Context Magazine 5.1

Voice of Canada’s Oil and Natural Gas Industry

Volume 5 . Issue 1 MAY 2017

ENERGY EXAMINED.

ENERGY FOR

TOMORROW

Why Canadian oil and natural gas are essential for the world’s energy future

CONTEXT DR. IAN GATES: GOES DIGITAL OIL SANDS INNOVATOR Publication Number: 2017-9201

CONTENTS Volume 5 Issue 1 ENERGY FOR TOMORROW ISSUE

Ian Gates 10 Innovator: and lower-emissions FEATURE

oil sands

Cover photo: Parts of Asia viewed from outer space, from Shutterstock.

This University of Calgary scientist is developing a new approach to SAGD that could lower GHG emissions and costs.

DEPARTMENTS PRESIDENT AND CEO’S MESSAGE ����������������������������������� 3 CONTEXT ONLINE: Context goes digital �������������������� 5 inCONTEXT: Asian Market Opportunity �����������������������11

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COVER STORY

Energy For Tomorrow Five reasons why Canada’s oil and natural gas resources are an essential part of the future energy mix for our nation and the world.

CONTEXT IS PRINTED ON 100 PER CENT POST‑CONSUMER FIBRE, MANUFACTURED USING BIOGAS ENERGY

The official magazine for the Canadian Association of Petroleum Producers (CAPP) ENERGY EXAMINED.

Volume 5 Issue 1 | Publication Number: 2017-9201 | context@capp.ca | www.capp.ca/context

PUBLISHER Jeff Gaulin, vice-president communications CAPP Jeff.Gaulin@capp.ca

CONTEXT CONCEPT, STRATEGY AND PRODUCT DEVELOPMENT Agnes Zalewski, Blunt Strategic

EDITOR Andrew Mah, communications advisor CAPP Andrew.Mah@capp.ca

Printed in Canada by CBN Commercial Solutions. Copyright © 2017 Canadian Association of Petroleum Producers. All rights reserved.

Reproduction in whole or in part is strictly prohibited.

ART DIRECTOR Birdeen Selzer, Blunt Strategic in co-operation with mindjello creative DISTRIBUTION AND MEMBER UPDATES Janine Vandenberghe, administrative assistant CAPP Janine.Vandenberghe@capp.ca Please contact for changes in contact names and delivery addresses.

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CONTEXT . VOLUME 5 . ISSUE 1 . MAY 2017

CAPP.CA/CONTEXT

PRESIDENT AND CEO’S MESSAGE

THIS ISSUE OF CONTEXT MAGAZINE IS BASED ON THE THEME:

ENERGY FOR TOMORROW. Oil and natural gas are needed as part of the global energy mix for the foreseeable future. The fact is, global energy demand is increasing, driven by population growth and improving quality of life, particularly in the world’s emerging economies such as China and India.

While organizations like the International Energy Agency (IEA) forecast growth in renewable energy sources, they also anticipate strong and continued growth in oil and natural gas energy demand.

Within this context of global energy growth, it’s important that Canadians recognize the positive, long-term future Canadian oil and natural gas can play in their lives.

Our oil and natural gas industry is one of the most innovative and forward-looking in the world. We employ leading scientists and engineers, and devote significant resources to research and development.

Through the work of collaborative organizations like Canada’s Oil Sands Innovation Alliance and the Petroleum Technology Alliance of Canada, we are driving toward technologies that will enable us to achieve significant carbon emissions reductions over time. This

standards, means Canada can become a preferred energy supplier throughout the world—provided we build the infrastructure to get our products to tidewater. If we do so, Canadian energy will drive economic growth and prosperity in Canada for generations to come, while responsibly meeting world energy needs.

Finally, if you haven’t already, I invite you to visit our new online resource for Context magazine at context.capp.ca.

We’ve created an online home for Context that features regularly updated and timely stories you can share easily on a variety of social media channels. Read more about Context online on page 5. Most

2040

51% Global Energy Needs The IEA predicts that by 2040, oil and natural gas will provide 51 per cent of the world’s energy needs, with global demand for oil and natural gas continuing to increase over that time period.

CAPP.CA/CONTEXT

It’s important that Canadians recognize the positive, long-term future Canadian oil and natural gas can play in their lives. ensures we can play an ongoing role in meeting the world’s energy needs in a lower-carbon future.

This focus on innovation gives Canada a unique opportunity. Innovation, combined with our well-earned reputation as a stable, reliable energy producer with strong environmental regulatory

importantly, use it, share with friends and colleagues, and stay actively engaged with the energy issues that will help shape our country for now, and for tomorrow.

Sincerely, Tim McMillan President and CEO Canadian Association of Petroleum Producers CONTEXT . VOLUME 5 . ISSUE 1 . MAY 2017

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CONTEXT ONLINE

CONTEXT MAGAZINE

ONLINE

Taking Context digital, mobile and to new audiences When CAPP created Context magazine more than four years ago, a primary goal for the member publication was to provide staff of CAPP member companies a knowledge resource on energy issues, conveyed in an accessible, topical and engaging way. On subjects ranging from market access to environmental innovation, our goal was to ensure there was a voice to provide insight into the facts, stories and people involved, delivered from an industry perspective.

This goal is an important one and remains unchanged. However, one thing we’ve come to appreciate is that the stories we are delivering also resonate with public audiences. With the need to broaden the public discourse on these same issues, to foster public confidence and support needed to achieve goals like enhanced market access and competitiveness, it makes sense to take Context in a new direction.

The result is a new website: Context Online.

Context Online delivers stories about energy issues via the Internet. It provides CAPP.CA/CONTEXT

an opportunity to reach out and speak to all Canadians about the innovations helping to drive our industry forward, the benefits our industry provides, and the underlying issues that impact the future of Canadian oil and natural gas.

We will continue providing the in-depth examinations of these issues through the feature stories, industry profiles and infographics you’ve come to expect through our print edition. But with the shift to online, we also have the opportunity to deliver additional content that is more timely and responsive— content that takes into account current news headlines and energy conversations. Visit the site often as we’ll be

updating it with something new every one to two weeks.

In addition, Context Online uses current Web technologies and best practices for sharp, engaging online content delivery. The site is fully responsive—meaning that it is just as readable and easy to navigate on your smartphone and tablet as your desktop computer. As well, every piece of content—from a feature story to a video interview, infographic or energy 101 factoid—is fully sharable via a single right-mouse click to a host of social media platforms, including Facebook and Twitter.

Visit our new home at context.capp.ca.

Find it on Context Online: Check out our web-only interview with Dr. Laura Dawson of the Canada Institute, discussing the potential impacts of shifting Canada-U.S. trade relations on Canada’s energy exports: ctxm.ag/qk9v

CONTEXT . VOLUME 5 . ISSUE 1 . MAY 2017

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A view of India at night from space.

ENERGY FOR

TOMORROW

Five reasons why Canada’s oil and natural gas resources are an essential part of the future energy mix for our nation and the world

BY DAVID COGLON

FEATURE STORY

“If government leaders stick on the path today, even including the agreements signed in Paris, this future still implies growth in oil and natural gas.”

— Jackie Forrest, director of research, ARC Energy Research Institute

Energy runs the world. It meets our most basic needs, such as having a warm place to live, lights to read by, and a means of cooking food. It also underlies our ability to travel great distances, transport goods for trade, and build amazing products from smartphones to artificial hearts.

Oil and natural gas have formed the backbone of an energy revolution that has transformed the lives of billions of people for the better. Oil and natural gas have the promise and opportunity to transform the lives of billions more, with Canada at the lead as a sustainable, responsible and innovative energy producer.

As the world moves to a lower-carbon future, some have pronounced the doom of the hydrocarbon industry. This does not stand up to scrutiny. Oil and natural gas have a critical role to play in meeting the world’s energy needs for the foreseeable future. We examine five reasons why.

REASON 1: We need more energy “If you look at any forecast, we’re going to see growing energy demand,” says Jackie Forrest, director of research at the Calgary-based ARC Energy Research Institute.

Forrest’s comment is backed by the latest energy outlook from the International Energy Agency (IEA). The IEA’s World Energy Outlook 2016 projects that by 2040 the world will need 31 per cent more energy than we use today. Others draw similar conclusions. BP in its latest report estimates global energy demand to grow around 30 per cent by 2035, while the U.S. Energy Information Administration says this could even reach 48 per cent by 2040.

CAPP.CA/CONTEXT

IEA 2016 World Outlook The IEA’s World Energy Outlook 2016 projects that by 2040 the world will need 31 per cent more energy than we use today.

Today to 2040: OIL DEMAND INCREASE:

NATURAL GAS DEMAND INCREASE:

12% 49%

“We’re going to see a huge increase in the energy system because we’re seeing a growth in population, more countries increasing their wealth and many people demanding mobility,” Forrest says.

The IEA numbers make for serious reading. According to the agency, 1.2 billion people still lack access to electricity.

And 2.7 billion are without clean cooking fuels, instead depending on wood, charcoal or animal dung for fuel. It’s clear many people around the world are looking to low-cost, efficient energy sources simply to boost their quality of life to standards we in the West have long taken for granted.

So if more energy is required, what’s it going to take to get us there? In

practical terms, it’s going to take all forms of energy—and that includes oil and natural gas.

“People often hear about the rapid growth rate of renewable energy.

But even if this happens, at the end of 2040, renewables will still make up only seven per cent of the world’s entire energy mix,” says Terry Abel, CAPP’s executive vice-president. “Most people would be surprised to learn that hydrocarbons—oil, natural gas, coal— together will still make up more than three-quarters of the future energy mix in 2040.”

This forecast is part of the IEA’s central or “New Policies” scenario, which incorporates countries getting serious about meeting climate pledges made in Paris in December 2015.

“If government leaders stick on the path today, even including the agreements signed in Paris, this future still implies growth in oil and natural gas,” Forrest says.

REASON 2: Oil and natural gas: plentiful, powerful, transportable We don’t have to go far to realize what’s behind continued demand for oil and gas: They pack a lot of energy punch within their molecules.

“Nothing can compete with oil and natural gas in terms of economics or their utility. At $50 a barrel, it’s fairly cheap to use oil versus other alternatives,” says Forrest. “Liquid fuels have a lot of energy density. When you get a tank of gas, you can travel really long distances—and that’s a big advantage,” Forrest says.

CONTEXT . VOLUME 5 . ISSUE 1 . MAY 2017

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Photograph: Courtesy Alberta Innovates

FEATURE STORY

“To be positioned for success in the 21st century, our industry has to be resilient in a carbon-restrained future.”

—G ordon Lambert, former vice-president of sustainability at Suncor Energy and one of the founders of COSIA

There’s also their abundance. It used to be that society worried about peak oil.

But through innovation, we’ve found plenty more. That’s true especially today, as unconventional technologies have unlocked new shale gas and tight oil reserves, vastly growing the world’s hydrocarbon reserves. In fact, according to BP’s latest energy outlook, there’s enough technically recoverable oil in the ground to meet double the world’s needs by 2050.

Alternatives to oil and natural gas are becoming more viable. Improvements to solar technology are allowing this energy source to take on a larger role, specifically in electricity production. As well, more electric cars are entering the market. Even so, they do not spell an end to hydrocarbon-driven energy.

“There are still a lot of cars that run on gas and diesel in the world,” says Forrest, who estimates there are more than a billion light duty vehicles (LDVs) on the road currently. As well, while more cars may be electric, hydrocarbons are often used to generate the electricity needed to charge up these vehicles. For example, both the U.S. and China currently depend on hydrocarbons for at least two-thirds of their electricity production.

Another important advantage for hydrocarbon energy sources—particularly in supplying developing and emerging economies—is they can be efficiently transported over large distances via tankers and pipelines. Places like Canada with plentiful energy resources and modern energy infrastructure can export these resources to places elsewhere where energy is in short supply and high demand. This option isn’t 8

CONTEXT . VOLUME 5 . ISSUE 1 . MAY 2017

possible for most alternative energy sources where you need to be relatively close to the source (as is required for hydro) or build significant infrastructure to access or create the energy supply (think nuclear, solar and wind).

As well, energy sources such as natural gas can be counted on to fuel electricity generation backstopping more wind and solar.

“When the wind isn’t blowing or the sun isn’t shining, we will still need a backup.

That can come from natural gas, which is always available when you need it and is economic,” Forrest says.

environmental performance in key areas, including greenhouse gases. To do that, they’ve set aggressive targets.

They’re pooling their resources and sharing knowledge, best practices and even intellectual property.

COSIA: Sharing Environmental Technologies COSIA member companies share technologies related to these focus areas:

LAND

REASON 3: Innovation can solve the carbon dilemma To meet the world’s growing energy demands while shifting toward a lowercarbon future requires innovation. This applies to renewable energy sources which today cannot meet the burden of providing energy security to large populations without improvements that deal with the high cost, large land footprints and intermittency of these sources.

By the same token, innovation will enable oil and natural gas to continue as an important part of a growing energy mix within a lower-carbon future.

Canadian producers are already working hard to find ways to significantly reduce carbon emissions associated with the production of oil and natural gas.

Groundbreaking research, for example, is taking place through Canada’s Oil Sands Innovation Alliance (or COSIA). Five years ago, 13 oil sands companies formed COSIA—a unique partnership that’s committed to better

WATER

TAILINGS

MONITORING GHGs

More than $1.3 billion of intellectual property representing more than 900

technologies and innovations have been shared.

“Through literally hundreds of projects, the companies are achieving environmental performance goals they’ve set for themselves. And the improvements through innovation are translating into new value for the companies involved and the industry,” says Gordon Lambert, a former vice-president of sustainability at Suncor Energy and one of the founders of COSIA. Elsewhere, industry is partnering with research institutions, like the University of Calgary, to create environmentally effective technologies. Armed with CAPP.CA/CONTEXT

FEATURE STORY

— David Podruzny, vice-president at the Chemistry Industry Association of Canada

a $75-million grant from the Canada First Research Excellence Fund, a team of 270 researchers at the university is working with producers to find lower impact ways to extract energy from unconventional oil resources using less energy and less water.

Lambert, who was also a former member of the Alberta government’s climate change leadership panel, calls these and similar efforts “mission critical” to the industry’s future.

“To be positioned for success in the 21st century, our industry has to be resilient in a carbon-restrained future.

And the way in which we can do that is through innovation. Innovating to produce hydrocarbons with less energy inputs, which in turns translates into less GHG outputs and lower costs, will be the essence of our industry’s future carbon competitiveness,” he says.

REASON 4: Canadian energy: abundant, reliable, sustainable While we’re still very much a continental oil and natural gas player supplying mostly our neighbour to the south, new pipelines and export facilities could change all that, putting us on the world stage. When that happens, the “made in Canada” sticker on oil and natural gas products could carry a lot of weight with foreign customers.

“I think we’ll find that the world will welcome Canadian oil and gas production. Our resources come from a stable political regime. The sources are consistent and constant, and we have long, steady-producing entities,” Abel says.

Add to that, Canada’s oil and natural gas is produced under a world-class CAPP.CA/CONTEXT

regulatory system. A 2014 study by Worley Parsons comparing Alberta’s environmental policies, laws and regulatory systems with other oil-producing regions, ranked Canada near the top.

“Canada undergoes quite a bit of scrutiny in the development of its resources.

We have some of the most stringent environmental regulations, and the transparency to go with it,” says Abel, who previously worked as a senior executive at the Alberta Energy Regulator.

Abel says Canada, with its responsibly produced oil and natural gas, has the opportunity to make a difference on the world stage. Alberta has introduced a carbon leadership plan with a hard cap on oil sands GHG emissions. And the industry already invests heavily in technology and innovation.

“If the world wants to see cleaner, more responsible oil and natural gas, then they will want Canada to be in the mix of suppliers,” he says.

REASON 5: Petrochemicals and almost everything you own We shouldn’t forget that oil and natural gas are needed to create petrochemicals, the building blocks used to manufacture many of the products we count on every day.

Walk into any home, and there’s something made using petrochemicals: the paint on the walls, the lightweight winter jacket, the smartphone in our pockets. Petrochemicals are also behind carbon fibre and other advanced materials that make airplanes lighter (and more fuel efficient) and wind turbine blades stronger, while allowing for

Photograph: Courtesy Chemistry Industry Association of Canada

“I see new value from hydrocarbons 50 years from now where they are used to make new materials that add to our quality of life.”

breakthroughs like lightweight and flexible artificial limbs.

“Our chemistry industry touches many aspects of our society, and petrochemicals are a big part of that,” says David Podruzny, vice-president of business and economics for the Chemistry Industry Association of Canada (CIAC).

CIAC represents Canada’s $53-billion chemistry sector, which relies on natural gas liquids and oil for high-value feed stocks.

According to Podruzny, just under five per cent of oil and about 20 per cent of Canada’s natural gas consumption gets converted to petrochemicals. And that’s an application he doesn’t see disappearing soon.

“Nor should it disappear,” he adds, noting there are close to $12-billion in investment decisions under consideration for Canada that would use natural gas or biomass as raw material to make petrochemicals. “We make petrochemicals with the lowest carbon footprint on the planet,” says Podruzny. “Who will benefit if these investments move elsewhere?”

“Even as society talks about decarbonizing our economy and some talk about even eliminating the use of oil and natural gas, I challenge that. I see new value from hydrocarbons 50 years from now where they are used to make new materials that add to our quality of life,” Podruzny says.

It’s a broader outlook for oil and natural gas that ultimately challenges industry to capture even more value from the resource, yielding new products and applications for now, and well into the future.

CONTEXT . VOLUME 5 . ISSUE 1 . MAY 2017

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FEATURE STORY

INNOVATOR:

IAN GATES AND LOWER-EMISSIONS OIL SANDS This University of Calgary scientist is developing a new approach to SAGD that could lower GHG emissions and costs.

BY DAVID COGLON

Dr. Ian Gates, a professor of chemical and petroleum engineering at the University of Calgary’s Schulich School of Engineering, is following in Butler’s footsteps. Gates admires Butler’s achievement, and like Butler, he is seeking new and better ways to produce in situ resources. A focus for Gates is improving SAGD technologies to use less energy. This will reduce greenhouse gas emissions and should also lower production costs.

Like Butler, Gates got early industry exposure as an Imperial Oil researcher. Before joining the university in 2004, he studied new technologies, including the use of solvents, to produce bitumen more efficiently at Imperial’s Cold Lake operation.

For much of his 13 years at the university, he has focused on heavy-oil recovery process design. Currently, Gates is part of a multi-disciplinary university team dedicated to finding sustainable, low-impact ways to harness unconventional hydrocarbon resources.

“With this research initiative, we want to be fairly aggressive in being innovative, with the goal to move solutions out to 10

CONTEXT . VOLUME 5 . ISSUE 1 . MAY 2017

the field within two or three years,” Gates says of the program. The team’s work is funded by $75 million from the Canada First Research Excellence Fund, and is being conducted in collaboration with industry partners.

Among Gates’ projects is the development of a low-pressure method to extract shallow bitumen resources using lower energy intensity. The process—a type of SAGD arrangement—injects hot water through underground wells to mobilize bitumen buried between 70 and 100 metres deep. Gas is added to bring the resource to the surface. So far, initial small-scale field tests show energy intensity results less than half that of traditional SAGD. Plans are in the works to develop a larger field trial near Fort

Photograph: Jason Dziver

In the late 1960s, while working on heavy oil research at Imperial Oil, Roger Butler first pondered the idea of steam-assisted gravity drainage (SAGD) technology. He later perfected the idea in the 1980s as the University of Calgary’s first Endowed Chair in Petroleum Engineering. In so doing, he introduced a radical new concept that would unlock massive bitumen deposits buried underground in Alberta, ultimately giving Canada the third-largest oil reserves in the world.

Dr. Ian Gates in his laboratory at the University of Calgary “You have the creativity at the university, backed by passionate researchers, and industry’s ability to move new ideas into the field. There’s a natural marriage between academic institutions such as

“So far, initial small-scale field tests show energy intensity results less than half that of traditional SAGD.” McMurray. At the same time, Gates is adapting the technology to reach deeper deposits.

Gates’ team has more than 15 issued patents and others pending. He understands what’s required to stimulate innovative thinking that leads to breakthroughs. He says academic institutions, such as the University of Calgary, provide a fitting place for incubating new ideas.

ours and industry to forge powerful new partnerships,” he says.

And in the pursuit of new innovations, Gates frequently looks back to the pioneering work of Butler for inspiration.

“A lot of the focus we have here at the university is to model the kind of applied thinking he represented—to look beyond fundamentals to provide real solutions.”

CAPP.CA/CONTEXT

inCONTEXT

THE ASIAN MARKET

OPPORTUNITY Driven by population increases and a growing middle class, China and India will need by 2040: an additional 10 million barrels/day of oil and 54 billion cubic feet/day of natural gas compared to what they consume today (IEA, 2016). Where will that energy come from?

LEGEND: Oil Consumption (MMb/d)

CHINA

Natural Gas Consumption (Bcf/d) Population

CURRENT

CANADA

2040

11

+37%

18.3

+222%

1.37 BILLION

15.1 58.8 1.40 BILLION

OIL RESERVES: CURRENT

3.9

+154%

4.9

+278%

1.30 BILLION

170 billion barrels

2040

(3rd in world)

9.9

NATURAL GAS RESOURCES:

1,230 trillion cubic feet

18.4

(300-year supply)

1.63 BILLION

INDIA

CANADIAN EXPORTS IN 2016:

3.1 MMb/d 99+%;

8.1 Bcf/d 0%;

0%

MMb/d = million barrels per day Bcf/d = billion cubic feet per day CAPP.CA/CONTEXT

Sources: IEA (2016), Oil and Gas Journal (2016), NEB CONTEXT . VOLUME 5 . ISSUE 1 . MAY 2017

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