Only a decade ago, Canada dramatically increased its proven oil reserves, as the oil sands became commercially viable on a large scale. Now the tight gas revolution is providing another historic shift in the country’s energy supplies. Nevertheless, there is persistent public concern on both sides of the Atlantic about the environmental impact of developing these resources.

In this speech, Shell CFO Simon Henry describes how Canada can become a major supplier of energy to the world by increasing its exports. He also explains how Canada’s supply revolution could help strengthen Europe’s energy security, as competition for global supplies intensifies, and benefit its economy, not least by mitigating oil price volatility. Simon also suggests that Canada’s leadership in progressing carbon capture and storage technology will not only help to tackle the oil sands’ CO2 emissions profile, but also inject fresh momentum into the technology’s overall development, which is so important to realising Europe’s long-term environmental aspirations.


Today, I’ll discuss Canada’s burgeoning energy sector and what it means for Europe.

As the trade negotiations between Canada and the European Union near their conclusion, it’s an appropriate time to reflect on the strength of our ties.

This is at risk of being overshadowed by the debate about the oil sands – a debate coloured by some highly charged rhetoric here in Europe.

Last year, the value of the bilateral trade in goods between the EU and Canada was more than 50 billion euros (around 64 billion Canadian dollars). The EU is Canada’s second most important trading partner. And, as I’ll explain, Europe also has a stake in Canada’s energy supply revolution.

It’s remarkable to reflect that it’s only a decade since Canada increased its proven oil reserves from 5 billion barrels to 180 billion, as the oil sands became commercially viable on a large scale. Today, the tight gas revolution is providing another dramatic shift in the landscape.

Of course, we’re seeing historic developments throughout North America. Only last week, the International Energy Agency suggested that the US could be nearly self-sufficient in net energy terms by 2035 – something that also carries implications for Canada.

So, today, I’ll cover three main points:

  • First, that Canada can become a major supplier of oil and gas to the world;
  • second, the implications for Europe;
  • and, third, the need to tackle the environmental challenges associated with the oil sands.

To put all this in context, I’ll begin with the global picture.

Global energy demand is expected to double in the first half of this century, propelled by an expanding global population and rising wealth levels in the emerging economies.

To keep pace the world must invest heavily in all energy sources, from oil and gas to biofuels, solar and wind. Indeed, the world may need to spend some $37 trillion on the global supply infrastructure by 2035, according to the IEA. That’s more than $30 billion every week.

The pressure on the world’s oil resources will be especially acute.  As demand rises, production in mature fields will decline fast. The world will need to produce around 30 million barrels of oil a day by the end of this decade from new fields that have not been developed yet. That’s about three times what Saudi Arabia produces today.

The opportunity for Canada: oil

That’s why the world can’t afford to ignore the Canadian oil sands.

Canada’s proven oil reserves are the world’s third largest. And its oil production could increase by more than three-quarters over the next 25 years (IEA), which would make it one of the biggest sources of growth in global oil supplies.

This production is underpinned by a rising flow of international investment. China’s national oil companies are much in the headlines, but Europe’s energy companies are also front and centre. At Shell’s Athabasca Oil Sands project in Alberta, we’ve developed a business capable of meeting more than 15% of Canada’s oil demand in less than a decade. 

But it’s not all about the oil sands. At Shell, we’ve expanded our exploration presence in the deep waters of the Atlantic – 200km off the coast of Novia Scotia. 

And then there’s the Arctic. Taken as a whole, the Arctic region could hold 14% of the world’s undiscovered technically recoverable oil, and more than a quarter of its yet-to-find gas. Canada began exploring for resources there several decades ago. And if the country can overcome the challenges of bringing them to commercial reality, the opportunities could be substantial.

Despite Canada’s oil abundance, the USA still dominates its exports. And the US’s import needs are declining as it enjoys its own revival in oil production, thanks to its tight oil resources.

The US’s oil production increased by more than 15% between 2008 and 2011.

In fact, the IEA is now suggesting the US could even become the world’s biggest oil producer by 2020.

In the short term, this production growth has helped to create a bottleneck in North America’s oil distribution infrastructure, and depressed the price of Canadian crude.

Of course, the Keystone XL pipeline extension would provide a major new outlet for Canada’s oil by linking the oil sands with refineries on the Gulf Coast and export markets further afield. Despite the political debate, we’re confident that the US government will take a balanced view of the issues, and allow the extension to proceed.

Even so, the US’s oil production revival will still carry significant implications for Canada:

  • The IEA predicts the US could reduce its reliance on imported oil from more than 50% of consumption today to less than 30% in 2035.
  • The US’s net oil imports could fall by two-thirds over that period. (Efficiency gains will also play a part here.)
  • Due to its growing tight oil resources, the US may convert more refineries to process lighter oil. That would leave heavier crudes from Canada facing even more intense competition.
  • North America could become a net oil exporter by 2030.  But the challenges of getting to this point should not be underestimated, in terms of investment and infrastructure.

All this adds up to a compelling case for Canada to broaden its export horizons and send more oil to Asia -- especially when you consider China’s oil demand could increase by two-thirds over the next 25 years. To help that happen, there are  proposals to expand the pipeline network to carry more oil from Alberta to the Pacific Coast.

Natural Gas

There’s a similar story to be told about Canada’s gas resources.

There are sizeable resources of tight gas, shale gas and coal bed methane in Alberta, British Columbia and Quebec. These are all gas resources which have become commercially viable because of advances in production techniques, such as hydraulic fracturing.

We all know that this has transformed the US’s gas supply outlook.

Canada is still in the early stages of exploring the potential of its tight gas resources. But they’ve already reversed the long-term decline in Canada’s gas production. And according to the US Energy Information Administration, Canada’s technically recoverable shale gas reserves could be as much as 388 trillion cubic feet – enough to meet its gas needs for more than a century, at current consumption rates.

As a first step, this is fuelling rising gas consumption within Canada.

For example, provinces like Ontario are using natural gas to displace coal fired power.

In the US, this has already had a dramatic impact. In 2012, energy-related  CO2 emissions for the first quarter were at their lowest in 20 years (US EIA). A major reason is because gas plants emit around half the CO2 of the coal they’ve replaced.

In the not-too-distant future, Canada is also likely to become an exporter of liquefied natural gas. Several projects are on the table. 

Demand for LNG in Asia could rise by more than three-quarters this decade, as China and other countries attempt to ease their coal consumption. More broadly, global gas demand could increase by around half between 2010 and 2035, according to the IEA’s latest estimate. 

Meanwhile, the USA, Canada’s sole existing export market, is awash with gas. And North American gas prices plunged to $2/MMbtu earlier this year, their lowest point in a decade. By contrast, the spot price for LNG in Asia for December is around $14/MMbtu.

All of which suggests LNG exports could be a powerful engine of tax revenues and royalties for Canada.

Shell recently announced our aspiration to develop an LNG export facility near Kitimat, British Columbia.

With our Asian partners, the project would design, construct and operate a plant with an initial output of some 12 million tonnes a year – roughly the same amount China imported last year. But there’s a long road ahead, and our investment must first win regulatory approval and the backing of local communities.

Europe’s stake

Europe also has a stake in Canada’s energy supply revolution – even if it’s not a direct importer of Canadian oil or gas.

Europe’s energy companies are playing a major role in Canada. For example, it’s now home to roughly 8% of Shell’s global oil and gas production, and an even larger portion of our resource base. And our suppliers in the oil sands include businesses from Germany, Switzerland, Finland, the Netherlands and the UK.

To get a sense of the economic benefits, consider that the UK’s oilfield goods and services sector earned some £6 billion in exports to countries around the world last year, with Canada a leading destination.

And the success of Shell’s Canadian investments is now critical to our overall success. In turn, Shell’s success brings important benefits to Europe: last year, we paid around 12% of all the dividends in the FTSE 100.

At the same time, Europe’s oil and gas import dependency is growing.  And Canada can ease the pressure on global resources by helping to meet Asia’s surging demand.

That would help to mitigate the risk of high and volatile oil prices in Europe and the rest of the world. To see why this matters, consider the IEA’s warning earlier this year that the EU could spend more than $500 billion on net imports of oil in 2012 if high prices persisted. That would be equivalent to nearly 3% of its GDP.

Without Canada’s oil and gas, countries like the UK will face even more competition for energy supplies from China and other emerging economies.

LNG is a case in point. The EU has signalled that gas will have an important role to play in its energy mix in the decades ahead – not least as the most effective back-up to intermittent sources of renewable energy, such as solar and wind.

But there are currently worries about Europe’s ability to secure LNG supplies –despite investing heavily in import capacity over the past decade.  For example, imports to the UK are tentatively estimated to have dropped by around 40% in the first half of 2012 compared to a year earlier (Wood Mackenzie). 

This has its roots in Asia, where LNG demand has surged - partly because Japan’s gas needs have risen in the wake of last year’s Fukushima tragedy. That’s reduced the number of cargoes available for Europe.

But Europe’s LNG supply picture will improve at the end of this decade, as new supplies from Australia and North America come on-stream. These will help to satisfy Asian demand, freeing up supplies for the rest of the world.

Canada’s proposed export projects could add up to more than 30 million tonnes of LNG a year. That’s nearly half the amount of LNG imported by Europe last year, although not every project will necessarily come to fruition.

All this should leave sizeable quantities of LNG from the Middle East looking for a home in Europe.

So Canada’s supply revolution can also strengthen Europe’s energy security. 

Public concern

But there is uncertainty about the pace at which Canada will be able to realise the potential of its energy resources.

One critical factor will be how the industry addresses public concern about the environmental impact of oil sands production, most notably its CO2 emissions profile.

This, as much as the oil sands’ economic competitiveness, will determine their long-term role in the energy mix.

According to independent analysis, fuels produced from oil sands bitumen emit between 4 and 18% more CO2 (IHS CERA analysis) than the average barrel of crude consumed in the US on a lifecycle basis.

Shell’s oil sands operation is already at the lower end of this scale, due to our use of mining. But we want to reduce emissions further. And carbon capture and storage technology could be one of the most effective ways to achieve this. This technology captures CO2 emissions from power stations and other industrial plants and stores them safely underground.

Two months ago, Shell announced our decision to build the Quest CCS project in Alberta with our partners in the Athabasca Oil Sands project.

Quest will capture, transport, inject and store more than one million metric tonnes of CO2 per annum from our Athabasca oil sands operations and store them more than a mile underground.

Now, we all know that CCS technology has been slow to fulfil its potential.

So Quest carries a broader significance. It can demonstrate that all the different elements required for CCS can be made to work together safely and reliably in one project: from capturing the CO2 and transporting it via pipelines to injecting and storing it in underground rock formations.

In addition, Quest can serve as a model for the joint funding of demonstration projects by the public and private sectors. Such projects have struggled to secure public funding, not least in Europe. But Quest will receive a total of $865 million of funding from the governments of Alberta and Canada.

Thus the project is also helping to smooth good relations between the EU and Canada, with European governments keen to learn from Quest’s experiences.

Trade relations

This matters, with the trade negotiations ongoing and public feeling over the oil sands running high.

The Canadian federal government has already done sterling work: widening access to international investment, and improving its regulatory framework through the Canadian Environmental Assessment Act.

Nevertheless, Canada is currently debating the question of overseas investment in its natural resources. Suffice to say, the country’s energy sector continues to benefit from the investment and expertise of foreign investors – for example, many are involved in its proposed LNG export projects.

Canada’s ability to maintain an open and attractive investment regime will have a powerful say in whether it realises the full potential of its energy resources.  

At the same time, we must hope the European Commission takes a sensible approach to the Fuels Quality Directive. Next year, it will publish a revised set of proposals on how to create cleaner transport fuels. As it stands, the directive would discourage European companies from buying oil derived from the Canadian oil sands because of its CO2 emissions profile.  

While the directive’s aim is laudable, singling out the oil sands is not the fairest or most effective way to achieve it.

One problem is that it does not reflect the reality that there are other sources of crude whose emissions profile is higher than the oil sands. I’m talking about countries where flaring is still widespread, but which lack Canada’s transparency about their CO2 emissions.

Shell will continue to work with the commission and member states to try to reach a satisfactory outcome. 


Let me sum up. The shared interests of Canada and Europe in the energy sector are deepening. We must all keep this in mind as the debate about the oil sands intensifies.

Investment by Europe’s energy companies is helping Canada to raise its energy production and exports. That in turn will benefit Europe’s economy and strengthen its energy security. And Canada’s leadership on CCS can help the EU to meet its environmental aspirations.

Thank you.