An Assessment of the Economic and Competitive Attributes of Oil and Natural Gas Development in Québec
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Study No. 154 November 2015 CANADIAN AN ASSESSMENT OF THE ECONOMIC AND ENERGY COMPETITIVE ATTRIBUTES OF OIL AND RESEARCH ATURAL AS EVELOPMENT IN UÉBEC INSTITUTE N G D Q Canadian Energy Research Institute | Relevant • Independent • Objective AN ASSESSMENT OF THE ECONOMIC AND COMPETITIVE ATTRIBUTES OF OIL AND NATURAL GAS DEVELOPMENT IN QUÉBEC An Assessment of the Economic and Competitive Attributes of Oil and Natural Gas Development in Québec Authors: Jon Rozhon Paul Kralovic* ISBN 1-927037-38-6 Copyright © Canadian Energy Research Institute, 2015 Sections of this study may be reproduced in magazines and newspapers with acknowledgement to the Canadian Energy Research Institute November 2015 Printed in Canada Front Photo Courtesy of istockphoto.com Acknowledgements: The authors of this report would like to extend their thanks and sincere gratitude to all CERI staff that provided insightful comments and essential data inputs required for the completion of this report, as well as those involved in the production, reviewing, and editing of the material, including but not limited to Allan Fogwill and Megan Murphy *Paul Kralovic is Director of Calgary-based Frontline Economics Inc. ABOUT THE CANADIAN ENERGY RESEARCH INSTITUTE The Canadian Energy Research Institute is an independent, not-for-profit research establishment created through a partnership of industry, academia, and government in 1975. Our mission is to provide relevant, independent, objective economic research in energy and environmental issues to benefit business, government, academia and the public. We strive to build bridges between scholarship and policy, combining the insights of scientific research, economic analysis, and practical experience. For more information about CERI, visit www.ceri.ca CANADIAN ENERGY RESEARCH INSTITUTE 150, 3512 – 33 Street NW Calgary, Alberta T2L 2A6 Email: [email protected] Phone: 403-282-1231 An Assessment of the Economic and Competitive Attributes of iii Oil and Natural Gas Development in Québec Table of Contents LIST OF FIGURES .............................................................................................................. v LIST OF TABLES ................................................................................................................ vii EXECUTIVE SUMMARY ..................................................................................................... ix INTRODUCTION ............................................................................................................... xi CHAPTER 1 GOVERNMENT ADMINISTRATION OF OIL AND NATURAL GAS RESOURCES .................................................................................... 1 Shale Gas and Oil Primer ..................................................................................................... 6 CHAPTER 2 QUÉBEC BASINS: OIL AND GAS POTENTIAL ................................................ 13 St. Lawrence Lowlands: The Utica Shale ........................................................................... 13 Anticosti Island: The Macasty Shale ................................................................................... 19 Gaspé Peninsula (Gaspésie) ................................................................................................ 26 CHAPTER 3 PRODUCTION COSTS AND MARKET DEMAND ........................................... 31 Québec Supply Costs .......................................................................................................... 31 Macasty Shale .............................................................................................................. 31 Utica Shale ................................................................................................................... 33 Québec Supply Costs Compared to Other Jurisdictions .................................................... 34 Royalty Regimes ................................................................................................................. 36 Market Demand ................................................................................................................. 40 Domestic Natural Gas Demand .................................................................................... 41 External Natural Gas Demand...................................................................................... 43 Oil Demand .................................................................................................................. 46 Carbon Emissions Constraint Policies and Their Effect on Demand ............................ 48 CHAPTER 4 ECONOMIC IMPACTS OF OIL AND GAS DEVELOPMENT IN QUÉBEC ............ 49 Methodology ...................................................................................................................... 49 Scenario Analysis ................................................................................................................ 49 Assumptions for the Input/Output Model ........................................................................ 50 Oil Production Assumptions and Economic Impacts ......................................................... 54 Natural Gas Production Assumptions and Economic Impacts .......................................... 61 CHAPTER 5 KEY FINDINGS AND CONCLUDING REMARKS ............................................. 69 APPENDIX A GDP IMPACTS ON MAJOR PROVINCES ...................................................... 73 Québec ............................................................................................................................... 73 Alberta ................................................................................................................................ 74 Ontario ............................................................................................................................... 74 British Columbia ................................................................................................................. 75 November 2015 iv Canadian Energy Research Institute APPENDIX B OIL AND GAS SUPPORT INFRASTRUCTURE ................................................ 77 Liquids – Pipelines and Rail ................................................................................................ 77 Enbridge Canadian Mainline – Enbridge ...................................................................... 79 Trans-Northern Pipeline .............................................................................................. 81 Portland-Montreal Pipe Line ........................................................................................ 82 Pipeline Saint-Laurent .................................................................................................. 83 TransCanada Energy East ............................................................................................. 83 Crude by Rail ................................................................................................................ 84 Natural Gas – Pipelines ...................................................................................................... 86 TransCanada Canadian Mainline ................................................................................. 89 Trans Québec & Maritimes and the Gaz Métro System .............................................. 91 Portland Natural Gas Transmission System ................................................................. 92 Iroquois Gas Transmission System .............................................................................. 92 Gaz Métro .................................................................................................................... 93 APPENDIX C PRODUCTION COSTS AND ECONOMIC IMPACTS OF ALTERNATIVE OIL AND GAS PRODUCTION FORECASTS ............................................................... 95 Macasty Oil Development – High IP Scenario .................................................................... 95 Utica Gas Development – High IP Scenario ....................................................................... 99 November 2015 An Assessment of the Economic and Competitive Attributes of v Oil and Natural Gas Development in Québec List of Figures 1.1 Major Shale Gas Basins in North America .................................................................... 1 1.2 US Dry Shale Gas Production ....................................................................................... 2 1.3 US Tight Oil Production ................................................................................................ 3 1.4 Schematic Geology of Natural Gas and Oil Resources ................................................ 7 1.5 Multiple Horizontal Wells Drilled from a Single Well Pad ........................................... 8 1.6 Horizontal versus Vertical Multi-stage Fracture Stimulation ...................................... 10 2.1 Cambro-Ordovician Basins in Eastern US and Canada ................................................ 14 2.2 Map of the Utica Shale................................................................................................. 15 2.3 Geological Map of Québec’s Utica Shale ..................................................................... 16 2.4 Spatial Distribution of the Utica Shale ......................................................................... 17 2.5 Québec’s Ordovician Shale Thermal Maturity Regimes .............................................. 20 2.6 Stratigraphy of the Macasty Shale ..............................................................................