Canada's Energy Future 2016 – Energy Supply and Demand Projections to 2040

Canada's Energy Future 2016 – Energy Supply and Demand Projections to 2040 [PDF 1037 KB]

Canada's Energy Future 2016 – Energy Supply and Demand Projections to 2040

Presentation to CAPP

Peter Watson, Chair and CEO

March 30, 2016

Introduction

Volatile, Uncertain, Unprecedented...use any of these words to characterize the past eighteen months in Canadian energy.

Among the many factors contributing to this uncertainty on Canada’s energy future include,

  • the rapid deployment of advanced technologies for renewable and fossil fuel energy production,
    the decision by OPEC to open up its taps,
    the lifting of sanctions against Iran,
    the historic climate agreement in Paris,
    the denial of the Keystone XL project in the U.S.,
    and the recent lifting of the U.S. oil export ban.

But as you can well imagine, Canada’s energy future will not be determined by a single force, but rather, the interaction of many.

  • Energy prices, economic growth, policies and regulation, market access, and the development and use of new technologies, will all play an important role.

And that is why today, I am very pleased to share with you our ‘long view’ - the National Energy Board’s flagship document, ‘Canada’s Energy Future 2016: Energy Supply and Demand Projections to 2040.’

The NEB’s Long View: Energy Futures Series

  • NEB’s flagship energy information product published since 1967.
  • Only publically available Canadian long-term energy outlook
    • Includes all energy commodities and all provinces and territories
  • Not a prediction of the future, but PROJECTIONS given a set of assumptions
  • www.neb-one.gc.ca/energyfutures

Cover page: Canada's Energy Future 2016 - Energy Supply and Demand Projections to 2040

Notes

This study is a key reference point, because it is the ONLY publicly available Canadian long-term energy outlook covering all energy commodities and all provinces and territories.

This study continues a long tradition of energy outlook reporting for the NEB. In fact, we have been producing this document regularly since 1967.

And until a few years ago, this report may not have been noticed by most Canadians and media, and perhaps not even by policy makers.

Now creating an energy supply and demand projection document to the year 2040 is very challenging – especially in the current environment.

So let me share with you a bit of the ‘fine print’. First of all, it is important to note that the analysis in this Report is not a prediction of future outcomes. It is a PROJECTION of what might occur given a set of assumptions.

This report outlines various projections for higher and lower energy prices, and alternate market access and energy infrastructure assumptions.

Lower for Longer?

Results of the Price Cases

Brent Crude Oil Price, Reference, High and Low Price Cases

Brent Crude Oil Price, Reference, High and Low Price Cases

Total Canadian Oil Production, Reference, High and Low Price Cases

Total Canadian Oil Production, Reference, High and Low Price Cases

Notes

So what are the key highlights in this year’s Energy Futures Report?

First of all, crude oil prices.

As one would expect after such a dramatic price drop for one of our largest exports, oil has been dominating the headlines.

Our Reference Case oil price assumption for Brent crude approaches $80 per barrel by 2020 and $105 per barrel by 2040.

  • This is similar to the recent outlooks of other respected forecasting agencies such as the International Energy Agency and the U.S. Energy Information Administration, who see the long-term supply and demand balancing near these levels, as do we.

But what does Canada look like in a world where prices are lower for longer?

Our analysis includes a Low Price Case to provide some insights here. In this Case, oil reaches $55 per barrel in 2020 and $80 per barrel in 2040.

Interestingly, the impact of low prices on Canadian oil production is relatively muted over the next three to four years.

  • The momentum created by recently completed and under construction oil sands projects, mean production in the Low Price Case is similar to that of our Reference Case.

However, after 2020, oil production is essentially flat in the Low Price Case – plateauing at about 4.8 million barrels per day for the next two decades. Prices that are lower for longer means that investment will not be significant enough to grow production beyond what will be reached in the next few years.

Total Energy Production

Production of Crude Oil, Natural Gas, and Electricity Generation on an Energy-Equivalent Basis

Production of Crude Oil, Natural Gas, and Electricity Generation on an Energy-Equivalent Basis

Notes

And that brings us to our second highlight, Canada’s overall energy production.

All of our projections see energy production growing significantly up to 2040.

Our Reference Case sees:

  •  Canadian oil production growing by 56 percent to 6.1 million barrels a day by the year 2040.
  • Natural gas production growing by 22 percent from 2014 levels to 17.9 Bcf/day (Billion cubic feet per day), with Liquid Natural Gas (LNG) exports being a key driver of that production growth.
  • And electricity production holding fairly steady, with coal generating capacity declining and natural gas-fired generating capacity increasing significantly.

This might be somewhat of a surprise to Canadians – as much of the discussion on energy issues over the past few years in our country has focused on renewable forms of energy and their potential for growth.

The reality is that most respected forecasting agencies project that all types of energy production will grow significantly for decades to come.

What if pipeline projects do not proceed?

Constrained Case: No new major oil export pipelines are built

Western Canadian Crude Oil Production, Reference and Constrained Cases

Western Canadian Crude Oil Production, Reference and Constrained Cases

Canadian Oil Export Pipeline Capacity, and Oil Exports, Constrained Case

Canadian Oil Export Pipeline Capacity, and Oil Exports, Constrained Case

Notes

So, in our Reference Case, we project considerable increases in Canadian oil production; however the pace of development of oil pipeline capacity is a notable uncertainty.

A relevant question today remains, ‘what does the future look like if pipeline projects do not proceed?’

So for Energy Futures 2016, the NEB modelled what the impact on oil production would be if no new major oil export pipelines were built,

  • That includes Keystone XL, Northern Gateway, Trans Mountain, and Energy East.

In this case, we project that the use of rail would increase, which is a more expensive mode of shipping, and that would lead to lower prices for Canadian producers.

However, we still see many projects remaining profitable in this constrained scenario with our reference case prices – and so we project overall Canadian oil production would grow to about 5.6 million barrels a day by 2040, under a Constrained Pipeline Case.

  • That is about eight percent lower than our baseline projection.

So – to recap – what does the future look like if pipelines are not built?  Our analysis shows that if prices are sufficient, crude oil production will grow, albeit at a more moderate pace than our reference case, and rail transportation will provide the takeaway capacity.

Future prices and LNG exports are important drivers for Canadian gas

Canadian Natural Gas Production, Reference, Price, and LNG Cases

Western Canadian Crude Oil Production, Reference and Constrained Cases

Notes

Two LNG cases explore the uncertainty related to LNG exports from Canada’s west coast with High LNG and No LNG sensitivity cases.

Reference Case: 2.5 Bcf/d by 2023, No LNG Case: 0 bcf/d, High LNG Case 6 Bcf/d

Compared to the roughly 18 Bcf/d in the reference case, the High LNG case results in production of 21 Bcf/d and the no LNG = about 15 Bcf/d.

Canadian LNG projects are likely to operate in a vertically integrated fashion with proponents owning reserves, production facilities, pipelines and the liquefaction plants. As a result of this, higher or lower LNG exports has a direct relationship to the amount of production in Canada.

Energy Use and GHG Implications

  • All EF 2016 cases project increasing fossil fuel consumption
  • This implies increasing GHG emissions

Canadian Oil Export Pipeline Capacity, and Oil Exports, Constrained Case

Canadian Oil Export Pipeline Capacity, and Oil Exports, Constrained Case

Notes

In our reference case, total energy consumption in Canada grows by about twenty percent by 2040.

  • And we project that hydrocarbon forms of energy will remain the primary sources of energy in Canada to 2040 - to heat our homes and businesses, transport goods and people, and power industrial equipment.

And it is also significant to note that in all of our projections - even the high price projections – fossil fuel consumption increases in Canada.

This clearly implies that GHG emissions will also increase over the projection period – and that is consistent with the most recent Greenhouse Gas emission projections from Environment and Climate Change Canada.

This is important because it shows that scenarios like high or low oil and natural gas prices, or whether or not we build pipelines or LNG terminals – are not sufficient in themselves to put Canada on the path to declining GHG emissions.

What will make a difference in our emissions over time, is more aggressive and targeted GHG policy frameworks – which are now emerging in Canada.

What’s Next?

Updating our analysis this fall to account for recent policy changes and persistent low price environment

Updating our analysis this fall to account for recent policy changes and persistent low price environment

Canadian Oil Export Pipeline Capacity, and Oil Exports, Constrained Case

Text version: Updating our analysis this fall to account for recent policy changes and persistent low price environment

Summer 2015: EF 2016 analysis completed

Summer 2015: Crude prices decline from July highs

November 2015: Alberta announces climate change plan

December 2015: Manitoba, Ontario, Quebec Sign MOU to link future cap-and-trade systems

December 2015: Paris Climate Conference

January 2016: Persistently low prices, WTI <$30

March 2016: P.M. and President commit to reducing oil and gas sector methane emission

Notes

So what’s next? What will be the big story in 2016? Or in 2041?

In recent months numerous announcements have been made by governments in Canada on new climate policy initiatives - and that momentum is increasing, especially following the historic agreement at the 21st Conference of the Parties (COP21) in Paris.

Many of these announced policies are quite bold and, if implemented, would put Canada in the position of having some of the most advanced climate approaches globally.

Energy Futures 2016 includes only the policies and programs that are law, or near law at the time of analysis, and although it does NOT include many of these recent announcements, it does highlight their significance.

While the projections that I have shared with you today state that fossil fuel production will continue to increase.

  • It is clear that these emerging climate policy developments will be a critical factor in Canada’s energy and environmental future, and a considerable uncertainty for long-term energy projections.

And just as important are the potential changes that will happen internationally.

Conclusion

  • Future production of oil and natural gas in Canada is expected to increase
  • Will be affected by markets, infrastructure, technology, policies, and regulations
  • Uncertainties highlight need for open discussion supported by factual analysis
  • www.neb-one.gc.ca/energyfutures

Cover page: Canada's Energy Future 2016 - Province and Territory OutlooksMore Energy Futures in 2016:

  • • Visualizations
  • • Province and Territory Outlooks
  • • Updated projections in the fall
Notes

ENERGY INFORMATION

The increasing pace of change in Canadian and global energy markets and climate policy development suggest that the need for up-to-date analysis on energy supply and demand trends is greater than ever.

In response, we are moving immediately to update Energy Futures 2016 this coming fall to incorporate recent policy developments.

  • We will also continue to explore important questions for Canada’s energy system through our other energy information products.

It is our goal to help Canadians and policy makers understand these complex interactions through our analysis, reports, and statistics.

And it is my ultimate goal to make the National Energy Board nothing less than the ‘go-to place for energy information’ in Canada.

CONCLUSION

The past eighteen months have been a time of great uncertainty in Canadian energy.

And in times such as these, it is important not to forget the long view. Because Canada’s energy future will not be determined by a single force, but rather, the interaction of many.

Energy prices, economic growth, policies and regulation, and the development and use of new technologies, will all play an important role.

We’re seeing the development of a climate policy framework with associated measures that move the yardstick in a real way.

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