Impact of the Transcanada Pipeline on the Oil and Gas Industry in Newfoundland and Labrador

Impact of the TransCanada pipeline on the oil and gas industry in Newfoundland and Labrador

Kathleen Vaillancourt, ESMIA Consultants Yuri Alcocer, Lead Economist, North Atlantic Refinery

With the support of

Wade Locke, Professor, CARE, MUN Olivier Bahn, Professor, HEC Montreal

TEFP – Milestone Meeting No4 CARE - St-Johns, February 13 th , 2015 Ottawa, September 30 th 2014 www.esmia.ca Outline

• Introduction to ESMIA activities • MARKAL/TIMES family of models • The North American TIMES Energy Model - NATEM • Case study on the impact of new pipelines – Methodological aspects – Preliminary results • Canada • Newfoundland & Labrador Introduction to ESMIA activities Introduction to ESMIA activities

• Optimization E3 model development – USA • System for the Analysis of Global Energy Markets (SAGE) for the IEO • Framework for Analysis of Climate-Energy-Technology Systems model (FACETS) – European Commission • Pan European TIMES model (PET) – World • The Integrated TIMES Energy model (IEA-ETSAP) • Building incremental DEMO models for users of TIMES model (IEA-ETSAP) – Mexico: • The national optimization energy model for Mexico • Optimization E3 model applications – Vermont : Ambitious GHG (-80%) and Renewable Energy (90%) Goals for 2050 – Canada : Optimal strategies for reducing GHG emissions by 80% in Canada by 2050 – Newfoundland & Labrador : Impact of pipeline projects on the oil & gas industry • Research and development – Collaboration with Olivier Bahn (HEC, GERAD) • Modeling biorefineries in details – Collaboration with Pierre-Olivier Pineau (HEC) • Electricity markets integration (QC-ON) MARKAL/TIMES family of models 3E model classification

• Bottom-up : a techno-economic approach that leads to disaggregated models representing the energy sector with great details • Top-down : a macro-economic approach that leads to aggregate models in the sense that they use aggregate economic variables • Hybrid models incorporate within the same framework both modeling approaches MARKAL / TIMES: History • Developed within the Energy Technology Systems Analysis Programme (ETSAP) of the International Energy Agency ( IEA ) • Long and rich history of methodological developments and applications to energy and environmental issues in nearly 70 countries around the world • Canadian researchers are among the prime developers of MARKAL/TIMES models The Integrated MARKAL-EFOM System (TIMES) Combine advanced versions of MARKAL models Linear programming hybrid bottom-up energy models Integrated modeling of the entire energy system Prospective analysis on a long term horizon (50-100 yrs) Demand driven (exogenous) in physical units Price-elasticities for end-use demands Partial and dynamic equilibrium (perfect market) Optimal technology selection Objective-function: Minimize the total cost of the system Environmental constraints (GHG emission limits) Energy and emission permits trading In summary

Technology database Economic •Techno-economic attributes •End-use demands Environmental •Demand elasticities •Bounds •Crude oil price TIMES •Taxes, subsidies •Reserve supply curves •Sectors’ measures •Discount rate Equilibrium •Technology investments and annual activities •Emission trajectories •Adjusted demands for energy services •Marginal prices of energy forms •Imports/exports of energy and emission permits •Total discounted system cost LP formulation

Energy costs

min EC = cT x Investment , capacity , activity  (technology), import & export s.t. (energy)  Dx ≥ d Demand constraints : energy demands d must be satisfied Sx ≤ s  x ≥ 0 Constraints describing  functioning of the energy sector The TIMES Objective-Function

R = + REFYR − y • NPV ∑ ∑ 1( d r, y ) ANNCOST (r, y) r=1 y∈YEARS where: NPV is the net present value of the total cost for all regions (the OBJ); ANNCOST(r,y) is the total annual cost in region r and year y;

dr,y is the general discount rate; REFYR is the reference year for discounting; YEARS is the set of years for which there are costs (in the horizon, plus past and before years EOH; R is the set of regions in the area of study • Investment and dismantling costs are transformed into annual payments; • A salvage value of all investments still active at the end of the horizon (EOH) is calculated and its value is assigned to the (single) year following the EOH; • All other annual costs are added (ANNCOST); • For each region, a total NPV of the stream of annual costs is computed and discounted to a selected reference year. • Regional discounted costs are aggregated into a single total cost (OBJ to be minimized by the model in its equilibrium computation. A TIMES model for Canada – Part of the NATEM model Provinces and Territories

Code Province/Territory Region AB Alberta West BC British Colombia West MB Manitoba West NB New Brunswick East NL Newfoundland East NS Nova Scotia East NT Northwest territories North NU Nunavut North ON Ontario Central PE Prince Edward Island East QC Quebec Central SK Saskatchewan West YT Yukon North Time Periods and Time Slices

Period1 2 3 4 5 6 7 8 9 10 11 12 13 14 Start 2011 2012 2015 2016 2025 2027 2034 2037 2044 2057 2064 2077 2084 2097 Mid 2011 2013 2015 2020 2025 2030 2035 2040 2050 2060 2070 2080 2090 2100 End 2011 2014 2015 2024 2026 2033 2036 2043 2056 2063 2076 2083 2096 2103

Time Season Definition Period of day Definition slice Morning Peak (P1) 6h - 7h59 RP1 March 21 st – Day (D) 8h - 16h59 RD Spring June 20 th Evening Peak (P2) 17h-19h59 RP2 Night (N) 20h - 5h59 RN Morning Peak (P1) 6h - 7h59 SP1 June 21 st – Day (D) 8h - 16h59 SD Summer September 20 th Evening Peak (P2) 17h-19h59 SP2 Night (N) 20h - 5h59 SN Morning Peak (P1) 6h - 7h59 FP1 September 21 st - Day (D) 8h - 16h59 FD Fall December 20 th Evening Peak (P2) 17h-19h59 FP2 Night (N) 20h - 5h59 FN Morning Peak (P1) 6h - 7h59 WP1 December 21 st - Day (D) 8h - 16h59 WD Winter Source: Loulou et al (2005) March 20th Evening Peak (P2) 17h-19h59 WP2 Night (N) 20h - 5h59 WN Production / Conversion / Transport End-Use Demand for Resource supply Technologies Technologies Energy Service Primary Energy Final Energy Useful Energy

Fossil Fuel Reserves Oil & gas, Bitumen Trades Refineries Trades IND Production IND (13) Tons Shale gas, Coal Pipelines Pipelines Furnaces, Boilers Iron & Steel, Copper Others Rail Machinery Cement, Chemicals, Coke Plants Trucks Extraction Oil, Gas, Coal COM Services COM (8) PJ Biomass Plants Furnaces, AC, Heating, Cooling Solid: pellet, wood Fluorescents Lighting, Appliances Biomass Potentials Liquid: biofuels Crops: Starch, Oilseeds Gaseous: biogas RSD Dwellings RSD (20) PJ Greasy residues Lignocellulosic sources Heat Pumps, Lamps Heating, Cooling Dedicated crops Hydrogen Plants Freezers, Ranges Lighting, Appliances Waste, Biogas, Algae Power & Heat CCS TRA Vehicles TRA (20) M Pkm/Tkm Uranium Reserves Cogeneration Plants Cars, trucks, buses Cars, Buses, Trucks Thermal, Nuclear Trades Trains, Ships, Planes Rail, Marine, Air Renewable Potentials Renewables, Biomass T&D lines Hydro, Wave, Tidal AGR Process AGR (9) PJ Wind, Solar, Geo LNG Regasification Transport, Machinery Oilseed, Dairy, Poultry, Ocean Thermal & Salinity Heating & Lighting Fruits, Egg, Vegetables LNG Liquefaction

International Imports International Exports Crude oil, RPP, Biomass Crude oil, RPP, Biomass Gas, Coal, H2 Gas, Coal, H2, LNG

LNG Imports GHG Emissions Carbon sequestration Combustion, Process EOR, Aquifers, Afforestation

Methodology Three-model framework

OIL Price NALEM Oil Price Demand drivers Forecasting (GDP) Hybrid approach 3 Sets of BAU Drivers Scenarios Oil and Gas Demand

NATEM Linear (TIMES) Programming Shadow Prices

Oil and Gas Oil and Gas Forecasting Model Supply Production Reserves & Oil 3 Price Production Profile Scenarios Analyzing the impact of pipeline projects on the Canadian energy system

Preliminary results for Canada up to 2050 – Do not quote Representation of the oil sector Oil prices in three baselines

250

NEB 2009 Reference NEB 2009 Low 200 NEB 2009 High CEO 2006 Reference IEO 2011 Ref IEO 2011 High 150 IEO 2011 Low WEO 2012 Reference WEO 2012 Policy

100 NEB 2011 Reference US$ 2008 / Barrel / 2008 US$ NEB 2011 Low NEB 2011 High NEB 2011 Slow 50 NEB 2011 Fast NEB 2013 Reference NEB 2013 High NEB 2013 Low 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Demand for passenger transportation

1,200,000

1,000,000

800,000 Light truck Motos & off-road 600,000 Small cars M Pkm M Large cars 400,000 Buses Air 200,000

- Final energy consumption 10,000 9,000 8,000 7,000 Transportation 6,000 Residential

PJ 5,000 Industries 4,000 Commercial 3,000 2,000 Agriculture 1,000 - 2011 2013 2015 2020 2025 2030 2035

10000 9000 8000 Non Energy Use 7000 Hydrogen 6000 Renewable Oil product

PJ 5000 4000 Natural Gas 3000 Electricity & Heat 2000 Coal 1000 Biomass 0 2011 2013 2015 2020 2025 2030 2035 Oil production

16,000

14,000

12,000 Condensates & Pentanes

10,000 Bitumen - In Situ Bitumen - Mined

PJ 8,000 Synthetic 6,000 Tight Oil Conventional 4,000 Offshore 2,000

- 2011 2013 2015 2020 2025 2030 2035 Impacts of pipeline projects

Exports to domestic markets Target In- Capacity Pipeline Service (k bbl/day) BAU : All projects Enbridge Line 9 reverse 2015 300 TransCanada Energy East 2018 850 Total Capacity 1,150 No South: Constraint to reach South and Central USA markets.

Exports to international markets No West: Constraint to reach Target In- Capacity Pipeline West Coast and Asian markets. Service (k bbl/day) Enbridge Mainline 1950 2500 Kinder Morgan Trans Mountain 1953 300 No East: Constraint to reach Spectra Express 1997 280 TransCanada Keystone 2010 591 Central and Eastern Canadian Total Existing Capacity 3,671 markets. Enbridge Alberta Clipper Expansion 2014 120 Enbridge Alberta Clipper Expansion 2016 230 TransCanada Keystone XL 2020 830 Trans Mountain Expansion 2017 590 Enbridge Northern Gateway 2017 525 Total Proposed Capacity 2,295

Source: CAPP (2014) Impacts on the Canadian oil sector Oil production by type 14,000 12,000 Condensates & Pentanes 10,000 8,000 Bitumen - In Situ PJ 6,000 Bitumen - Mined 4,000 Synthetic 2,000 Tight Oil - Conventional BAU No No No BAU No No No Offshore South West East South West East 2011 2035 2050

WCSB Oil exports by destination 10,000 9,000 8,000 7,000 6,000 Exp to East Canada - All means

PJ 5,000 4,000 Exp to USA - Other means 3,000 2,000 Exp to USA - Pipeline 1,000 Exp to ROW - All means - BAU No No No BAU No No No South West East South West East 2011 2035 2050 Impacts on the Canadian energy system

Primary energy consumption by sector 18000 16000 14000 Transportation 12000 Supply 10000 PJ 8000 Residential 6000 Industries 4000 Electricity 2000 0 Commercial BAU No No No BAU No No No Agriculture South West East South West East 2011 2035 2050 Crude oil supply by origin in Central and Eastern Canada 100% 90% 80% 70% 60% 50% Own production 40% Domestic imports - NL 30% 20% Domestic imports - WCSB 10% International imports 0% BAU No No No BAU No No No South West East South West East 2011 2035 2050 Oil exports from WCSB

16000

14000

12000 NEB Low 10000 NEB Med NEB High

PJ 8000 CAPP BAU 6000 No South No West 4000 No East

2000

0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Analyzing the impact of pipeline projects on the Canadian energy system

Preliminary results for Newfoundland & Labrador up to 2035 – Do not quote Impacts of pipeline projects

Source: CAPP (2014) Impacts of pipeline projects

Exports to international markets No West: Constraint to reach Target In- Capacity Pipeline West Coast and Asian markets. Service (k bbl/day) Enbridge Mainline 1950 2500 Kinder Morgan Trans Mountain 1953 300 No East: Constraint to reach Spectra Express 1997 280 TransCanada Keystone 2010 591 Central and Eastern Canadian Total Existing Capacity 3,671 markets. Enbridge Alberta Clipper Expansion 2014 120 Enbridge Alberta Clipper Expansion 2016 230 TransCanada Keystone XL 2020 830 TransCanada Pipeline Trans Mountain Expansion 2017 590 Enbridge Northern Gateway 2017 525 S1 : Access to QC, NB, NL Total Proposed Capacity 2,295 S2: No access for NL S3: More access for NL Source: CAPP (2014) Final energy consumption

160 140 120 Transportation 100 Residential

PJ 80 Industries 60 Commercial 40 Agriculture 20 - 2011 2013 2015 2020 2025 2030 2035

40 Renewable Oil product

PJ 30 Natural Gas

20 Electricity & Heat Biomass 10

0 2011 2013 2015 2020 2025 2030 2035 Oil production Forescasting model 800 700 600 500

PJ 400 300 200 100 - 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

CENTRAL HIGH LOW TIMES model 800 700 600 500

PJ 400 300 200 100 - 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Oil disposition in Eastern Canada Crude oil supply by origin in Eastern Canada 3000

2500

2000

Domestic production

PJ 1500 Domestic imports 1000 International imports 500

0 2015 2025 2030 2035 2015 2025 2030 2035 2015 2025 2030 2035 QC NB NL Crude oil demand by destination in Eastern Canada 3000

2500

2000

Domestic consumption

PJ 1500 Domestic exports 1000 International exports 500

0 2015 2025 2030 2035 2015 2025 2030 2035 2015 2025 2030 2035 QC NB NL Oil disposition in Eastern Canada Crude oil demand by destination in Eastern Canada 3000

2500

2000

Domestic consumption

PJ 1500 Domestic exports 1000 International exports 500

0 2015 2025 2030 2035 2015 2025 2030 2035 2015 2025 2030 2035 QC NB NL 3,000

2,500

2,000 Domestic consumption - Other Domestic consumption - Alberta

PJ 1,500 Domestic exports - Others 1,000 Domestic exports - Alberta International exports - Others 500 International exports - Alberta - 2015 2025 2030 2035 2015 2025 2030 2035 2015 2025 2030 2035 QC NB NL Oil disposition in NL

1,200

1,000

800 Domestic consumption - Other Domestic consumption - Alberta

PJ 600 Domestic exports - Others Domestic exports - Alberta 400 International exports - Others International exports - Alberta

200

- 2015 2025 2030 2035 2015 2025 2030 2035 2015 2025 2030 2035 S1 S2 S3 Oil prices 120

100

80 S2 Oil from NL 60 S3 Oil from NL $/bbl S2 Oil from AB 40 S3 Oil from AB

0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

120 100 100

80 80 S2 Oil from NL 60 60 S3 Oil from NL

$/bbl S2 Oil from AB 40 $/bbl 40 S3 Oil from AB S2 Import prices S3 Import prices 20 20

0 0 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 Future works

Test other scenarios • Socio-economic growth – NALEM • Oil reserves – Oil forecasting model • Pipeline projects Allow more flexibility in the model • Upgrading activities (on-site or at refineries) • Transportation options and their capacity • International imports of crude oil and refined products Make sensitivity analysis on key factors • Production costs by type of oil commodity • Transportation costs – pipelines and others • Crude mix as input to refineries • Pipeline capacity Thank you for your attention

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CARE - St-Johns, February 13 th , 2015