David Hughes Presentation on LNG in BC

so this talk is based on a report that I did for the Canada Center for Policy Alternatives it’ll be published in May and basically the analysis that I’m about to talk about is the analysis that’s in that report so when it’s published all of the kind of footnotes and citations to what I’m about to show you will be available so what I’d like to do is start out giving you some global context on energy how much energy do Canadians use relative to the rest of the world where is the world going in terms of consumption of energy fossil fuels renewables large hydro I’d like to look at the so-called shale revolution which really started in the u.s. back in the mid mid part of the last decade started off in East Texas in the Barnett Shale field and expanded very rapidly from there I think that US shale plays they’re a good analog for what we can expect to happen with shale in Canada I’d like to look at KT and gas supply forecasts of the future as well as history where where is gas production and consumption gone in Canada and then look in detail at BC LNG some of the proposals what that would take in terms of drilling environmental impacts and so forth and finally some implications for long-term sustainability so if you look at the world this is the last four decades of consumption of energy back to 1965 you can see first of all consumption of energy in the world has more than tripled its up 238 percent since 1965 if you look at consumption by fuel you can see fossil fuels are over 90% of total consumption nuclear and hydro or the bulk of the rest and non-hydro renewables things like wind solar photovoltaics biomass and biofuels are only 2.7 percent of total Canadian their total world consumption if you look at 2013 this is consumption by fueled in the world you can see first of all oil is the most important fuel source in the world followed by coal and natural gas large hydro is next and a nuclear is next as I mentioned non-hydro renewables are 2.7 percent of the total if we look at non-hydro renewables by source we can see that there’s been an exponential growth in things like wind solar photovoltaics and biofuels but from a very small base so they’re their total contribution to energy consumption is very small at present a lot of non Hydra Newell’s are in fact biomass burning electricity or burning biomass for electricity if we look back a hundred and sixty years to 1850 this is what per capita consumption of energy by fuel looks like in the world you can see first of all that per capita consumption is growing by a factor of nine fold from 1850 in 1850 consumption was 80% biomass wood 20% coal if we look at 2011 in this case the average world citizen is consuming the same amount of renewable energy hydro and biomass as the average citizen was in 1850 it’s just that they’re consuming 9 times as much energy and 88% of that is non-renewable coal oil gas and uranium another interesting point is people sometimes think that oil replace coal but in fact oil didn’t replace coal or oil simply added to the total consumption of the average person natural gas added further still and uranium added further still so one fuel did not replace another fuel if you look at cumulative consumption of

fossil fuels since 1850 this is a percentage we’ve consumed about three point two trillion barrels of oil equivalent in the last hundred and sixty odd years ninety percent of fossil fuels have been consumed since 1939 and fifty percent since 1987 so consumption of fossil fuels is going up at a at an exponential rate forecast of the future this is a recent reference case or new policy scenario forecast out of the International Energy Agency in Paris suggesting that in 2040 seventy four percent of global consumption will still be fossil fuels 19 percent will be renewables and the balance will be nuclear so that represents a 35 percent increase in consumption from 2013 to 2014 if we look at at non-hydro renewables bioenergy burning biomass for electricity is the biggest component how much energy in terms of fossil fuels will that forecast take to 2035 this is a forecast out of the US government we will need the equivalent of 80 percent of all of the fossil fuels burned from 1850 to 2012 in order to make it through the next 22 years so the upward spiral of consumption of fossil energy is not going to stop if this forecast came to fruition will have consumed five point eight trillion barrels of oil equivalent by 2035 the obvious problem with that is climate change global warming this is a correlation between the cumulative consumption of fossil fuels basically 90 percent of them burned since 2040 and global temperature relative to a baseline in 1960 to 1990 so global temperatures is up about half a degree centigrade since the 1960 to 1990 baseline if we look at where those fuels will come from oil being the most important fuel source we can see that really the only growth in in global oil production since the beginning of 2012 is North America North America thanks to shale oil and tar sands has grown by about 49% in terms of oil production just since the beginning of 2012 if we look at the rest of the world outside North America oil production has actually fallen by a little over 1% if we look at natural gas we see a different story Canadian gas production is now down by 15 percent since the year 2000 US production is up 27 percent thanks to shale gas the rest of the world is up 50 percent over that time period so the rest of the world is growing much faster than North America in terms of gas production if we look at the cost of finding and producing oil in the world the light blue line is is the amount of capital invested in upstream oil and gas production the dark blue line is the actual increase in production so the capex is has more than doubled since 2005 and we’ve increased production by about 3% so it’s costing more and more and more in order to provide the oil that the world consumes if we look at Canada this is the growth in consumption of energy in Canada over the last 40 years Canada is blessed with a lot of large hydro resources this is very different from many countries in the world but oil is still the number one source of energy followed by natural gas large hydro is third nuclear is fourth cool is fifth and non-hydro renewables are only about 1.6 percent of consumption in Canada so if you look at 2013 we can see non-hydro renewables 1.6 percent of consumption and we can see that biomass is a huge

portion of the non-hydro renewables that we have we’ve seen an exponential growth in wind but again from a very small base it’s interesting to look at how Canada stacks up in terms of per capita energy consumption compared to the rest of the world and you can see that Canada in this chart is a very high user of energy on a per capita basis number two in this case second only to the United Arab Emirates in the Middle East Canada consumes 5.3 times as much energy per capita as the average citizen in the world we consume considerably more energy per capita than the average American if we look at the industrialized world 18% of world population we can see that they consume about 3 times as much energy per capita as a developing world and on oacd world with 82 percent of the world’s population so the problem being is the countries like India and Bangladesh with very low levels of a per capita energy consumption aspire to much higher first world levels of consumption the trend of per capita consumption in Canada since the last over the last 40 years per capita consumption has gone up about 61 percent and it’s essentially stabilized since the mid mid nineties so it really hasn’t got any worse per capita consumption of oil in Canada Rudie peaked in in 1979 so we’ve become more efficient users of oil over that period on a per person basis total consumption is the product of population and per capita consumption and this is the UN’s estimate of where population will go in Canada over the next 90 or so years the the blue line is the is the medium they’re suggesting Canada will top out at about 45 million people sometime in the middle of this century so even if we reduce per capita consumption if we increase population total energy consumption isn’t isn’t changing how does Canada stack up in use of non-hydro renewables things like solar wind geothermal biomass and biofuels we can see that we’re substantially below the world average at 1.6 percent the world as a whole is 2.7 the u.s. is 3.8 and countries like Denmark Denmark is Rudy number one in the world 20% of all energy consumption is non-hydro renewables and a lot of that is is wind Germany is is right up there as well at about 10 percent if we add in large hydro though Canada has such a large proportion of large hydro it it really moves Canada way up and the rankings in terms of abuse of renewable energy sources although there are obvious issues with large hydro in terms of the environmental impact but if you include large hydro twenty-eight percent of Canada’s energy comes from renewable energy sources world as a whole about nine point four percent turning to shale which has really been hailed as a panacea as a source of oil and gas basically over the last 10 years it’s emerged on the horizon this is a distribution of shale plays in North America started out in Texas in the Barnett Shale and now there’s huge production from the Marcellus in Pennsylvania in West Virginia and in Canada we have substantial resources in particular in northeastern British Columbia the Montana play the horn River play in a couple of other smaller plays conventional wisdom particularly in the US would have us believe that the u.s is on a verge of Shield of energy independence rather thanks to the shale revolution tight oil which is really analogous to shale oil will allow US production to exceed that of Saudi

Arabia and US imports will shrink to zero shale gas production will continue to grow for the foreseeable future and prices will remain low below five dollars for the next ten years or so gas is up just under three dollars as we speak shale gas can replace substantial amounts of oil for transport and coal for electricity generation it certainly has been replacing coal for electricity in the US the way is clear for us LNG exports to monetize the shield bounty crude oil exports which had been banned in the u.s. since the seventies should be allowed to monetize tight oil production I’ve looked intensely at all of the shield places in the u.s. we published a major report on them called drilling deeper it’s a free download on the net I looked at all of the major shale gas and tight oil plays in the US I made projections of what future production would look like and it became evident that there’s a pattern with these plays a play like the Haynesville in Louisiana was unknown in 2007 it was discovered the discovery was followed by a leasing boom the leasing boom is followed by a drilling boom because these leases have to be drilled in order to to hold the lease shale plays are not uniform they have sweet spots of high productivity wells where the economics are best those are found early on in the drilling boom they’re targeted and drilled off first production rises rapidly and is maintained for cash flow even though you might not have drilled some of those wells if you knew the full cycle economics sweet spots become saturated and well quality and field production decline as drilling moves into the lower quality parts of the reservoir so the industry always drills its best locations first place like the Haynesville become middle aged after just five years so if you look at the Haynesville as a prototype of the shale play life cycle this is what it looks like discovery in 2007 leasing boom in 2008 drilling boom which extended right up to peak production in early 2012 was the biggest shale gas play in the US a 2012 followed by production decline is now down nearly 50 percent from where it was at peak if we look at the forecast for shale in the US this is a US Department of Energy they’re suggesting that traditional sources of gas in the US will maintain will be relatively flat going forward essentially on a plateau shale gas will grow by a hundred and fifty percent over this period it will provide 53 percent of production by 2040 and 15 percent of that production will be surplus to be exported as LNG so a very aggressive forecast this is what actual shale gas production looks like in the US by play a huge growth in the Marcellus in the Northeast but if you look at five five plays that cumulatively peaked and in 2012 they’re now down 21% below peak so the first place to be developed in the US are now already past peak this is where it all got started the Barnett in in Texas the wells are colored by well quality so that they’re colored by the amount of gas that comes out when they’re first drilled the red wells are the sweet spot they’re the highest the black wells are low productivity wells which constitute the bulk of the play so the red areas surrounding the city of Dallas Fort Worth are the ones that got drilled first this is what production in the Barnett looks like it peaked in 2011 is now down about 18 percent below peak they’ve drilled 16,000 active wells there’s another four thousand wells that have been drilled that are no longer producing the Achilles heel of shale gas is very steep decline rates this is the average

decline rate of the Barnet and production is down about 75% in the average well over the first three years so the the message is you have to keep drilling maintain a drilling treadmill in order to keep production up in these place if you didn’t drill a well after the first of the year in 2013 this is what Barnett Field decline would look like so production would decline about 23 percent in the first year so that is the amount of production that has to be replaced by more drilling to keep production flat we can see what’s happening in the Barnett with well productivity you drill the best spots first and then you move into the lower quality parts of the play well productivity peaked in 2011 when the Barnett play peaked in terms of overall production and it’s now down 17 percent from peak so even though it the drilling companies were selling drillers the best technology that money would buy it’s not making a difference that can’t offset declines in the quality of the rock that’s being drilled it can make it slightly better but productivity will always fall as you move into lower quality parts of the the reservoir and this is typical with every shale play if you look at production in the Barnett by county you can see Tarrant County the top county produced 32 percent of all the production in the Barnett there’s 20 counties involved in the Barnett but two of them produced 56 percent of a gas five of them produced 92 percent of the gas but most of the remaining area to be drilled is in the lower quality parts of the play this is what Tarrant County looks like right now in terms of well footprint it’s been drilled to over eight wells per square mile and in essence Tarrant County is saturated so there’s no choice but to move into lower quality parts of the play the plays in Canada are much less mature in terms of the level of drilling they’ve got to so far so we’ve we’ve got a ways to go before we get to this level of maturity in Canadian Shield plays I made a projection what’s going to happen with Barnett production going forward it really depends on how fast you drill if you increase drilling rate by a factor of five you could reverse that decline and push push the peak of the play out a few years but the decline after that peak would be much more rapid than if you drilled at a slower rate so for each of these plays I picked what I consider to be a most likely joining rate going forward and then I compared that to the US government forecast and this is my call for the Barnett the red being my prediction of what future production will look like the blue being in the US government’s projection they’re projecting a turnaround in productivity and a rapid rise up to its previous peak but in essence 2040 in this case and I’ve scratched my head as to how how they think that that will happen based on the basic geology of these plays if you add up the top plays in the US these account for close to 90 percent of of US shale production I can see a peak coming before 2020 and at that time the price of gas in North America is going to have to move up in order to justify drilling the wells to stem the decline in gas production after that point in time so I think the current low prices North America are likely a temporary phenomenon and we’re looking at higher prices within the next few years the comparison of the US government forecast to my forecast in red they’re gonna have to find several more very large shale plays in order to meet their their share play the shale gas forecast through 2040 am I in my opinion so the takeaways on shale very high field decline rates mandates sustained high levels of drilling to maintain production production from the top plays in the US will likely peak before 2020 tight oil

production plays like the the back end and the Eagle Ford will likely peak in the same timeframe and decline increasing drilling rates significantly over current levels will raise the production level at peak but will make the supply situation worse after peak high-quality shale plays are not ubiquitous high quality plays are relatively rare in terms of the total scheme of North American geology so if we turn to LNG this is the 2013 throne speech from Victoria they made several claims about BC LNG one of them was we can help protect our planet we can displace dirty coal and in Asia by BC LNG we can create over 75,000 new jobs and I see just on the wall outside here that rich Coleman is now saying a hundred thousand jobs will create a British Columbia prosperity fund from the royalties and the taxes that could exceed one hundred billion dollars in the next thirty years and we could do things like eliminate the provincial sales talk well how how realistic is this going forward if we look at the proposals there’s about 18 proposed LNG facilities these are the northern facilities there’s 14 of them on this map if we look at the ones in the Prince Rupert area there’s there’s 8 proposals if we look at the Kitimat Area proposals there’s four of them and if we look at the southern BC proposals there’s another four so a total of 18 there’s also a lot of other infrastructure that has to be built in order to service those terminals if they are built and these are our pipelines that are being considered at this point in time there’s five of them if there were were more than say five terminals built this would be insufficient supply we’d have to probably up up the capacity of those pipeline inputs so I added up the total proposed capacity of all of those 18 terminals and it comes out to close to 300 million tons per annum of LNG exports if you compare that to the total LNG trade in 2013 it was about 240 million tons of annual output so obviously all of those 18 terminals are not going to get built the world doesn’t need to have double the current LNG trade for the the report that I mentioned that will be coming out in May we looked at five scenarios so the high scenario is really the high scenario of the BC government which is five terminals the löwe scenario was one terminal and then we looked at at three intermediate cases the BC government intermediate case is 50 million tons per annum so that’s that’s this one so those three middle proposals would would be two to four terminals in total if we look at at Western Canada this is the distribution of all wells that had at least some production 1950 to 2014 this close to 300,000 Wells on this picture there’s been close to 800,000 wells drilled in total in in Western Canada so Western Canada is a fairly mature oil and gas exploration area if we look at gas production in Canada this is 2000 to 2014 we can see the Canadian production peaked in 2002 it’s now down about 19% from peak two-thirds of that gas was produced in Alberta twenty-eight percent was produced in in British Columbia if we look at the total history of gas

production in Canada 1965 to 2014 and in this case it includes the reference case projection of the National Energy Board published in 2013 production peaked in 2002 it’s now declining the anyb is suggesting that it will continue to decline until about 2017 and then go undergo a miraculous renaissance in production climbing to near the 2002 peak by 2035 and if this this reference case forecast actually happened BC would be producing 61 percent Canada’s gas at that point in time Alberta will continue to decline hit a plateau and perhaps go up a little bit in the next 15 or 20 years the black line is Canadian demand for gas so Canadians are consuming more and more gas there’s a crossover between supply and demand before the end of this decade and really not not a lot of surplus for export right through to the end of this projection period some people would say that’s a fairly aggressive production growth scenario from the the NAB if you look at at that report which is really a major basis for my analysis the anyb actually had three scenarios the reference case is in black so the solid black line is the net available for export the dotted line is the net available with one LNG terminal so if we built one terminal according to the nav Canada would have no additional surplus gas for export and that’s assuming a more than tripling in output from BC the high case a candidate could have more than one terminal the low case Canada couldn’t have any terminal any terminals whatsoever we’re going to plug into the net import territory almost right away in terms of of Canada’s gas requirements so I looked at the reference case I assumed that that was correct and I looked at at things like how much gas would we need to meet various combinations of LNG exports where does the gas come from in DC more and more of the gas is coming from unconventional plays like the Montney and the horn River so when this cutoff was in mid-2014 57% of production came from those two plays the wanting in the Horn River all of the other production of gas in BC was falling quite steeply and the projections are that most of the future gas will come from unconventional sources if we look at the distribution of the Monte and Horn River the mountain is a is a huge play a lot of it is in BC but a lot of it is in Alberta as well there’s about 12 about 2,000 producing wells in the morning in British Columbia there’s about 250 producing wells in the horn River and there’s a couple of smaller plays of the yard play to the west of horn River that Cordova and Bama to the east which are are even less drilled in the horn River if we look at how much gas would we have to produce to get a million tons of LNG to Asia well it turns out at the wellhead we produce what’s called raw gas which has impurities in it Horn River gas has about 12 percent co2 but all gas has other other impurities that have to be stripped in order to make marketable gas so the average shrinkage is about 13% to get to be marketable if the LNG terminals are gas drive so gas is the energy that’s used to liquefy the gas to regale safai it the total process uses about 20% of the gas that’s delivered to the LNG terminals so put these two together to get one unit of gas to Asia you need to produce 1.4 four units at

the wellhead so one needs to factor that into the calculation of how much gas is required this is what it looks like if if we built five LNG terminals so the Elat or the anyb forecast the tripling of BC gas production includes one terminal so this is what that forecast looks like this is what Canadian gas production would have to look like to provide enough gas for the five terminal case so in this case we need to grow Canadian gas production by a hundred percent from what it currently is and 48% of all Canadian production would be exports would be LNG exports out of BC if we built five terminals I looked at a second case what would a comparison be if we just kept BC production at current levels and then compared you know so all growth and BC production would go for exports in that case we we don’t have to grow Canadian production as much but we still have to grow it by about seventy five percent for the five terminal case in which case 57 percent of Canadian gas production would be exported it so extremely aggressive growth forecasts are required in order to meet even a five terminal case what does that look like compared to the amount of gas available for export the the solid black line this assumes the anyb reference case so we’ll have growth and BC production if we build one terminal we have no gas left for export if we build five terminals and the anyb is right with its forecast we’re going to need to import 69 trillion cubic feet of gas probably into Eastern Canada in order to have enough gas to export out of the five terminals been in Western Canada this is the second scenario where we we just keep BC gas production flat at current production levels in that case Canada becomes a net importer anyway in about 2028 with with no terminals if we build any terminals Canada becomes a net exporter much sooner total exports to build five terminals or total imports to build five terminals would be 82 trillion cubic feet over the period to 2035 how much gas is in BC there’s various estimates of that this is one estimate that is posted on the BC government BC and LNG website suggesting the BC has 20 933 trillion cubic feet of recoverable gas the BC LNG Alliance has a posting on its website saying that BC has greater than 2000 trillion cubic feet of recoverable gas the BC oil and gas Commission and the National Energy Board published estimates back in 2013 and their estimates suggested that BC has 417 trillion cubic feet of remaining marketable resources if we look at the difference the terminology resources are much less certain than reserves reserves are proven by the drill bit or are adjacent to areas that are proven by the drill bit so they’re much more certain the 2012 estimates of the BC oil and gas Commission are 40 trillion cubic feet approving raw gas reserves and 33 point five trillion cubic feet of proven marketable reserves so there’s an incredible difference between the resources that were actually certain about and what’s in the LNG literature posted on the BC LNG website so how much gas do we need for those various cases the five terminal case we would need to produce somewhere between four point three and

four point nine times the proven raw gas reserves by by 2040 if we don’t build any terminal so I have an O terminal case just to keep BC gas production flat we’re still gonna need to produce all of those raw gas reserves certainly more drilling will move more resources into the reserve categories so that for TT CF is not going to stay constant it will grow over time but will it grow to be five times the current level by 2040 and have it produced and sold to Asia I don’t know I think that’s an aggressive forecast in order to calculate how many wells you need to drill in order to produce that much gas we can look at the decline curve analysis the same as we did with the Barnett play in Texas and we can see for example that Horn River wells are much more productive than the average BC well the black dotted line or than Montney wells they have steep decline rates however the average BC horizontal well drilled in the Horn River declined 71 percent in the first three years the average Montney horizontal well decline 62 percent in the first three years so as we saw in the US you’ve got to keep drilling this is what beats the oil and gas the distribution of BC oil and gas wells to date the red wells are gas wells the black wells or oil wells there’s about 25 thousand wells that have been drilled since 1954 NB C how many wells that we have to drill in order to meet each of those five terminal cases well if you believe the anyb forecast again that the BC gas production is going to triple in the five terminal case we need to drill close to forty four thousand wells so you can add those to the twenty five thousand that we’ve already drilled so it will be close to 70 thousand wells by 2040 in order to deliver that gas if we don’t drill if we don’t build any terminals but BC gas production grows to meet Canadian requirements we still need to drill nearly fourteen thousand wells so gas development is not going to stop in BC in any of these scenarios if we look at the the second case where we just maintain BC gas production at current levels we don’t need to drill quite as many wells thirty-seven thousand eight hundred wells in the five terminal case and just to keep BC gas production flat to 2040 we’re still gonna need to drill nearly eight thousand wells environmental impacts I assess those briefly but they include the land disturbance for the terminals themselves and for the major pipelines needed to supply the terminals land disturbance associated with the wells themselves well pads gathering pipelines roads seismic activities water consumption an average Horn River well uses twenty five million gallons of water US gallons of water and an average Montney well uses 3.5 million gallons this compares to an average of about five million gallons for the average schewe u.s. she’ll whoa truck traffic to deliver twenty five million gallons of water to a horn River well we need more than 2,500 truck trips for a Montney well about 400 Chartwells then there’s the the question of greenhouse gas emissions all of those activities have admissions associated with them I was able to get some information from the BC Oil and Gas Commission about their assumptions in terms of surface land disturbance for the drilling itself so I assume multi-well pads will drill ten wells per pad each well pad will be four hectares in area and will be serviced by three kilometres of roads and 3.5 kilometres of pipelines there will be no additional disturbance from seismic cut lines the BC oil and gas Commission thought that there’s enough cut lines up there

already that perhaps they wouldn’t need to build any new ones however historically 60% of the surface disturbance has been seismic cut lines the disturbance claims this is a another page from the BC LNG website claims 50 square kilometres by 2025 in fact if we build these terminals they will last at least 20 years you don’t make a 10 billion dollar investment without having at least a 20 year life and likely a 25 year life so my calculations range from somewhere between 6 616 to 744 square kilometers of surface disturbance if we look at where the wells will be drilled they’ll be drilled in the perspective parts of the Montney on Horn River plays it won’t be drill everywhere in northeastern BC so the land of service will be concentrated in in the perspective parts of the Northeast perspective parts of the montenay and corn river are about seventeen thousand square kilometers as opposed to 1.7 million square kilometers for the Northeast as a whole so if you focus that surface disturbance within that perspective area this is what it looks like the five terminal case you disturb a round force four percent of the total landscape in the no terminal case you still disturbed about one percent of the total landscape so as I said natural gas development is not going away but it will be radically scaled back if we don’t build five LNG tribbles water consumption again this is a page off the government website suggesting at maximum consumption rates that will only is point zero one percent of all of the runoff in northeastern BC but again the water consumption will be focused on the areas of active drilling so the actual impact on those areas because water will be sourced locally as much as possible given all of those truck trips will be higher how fast you need to drill wells in order to service those in order to grow production enough for five LNG terminals my calculation during the ramp up phase we would have to increase drilling to about 2100 wells per year after we hit that plateau drilling can be scaled back a little bit but generally between 1500 and 2000 wells per year would have to be drilled for the period between 2020 120 21 and 2040 what is that if we know the average consumption per well we can calculate the volume of water that we need the rate of consumption of water and I compared that to the City of Calgary or the City of Vancouver and at peak water consumption rates we’re about half of the consumption of a city of a million people and people say well is that a lot is that a little if you look at northeast BC compared to Texas it it is relatively wet so I you know I’m not saying it’s impossible to get to those consumption rates but they are they are high a final issue is the first point in that BC throne speech will will cut global emissions will displace coal and China with clean-burning BC LNG and it’s true if you compare burner tip emissions of gas to coal coal has double the footprint double the greenhouse gas emissions of gas but the problem with gas is that it produces a lot of fugitive methane along the way methane associated with the fracking process the US EPA would say that’s about three percent of the total lifetime production of those wells leakage in the processing and the pipeline movement of the gas to the coast leakage and the liquefaction and basically the emissions from burning gas to liquefy the LNG tanker transport

regasification so you really have to look at the life cycle emissions from the wellhead to the burner chip in order to get an idea of the overall comparison methane on a 20-year time frame is about 70 times as potent as co2 is a greenhouse gas methane has a much shorter residence time in the atmosphere than than co2 so when a hundred year basis methane is only or there’s only 25 times as potent as co2 from a greenhouse gas perspective so if you do the comparison on a 20-year time frame if you built best technology coal plants in China so these are not all coal at 33 percent efficiency these are ultra supercritical coal plants at 46 percent efficiency so if you compare best technology cool to bc lng emissions would be 27% worse for bc lng over a 20-year time frame well over a hundred year time frame they’d be seven percent better but the point is you’re going to have to wait for 50 years before there’s any improvement it’s going to make things worse up until that point in time and some people would suggest we don’t have 50 years to wait in terms of the global warming problem if we look at ad emissions compared to you know canada was a signal signatory on the Copenhagen Accord that committed us to reduce emissions by something like 17 percent over 2005 levels by 2020 and so that that decrease in emissions is that solid blue line out to 2020 so that’s what Canada committed to and I’ve just projected declines at that rate just to see what that might look like out to 2035 right now that this is the latest emissions data out of Environment Canada right now upstream emissions from oil and gas are about 25 percent of Canada’s total emissions so 75 percent is everything else if we grow oil sands by the reference case this is a projection out of the Canadian Energy Research Institute emissions from oil sands will go up a lot this is the anyb reference case emissions from now gasps so projecting that out to 2035 by 2035 Canada’s and emissions from the upstream oil and gas sector would be 57 percent of the country’s total if we actually met the Copenhagen decrease rates so all of the the rest of the non upstream oil and gas emissions in Canada would have to decrease by 59 percent by 2035 in order to meet the Copenhagen Accord that’s going to be very difficult if we actually built five LNG terminals this is what it would look like so it’s it’s even worse in that case two-thirds of emissions by 2035 would be associated with the upstream oil and gas sector and only a third of emissions with everything else that Canadians do so all the non upstream oil and gas emissions would have to contract by 68% by 2035 so again an extremely difficult projection financial risks and considerations the whole reason for the excitement around LNG was the differential between the price of LNG and China and and Japan two or three years ago Japan was at about $18 a unit for LNG it’s now under $8 so the the arbitrage has disappeared you know and that was really the attraction of building these LNG plants you know conservatively upstream investment it’s like ten billion dollars for a plant so companies need assurance of they’re gonna get payback over the long term in order to commit that capital upfront and that’s by no means assured and if you look at what I what I said about the knee of shale in North America it looks like the price is going to go back up if the price of oil of gas went to say five or

six dollars and it cost you six dollars to move it to Asia then you need 12 dollars in Asia in order to break even so if if prices go up in North America then you know the risk intensifies for LNG we’ve seen a halving of the LNG tax and we’ve seen an increase in the rate of write-offs for the plants so that the tax take of government to really contribute to the owners of the resource which should that people at BC is becoming pretty thin on the ground when do we get payback well we get payback after those plants have been paid for and the corporations have really got their investment back corporations understand these risks very well hence it’s not surprising to me that there have been no commitments to go ahead given all even given all the tax breaks and government support just a quick snapshot of current LNG prices in the world you can see in China 745 Japan 785 so these are down $10 from where they were three years ago there’s no way that anybody in their right mind would build an LNG plant if they thought that those prices were going to remain for a fairly long period of time I don’t think they will I think they’ll go back up but it’s just a question of timing so just to summarize it’s clear to me that 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 a few substitutes so we’ll need those resources the shale revolution has been a game changer but a sustainability in the long term is questionable this implies higher domestic places in the future reducing or eliminating arbitrage for LNG exports anyb forecasts are optimistic yet indicate that even at BC production more than triples one LNG terminal would use up all of Canadian export capacity developing three to five terminals would make Canada a major net importer of gas unless production could be ramped up far higher than any be projections the BC government statements of 2,933 trillion cubic feet of recoverable gas resources are contradicted by its own BC oil and gas Commission and that NAB they are overstated by factors 7 the geet BC government statements on land disturbance and water consumption downplay impacts as they spread them over the whole of the entire northeast of BC and look only out to 2025 in fact the lifespan of an LNG terminal is at least 20 years and the upstream impacts would be concentrated in a small portion of the Northeast where the actual drilling is occurring the BC government’s 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 of China built best technology coal plants rather than burning BC LNG over at least the next 50 years the Copenhagen Accord to which Canada is a signatory is a modest effort to control greenhouse gas emissions and is insufficient according to many exporting BC LNG of the scale and village would make meeting even this target much more difficult as well as compromise Canada’s long-term energy security so just a couple of parting thoughts Canada’s de-facto energy strategy is expediting the liquid 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 in the environment so thank you very much I’d just like to leave you with the title of the report that will be coming out in the middle of next month sometime