014
Oil Wells
Gas Wells
Bitumen Wells
Canadian Gas Production by Province 2000-2014

20
Peak May 2002
18
Down 19% from Peak
Billion cubic feet per Day
16
14
12
10
8
6
28%
British Columbia
Alberta
NWT & Yukon
Saskatchewan
Ontario
New Brunswick
Nova Scotia
66%
4
2
0
2000
2002
2004
2006
2008
2010
2012
2014
Year
(3-month trailing moving average; data from National Energy Board, 2014,
Gas Production and NEB Forecast by Province 1965-2035

20
Peak May 2002
History
18
16
14
12
Forecast
NEB Forecast
Renaissance
2017-2035
Rest of Canada
Saskatchewan
B.C.
Alberta
Canadian Demand
61%
10
B.C.
8
Canadian Demand
6
4
Alberta
38%
2
0
1965
1975
1985
1995
Year
2005
2015
2025
2035
(production 1965-1999 from CAPP, 2015;

Consumption 1965-1999 from BP 2014; 2000-2013 production/consumption and reference forecast from NEB, 2013)
NEB Net Natural Gas for Export, 2000-2035

12
Cumulative 2016-2035 Surplus/Deficit illustrated
10
48.0 Tcf
8
6
30.9 Tcf
4
2
17.9 Tcf
0.7 Tcf
-2
-4
-6
-8
2000
High Case less NEB LNG export assumption

High Case
Low Case less NEB LNG export assumption
Low Case
Reference Case less NEB LNG export assumption
Reference Case
2005
2010
2015
2020
-15.9 Tcf
-33.0 Tcf
2025
2030
2035
Year
(data from National Energy Board Energy Futures 2013 and NEB personal communication, December, 2014)
B.C. Raw Gas Production by Play, 2000-2014

5
Cumulative Recovery since 1954
Raw Gas = 34.8 tcf
Marketable Gas = 30.3 tcf
Proved Raw Gas Reserves = 40.2 tcf
Exports approved to 2040 = 161 tcf
4.5
4
3.5
Horn River
Montney
Other BC
3
2.5
2
11%
Horn River
Montney
46%
Rest of B.C.
Peaks in 2002
1.5
Rest of B.C.
43%
0.5
0
2000
2002
2004
2006
2008
2010
2012
2014
Year
(data from Drillinginfo, December, 2014, for production through August, 2014; twelve month trailing moving average)
Horn River
200 km
Montney
Fort St. John
Prince George
Edmonton
Wellhead to Power Plant LNG production losses

1.6
Shrinkage 13%
Units of Gas Produced
1.4
13%
1.2
1 unit of gas delivered in Asia

requires 1.44 units to be
produced at the wellhead
20.4%
20.4% of gas is consumed in

liquefaction, transport and
regasification
1
0.8
Gas
delivered
at
Asia
power
plant
0.6
0.4
0.2
0
Raw Gas at Wellhead
Marketable Gas at LNG

Terminal
Delivered Gas in Asia
Processing Stage
(B.C. Government LNG in B.C. website; B.C. LNG Alliance; NEB and BC Oil and Gas Commission, 2011, 2012, 2013)
30
Scenario 1 LNG exports are incremental to NEB

Reference Forecast - 5 terminal Case 2000-2035
B.C. Ramp Up Required:
100% of Exports from B.C. = 542%
25
Peak May 2002
20
Addition production
required over and
above NEB Reference
Forecast
2015 Ramp up for

LNG Exports begins
15
ed
sum
s
a
s
port ast
x
e
NEB in forec
10
5
0
2000
48%
B.C. Production for

Non-Export Use
in NEB Forecast
LNG Exports Additional

NEB B.C. LNG Exports
B.C.
Rest of Canada
Saskatchewan
Alberta
2005
2010
28%
24%
2015
2020
2025
2030
2035
Year
(data from National Energy Board Energy Futures, November, 2013)
Scenario 2 LNG exports are incremental to Current B.C.

Gas Production - 5 terminal Case 2000-2035
25
B.C. Ramp Up Required:

20
Addition production
required over and
above NEB Assumed
Exports
Peak May 2002
2015 Ramp up for

LNG Exports begins
57%
15
NEB Assumed Exports
10
B.C. Current Production
0
2000
Additional Exports for 5 terminals

NEB BC Assumed Exports
B.C. Current Production
Rest of Canada
Saskatchewan
Alberta
2005
2010
14%
28%
2015
2020
2025
2030
2035
Year
Scenario 1 Net Natural Gas Available for Export, 2000-2035

12
10
8
6
4
17.9 Tcf
2
0
-2
-18.2 Tcf
-0.6 Tcf
-4
-6
-8
-10
-12
CCPA Low
KPMG Medium
CCPA Medium
B.C. Gov't Medium
B.C. Gov't High
NEB Reference Case without exports
-14
2000
2005
2010
2015
-27.9 Tcf
-35.1 Tcf
-68.8 Tcf
2020
2025
2030
2035
Year
Scenario 2 Net Natural Gas Available for Export, 2000-2035

12
10
8
6
4
4.1 Tcf
2
0
-14.3 Tcf
-2
-32.0 Tcf
-4
-6
-8
-10
-12
-14
-16
2000
CCPA Low
KPMG Medium
CCPA Medium
B.C. Gov't Medium
B.C. Gov't High
NEB Reference Case with flat B.C. Production
2005
2010
2015
2020
-48.8 Tcf
-41.6 Tcf
-82.5 Tcf
2025
2030
2035
Year
Government literature on B.C. Recoverable Gas Resources
CLAIM:
2,933 tcf
(B.C. Government LNG in B.C. website. retrieved April 10, 2015, http://engage.gov.bc.ca/lnginbc/information-kits/)
Reported Recoverable B.C. Gas Resources and Reserves

3500
Trillion Cubic Feet
3000
Recoverable Resources
Overstated by 5-7 times
B.C. Promotional
Literature 2933 tcf
B.C. LNG
Alliance
>2000 tcf
2500
2000
B.C. Oil and Gas Commission

and National Energy Board
1500
B.C. Oil and Gas

Commission
1000
417 tcf
500
40.2 tcf
33.5 tcf
Proved Raw
Gas Reserves
Proved
Marketable
Reserves
0
B.C. Gov't
LNG in B.C.
B.C. LNG
Alliance
Remaining
Marketable
Resources
Recoverable Resources and Reserves

(B.C. Government LNG in B.C. website; B.C. LNG Alliance; NEB and BC Oil and Gas Commission, 2011, 2012, 2013)
Gas production needed for various LNG export levels from

2014-2040 compared to reserves and past production
Production from 2014-2040 (tcf)
250
4.3-4.9 times
proven reserves
Relative to NEB Growth Forecast - Scenario 1

Relative to constant B.C. Production - Scenario 2
200
150
1.1-1.7 times
proven reserves
100
50
Historical
Proven B.C. Gov't B.C. Gov't
Production Raw Gas
High
Medium
(1954-2013) Reserves
CCPA
Medium
KPMG
Medium
Export level Scenarios
CCPA Low
No
Terminals
(B.C. LNG Reality Check, 2015)
B.C. Well Decline Curves by Play and Well Type

Gas Production (Thousand cubic feet/day)
7000
BC Average
Horn River Horizotal
Montney Average
Montney Horizontal
Montney Vertical
6000
5000
3-year decline
BC Average = 66%
Horn River Horizontal = 71%
Montney Average = 63%
Montney Horizontal = 62%
Montney Vertical = 72%
4000
3000
2000
1000
0
1
11
16
21
26
31
36
41
46
Months on Production
(data from Drillinginfo, April, 2014)
Wells with Current or Historical Production, 1950-2014

Oil Wells
Gas Wells
Bitumen Wells
Oil Wells
Gas Wells
Bitumen Wells
Scenario 1 - Wells needed for various LNG export levels

Relative to NEB reference case production growth
70000
Number of Wells
50000
40000
13,848 New Wells
43,773 New Wells
60000
New Wells (2014-2040)

Existing Wells (1954-2013)
30000
20000
10000
0
B.C. Gov't B.C. Gov't
High
Medium
CCPA
Medium
KPMG
Medium
CCPA Low
No
Terminals
Export Levels
Scenario 2 - Wells needed for various LNG export levels

Relative to maintaining existing B.C. production
70000
New Wells (2014-2040)
Existing Wells (1954-2013)
60000
Number of Wells
40000
30000
7,875 New Wells
37,800 New Wells
50000
20000
10000
0
B.C. Gov't B.C. Gov't
High
Medium
CCPA
Medium
KPMG
Medium
CCPA Low
No
Terminals
Export Levels
Environmental Impacts
Land disturbance for LNG terminals and the major pipelines
needed to supply them.
Land disturbance associated with wells, gathering pipelines,
roads and seismic activities.
Water consumption. An average Horn River well uses 25
million U.S. gallons and a Montney well 3.5 million gallons.
This compares to an average 5 million gallons for a U.S.
shale well.
Truck traffic - >2,500 truck trips per Horn River well, >400
truck trips per Montney well.
Greenhouse gas emissions.
Upstream
Land Disturbance Assumptions
Multi-well pads with ten wells per pad.
4 hectares per well pad.
3 kilometres of roads per pad (20 metre right-of-way).
3.5 kilometres of pipelines per pad (18 metre right-of-way)
No additional disturbance from seismic cut lines this may
be a major underestimate as seismic lines have in the past
accounted for 60% of total disturbance.
(per email from B.C. Oil and Gas Commission, 2014; B.C. Oil and Gas Commission, 2013)
B.C. Government LNG literature on Land Disturbance, 2014
CLAIM:
50 sq. km. by
2025
ACTUAL:
616-714 sq. km.
by 2040 in
5 terminal case
(assuming no
new seismic
activity)
Horn River and Montney Plays Areal Extent of Main Areas
Northern Montney
4200 square km
Heritage Montney
7800 square km
Horn River A Pool

5000 square km
60 km
30 km
New Land Disturbance in Montney and Horn River Plays in

addition to existing land disturbance, 2014-2040
4.5
New wells relaWve to NEB reference case growth - Scenario 1
New Wells relaWve to constant B.C. ProducWon - Scenario 2
Percentage of Play Area
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
B.C. Gov't
High
B.C. Gov't
Medium
CCPA
Medium
KPMG
Medium
CCPA Low No Terminals
Export level Scenarios
B.C. Government LNG literature on Water Use, 2014
CLAIM:
.01% of annual
runoff
ACTUAL:
Water use will
be focused on
productive
areas, not entire
landscape,
hence impact
higher
Drilling Rate with 5 terminal LNG Export - Scenario 1 assuming NEB reference case growth 2014-2040
2500
Drilling Rate (Wells per Year)
Peak Drilling Rate 2021

Total Wells = 43,773
Total Production = 196 tcf
2000
Montney Horizontal
Horn River Horizontal
Other BC
1500
Montney Horizontal Wells

(Total = 35,236)
1000
Production = 128 tcf (65%)
500
Horn River Horizontal Wells (Total = 6,485)

0
2014
BC Other Wells (Total = 2052)
2019
2024
2029
2034
2039
Year
Water Consumption for High and Low LNG Export Cases

and Two Production Scenarios, 2014-2040
Water Consumption
(Million cubic metres per Year)
120
City of Vancouver
100
City of Vancouver
City of Calgary
Scenario 1 - High Case
Scenario 2 - High Case
Scenario 1 - Low Case
Scenario 2 - Low Case
City of Calgary
80
60
High Case
40
20
0
2014
Low Case
2019
2024
2029
2034
2039
Year
Greenhouse Gas Emissions, B.C. LNG versus

Best-technology Chinese coal on 20- and 100-year bases
Kg of CO2e per Megawatt-Hour
1400
1200
B.C. LNG
27% worse
1000
Electricity T&D
Power Plant Operations
LNG Regasification
Tanker/Rail Transport
Liquefaction
Pipeline
Processing
Extraction
7% improvement
800
600
400
200
0
B.C. LNG (20
year)
Chinese Coal (20

year)
B.C. LNG (100

year)
Chinese Coal (100

year)
Coal vs Gas Comparison

(data from U.S. NETL, 2014; based on 46% efficient ultrasupercritical coal power plants)
Canadian Greenhouse Gas Emissions by Source History

and Forecast under the Copenhagen Accord, 1990-2035
Emissions (CO2e Megatonnes per Year)
900
800
Copenhagen Accord:
17% reduction from
2005 levels by 2020
Waste-&-Others
Agriculture
Buildings
Emissions-Intensive-&-Trade-Exposed-Industries
Transportation
Electricity
Non-Oil Emissions under Copenhagen post 2012
Downstream-Oil-and-Gas
Oil-and-Natural-Gas-Transmission
Natural-Gas-Production-and-Processing
Conventional-Oil-Production
Oil-Sands-(Mining,-In-situ,-Upgrading)
731 Mt
2005
700
lture
Agricu
Buildings
600
500
607 Mt 2020
483 Mt 2035
Industrial
75%
400
Transportation
300
Emissions not
associated with Oil
and Gas Production
must Decline by 59%
from 2012-2035
Natural Gas
Electricity
200
57%
100
0
1990
43%
Oil Sands
1995
2000
2005
2010
2015
2020
2025
2030
2035
Year
(Environment Canada 2014 National Inventory Report; Forecasts from CERI 2014 and NEB 2013 reference cases;
Hughes GSR Inc, 2015 Copenhagen commitments from Environment Canada http://www.ec.gc.ca/dd-sd/default.asp?lang=En&n=AD1B22FD-1 )
Canadian Greenhouse Gas Emissions by Source History

and Forecast under the Copenhagen Accord with LNG, 1990-2035
Emissions (CO2e Megatonnes per Year)
900
800
Copenhagen Accord:
17% reduction from
2005 levels by 2020
Waste-&-Others
Agriculture
Buildings
Emissions-Intensive-&-Trade-Exposed-Industries
Transportation
Electricity
Non-Oil Emissions under Copenhagen post 2012
Downstream-Oil-and-Gas
Oil-and-Natural-Gas-Transmission
Natural-Gas-Production-and-Processing
Conventional-Oil-Production
Oil-Sands-(Mining,-In-situ,-Upgrading)
731 Mt
2005
700
lture
Agricu
Buildings
600
500
607 Mt 2020
483 Mt 2035
Industrial
75%
400
Transportation
Emissions not
associated with Oil
and Gas Production
must Decline by 68%
from 2012-2035
33%
300
Natural Gas
Electricity
200
67%
100
0
1990
Oil Sands
1995
2000
2005
2010
2015
2020
2025
2030
2035
Year
(Environment Canada 2014 National Inventory Report; Forecasts from CERI 2014 and NEB 2013 reference cases;
Hughes GSR Inc, 2015 Copenhagen commitments from Environment Canada http://www.ec.gc.ca/dd-sd/default.asp?lang=En&n=AD1B22FD-1 )
Financial Risks and Considerations

Viability depends on arbitrage between domestic and Asian gas
prices. Asian spot prices have been reduced considerably in recent
months.
High upfront investment requires long term supply and price
stability to recover costs. The nature of the shale game with steep
decline rates and high cost wells implies price volatility ahead.
Halving of the LNG tax and increasing write off rates increases
the take by corporations and reduces any payment to the owners
of the resource, which is non-renewable and comes with impacts.
Corporations understand these risks very well, hence it is not
surprising that there have been no committments to go ahead,
even given all the tax breaks and government support.
(per email from B.C. Oil and Gas Commission, 2014; B.C. Oil and Gas Commission, 2013)
U.S. FERC LNG prices April, 2015
(from U.S. FERC website, accessed April 10, 2015)
Summary and Implications

Oil and gas are likely to remain an important component of
energy consumption for decades, given their energy density and
utility for which there are few substitutes.
The Shale Revolution has been a game-changer but its
sustainability in the long term is questionable. This implies
higher domestic prices in the future, reducing or eliminating
arbitrage for LNG exports.
NEB forecasts are optimistic yet indicate that even if B.C.
production more than triples, one LNG terminal would use up all
Canadian export capacity. Developing 3-5 terminals would make
Canada a major net importer of gas unless production could be
ramped up far higher than NEB projections.
The B.C. Government statements of 2,933 trillion cubic feet of
recoverable gas resources are contradicted by its own B.C. Oil
and Gas Commission and the NEB. They are overstated by 7fold.
Summary and Implications

The B.C. Governments statements on land disturbance and
water consumption downplay impacts as they spread them over
the entire northeast of B.C. and look out only to 2025. In fact, the
lifespan of an LNG terminal is at least 20 years and the upstream
impacts will be concentrated in a small portion of the northeast.
The B.C. Governments claim that LNG will reduce global
greenhouse gas emissions considers only emissions at the
burner tip, not full-cycle emissions including production,
liquefaction and transport. In fact, the world would be better off
if China built best-technology coal plants rather than burning
B.C. LNG over at least the next 50 years.
The Copenhagen Accord, to which Canada is a signatory, is a
modest effort to control GHG emissions and is insufficient
according to many. Exporting B.C. LNG at the scale envisioned
would make meeting even this target much more difficult, as
well as compromise Canadas long term energy security.
Parting Thought
Canadas de facto energy strategy is expediting the
liquidation of its finite, non-renewable, resources as quickly
as possible in the name of economic development and the
government of the day.
These strategic resources are one-time and likely will be
needed domestically in the future. They come with collateral
environmental impacts and deserve a longer term plan for the
sake of future generations and the environment.
B.C. LNG Reality Check: Energy Security,

Environmental Implications and Economic
Potential
Report to be released in May, 2015, by the
Canada Centre for Policy Alternatives

BC LNG Reality Check David Hughes

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B.C.

LNG and the

World Consumption of Primary Energy by Fuel, 1965-2013

238% Consumption Growth 1965-2013

Consumption (Million Tonnes Oil Equivalent)

Global Primary Energy Consumption by Source in 2013

Total Energy by Source

Large Hydro plus Renewables = 9.4%

Percent of Total Consumption

(data from BP Statistical Review of World Energy, 2014)

World Per Capita Annual Primary Energy

Tonnes Oil Equivalent Per Person

Hughes GSR Inc, 2014

(data from Arnulf Grubler, 1998;

Cumulative % Consumed since 1850

3241 Billion barrels

Cumulative Consumption of Fossil Fuels Since 1850

Hughes GSR Inc, 2014

World Energy Consumption by Source, 1990-2040

35% increase 2013-2040

Fossil Fuel 74%

Million Tonnes Oil Equivalent per Year

5847 Billion barrels

Projected Consumption of Fossil Fuels Through 2040 as a

Hughes GSR Inc, 2014

(data from Arnulf Grubler, 1998;

Cumulative Consumption of Fossil Fuels versus Annual

Cumulative consumption of Fossil Fuels (%)

Hughes GSR Inc, 2014

Temperature Variation Compared to

Cumulative Consumption of Fossil

(Temperature data from Hadcrut4 dataset

Crude Oil plus Condensate Production North America

U.S. +49%, +2.91 mbd post 2011

Mexico -5.4%, -0.14 mbd post 2011

Rest of World 81%

Million Barrels per Day

World +3.4%, +2.6 mbd post 2011

Natural Gas Production

Billion Cubic Feet per Day

North America 27%

Rest of World +50%

(data from BP Statistical Review, 2014)

Change in Upstream Oil Capex and Oil Supply since 2000,

Capex increased more than 100%

Hughes GSR Inc, 2014

Canadian Consumption of Primary Energy by Fuel, 1965-2013

186% Consumption Growth 1965-2013

Canada Primary Energy Consumption by Source in 2013

Large Hydro plus Renewables = 28.2%

Percent of Total Consumption

Renewable Energy by Source

(data from BP Statistical Review of World Energy, 2014)

Per Capita Consumption of Primary Energy by Fuel and

Tonnes Oil Equivalent

US 7.1 (4 times world average)

OECD 4.4 (18% of World Population

Canadian Per Capita Consumption by Fuel, 1965-2013

Per Capita Consumption

61% Per Capita Consumption Growth 1965-2013

U.N. Population Projections for Canada, 1950-2100

Hughes GSR Inc, 2015

(data from U.N. World Population Prospects: The 2012 Revision)

Percentage of Primary Energy Provided by Non-Hydro