Trends In Crude Oil And Natural Gas Reserves Additions Rates And Marginal Supply Costs For Western Canada

Abstract

Abstract This paper reviews trends in crude oil and natural gas reserves additions rates and associated marginal supply costs for western Canada and demonstrates how extrapolations of these trends can be used to estimate economic hydrocarbon potentials. Historically, the reserves additions rates of both crude oil and natural gas have decreased over time and consequently the marginal supply costs have increased. Extrapolations of these historical trends indicate that significant volumes of conventional crude oil and natural gas, which could be economically recovered, remain to be discovered. Introduction Assessments of future supplies of crude oil and natural gas from western Canada are essential for the development of energy policy in Canada. The undiscovered hydrocarbon resources are a major determinant of these future supplies. The most authoritative source of information on these undiscovered resources is the Geological Survey of Canada (GSC)(1, 2). This agency last published its estimates of natural gas resources in 1983(1), These estimates were based primarily on geological evidence and no economic constraints were applied. The agency recently released a report of an assessment of the undiscovered conventional oil resources (light and medium) of western Canada(2). This report includes an assessment of the economic constraints. Crude oil and natural gas prices and the costs associated with recovery are the major determinants of economic constraints which must be applied to geologically estimated petroleum resources. The work described herein is an attempt to use historical data for western Canada to determine the relationships between the costs of recovery of conventional crude oil and natural gas and the discovered volumes of these resources, and to use trend analysis to predict the relationships for the currently undiscovered portion of the western Canadian hydrocarbon resource base. These relationships are referred to as the supply functions for crude oil and natural gas. There is much uncertainty associated with estimates of resources. The GSC recognizes this by attaching probabilities to its estimates. At the 95% probability level, the GSC estimates that 2820 million m3 of conventional light and medium crude oil and 4834 billion m3 of marketable natural gas (186 exajoules) are technically recoverable from western Canada by conventional production practices. At the 5% probability level, the corresponding estimates are 3130 million m3 of conventional light and medium crude oil and 8220 billion m3 of marketable natural gas (317 exajoules). The GSC's average expectations for ultimate technical potentials are 2930 million m3 of conventional light and medium crude oil and 5794 billion m3 of marketable natural gas (225 exajoules)(1, 2). In addition to the geological uncertainties, there is also considerable uncertainty associated with the technical and economic determinants of future costs. The purpose of this paper is to provide a description of the methodology that is currently being researched by the staff of the National Energy Board. This methodology is illustrated by projecting the supply functions using average expectations for ultimate technical potentials and judgmental projections for the technical and economic determinants of costs. A complete sensitivity analysis, which would be required to fully define the ossible ranges of the projections of the supply functions, is not included.