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Home > Speeches and Presentations > Speeches and Presentations 2007 > Canada's Energy Future - Reference Case & Scenarios to 2030

Canada's Energy Future - Reference Case & Scenarios to 2030

15 November 2007

Good Morning everyone and welcome to our Report launch.

My name is John McCarthy and I am the Commodities Business Unit leader here at the NEB.

Today we're releasing one of our most comprehensive reports on energy in Canada - Canada's Energy Future. This report considers whether there will be adequate energy supplies to meet Canadians' needs until the year 2030. We have examined this question under a variety of scenarios and we can conclude that yes, Canadians will have ample energy supplies over that period. As well, the report underlines a number of important choices Canadians will have to make involving energy production, efficiency, and dealing with energy emissions.

We are living in a time of volatile energy markets. Oil prices have risen by over 50 percent and gas prices have fallen-off significantly in less than two years. In that light, it takes a certain amount of bravery to make projections extending out over 20 plus years - nonetheless, we need to do this for our analysis and I'll outline how we dealt with this uncertainty.

Canada is in a good position from which to start. We're a country with energy resources that can provide for our own citizens as well as energy to sell and export to others. Of course, the rest of the world is always part of the equation and that figures into the work we present to you.

We've got a short presentation today that will cover the highlights of the report.

I'd like to ask that any questions you may have be held to the end.

Myself and our technical experts who have all contributed greatly to this report would be happy to respond to you then.

About the Report

The National Energy Board has a mandate to monitor the outlook of energy supply and demand in Canadian markets and provide Canadians with energy information. This is the purpose of the report on Canada's Energy Future.

The Report is a comprehensive energy supply and demand outlook for the years 2005 to 2030. We have been conducting these studies since 1967 on roughly a four year frequency. The current edition consists of a reference case analysis from 2005-2015 and an analysis of three scenarios, which extend out to the year 2030.

The key objectives of the report are as given in this slide:

• to provide Canadians with unbiased, relevant, comprehensive, expert analysis on energy supply, demand and its economic and environmental implications, which serves as a reference for Canadians;
• to provide discussion with and amongst stakeholders, both during and after the completion of the report on emerging issues of national importance; and
• to inform decision makers of key risks and uncertainties facing the energy future and advise them of regulatory and other issues that need to be addressed.

It is important to underline the amount of consultation that went into the development of this report. We consulted with over 250 energy experts and held two across Canada consultations with representatives from industry, provincial and federal government, academia, NGOs, and interested Canadians.

With this information and our own analysis and understanding, we use a series of economic and geological models to develop quantitative projections of energy supply and demand in Canada. The final work (including all supporting assumptions and data) is provided on a national and regional basis, free of charge, on our website.

Key Assumptions

I will begin the presentation with Key Assumptions, followed by some Quantitative Results, and Overview Messages

Reference Case & Scenarios

In order to understand our results, it is important to have an appreciation of the assumptions in terms of the energy prices and economic conditions which underlie the reference case and each of the scenarios.

The Reference Case is our best guess about the development of supply and demand in Canada based upon current decisions and policies and current economic and energy trends. It is characterized by moderate energy prices and business as usual developments. For example, natural gas prices are assumed to follow a traditional relationship with crude oil. (84% of the 6:1 Btu parity)

The scenarios are intended to address uncertainty. Uncertainty which is caused by world geopolitical and economic factors, social trends, future policy decisions, or technology developments. Each scenario is based upon a set of internally consistent assumptions, designed to test our findings. We see each scenario as plausible and don't attach a probability to the scenario.

Continuing trends extends trends used in the reference case out another 15 years to 2030.

Triple E scenario assumes fairly aggressive conservation goals pursued on a global level. The scenario has more moderate economic growth as a result of economic/environmental trade-offs. There is a preference given to greener fuels such as renewables, nuclear and natural gas and some form of carbon pricing is assumed. By 2030, this scenario has the lowest energy prices from a producer perspective. This is achieved through a cooperative global environment resulting in abundant energy supplies around the world, as well as comprehensive energy demand management programs, which slow energy demand growth.

The Fortified Islands scenario focuses on North American energy security. It has the slowest economic growth and highest energy prices. These outcomes are a result of a security conscious world, where continued geopolitical tensions limit access to cheap global energy supplies. The emphasis is on developing indigenous energy sources.

Again, these scenario storylines were developed through extensive discussion with energy experts both at NEB and outside. These were further refined during the cross-Canada consultation sessions.

Crude Oil & Natural Gas Prices

Energy prices are higher than they have been historically across all scenarios.

Given that 5 years ago oil was US$26/barrel, US$58/barrel in the first quarter of this year and currently trading in the US$90 range, it is obvious that making any long term predictions on energy prices is challenging. Nonetheless we had to make some assumptions on annual average prices for our modeling work.

In two of the scenarios there will be a decline in price compared to what Canadians are currently paying. This takes place in both the Triple E and Continuing Trends scenarios. In the Fortified Islands scenario, Canadians could expect to pay more for energy than what they are paying today.

Following the general convention and reflecting the fact that energy prices are set in the global market, the prices are specified in US dollars.

Macroeconomic Forecast

Historical evidence suggests that change in energy demand is strongly influenced by economic conditions, such as the rate of growth in the gross domestic product, personal disposable income, population and labour force, and changes in the structure of economy.

We capture some of these in this chart.

I won't spend much time on these other than to underline that these factors strongly influence our results. The Reference Case sees a continuation of historical growth rates and so accordingly, the GDP grows at a high rate of 2.9% until 2015.

The longer term growth rates as reflected in the scenarios vary but they are all assumed to be lower than current trends, this linked primarily to a decline in population growth. The decelerating population growth, has serious implications for labour force and availability of adequate labour and skill sets to meet the growing demand across all economic sectors. This appears to be a global trend, especially in developed countries.

The GDP growth rate ranges from 1.8% to 2.5% per year across the three scenarios.

Quantitative Results

On to the quantitative results…

Energy Demand

In response to the growing economy and population the energy demand increases in both the Reference Case and the three scenarios.

Despite the higher oil and gas prices, the expectation is that energy demand will remain robust as income and GDP continue to put upward pressure on demand for energy-related goods and services. The Reference Case growth continues to be high and equals the historical rate of 1.8% per year.

In the long term, there is a slowing in demand growth in response to a slow down in the economy. The Continuing Trends experiences a growth of 1.4%.

The slower economic growth and higher energy prices further dampen the energy demand growth in Fortified Islands to 0.7% per year.

However, the slowest growth in energy demand is experienced in Triple E where the effect of lower commodity prices are countered by a carbon dioxide (CO₂) price applied on all fossil fuels based on their carbon content. The dampening effect is further bolstered by numerous energy demand management policies and programs.

Crude Oil Supply

Total crude oil production in Canada is expected to increase in the Reference Case, as well as in all three scenarios from its existing levels. However, the increase does not come from all sources.

Conventional oil production declines in the Reference Case and the three Scenarios from the current level of 1.2 million barrels/day to as low as 0.4 million bbl/d in Triple E. Production from East Coast increases from the current levels of .31 million bbl/d to 0.4 million in the Reference Case and then declines to as low as .044 million bbl/d in Triple E.

Production from oil sands increases through the Reference Case and scenarios to as high as 4.9 million bbl/d in Fortified Islands.

Thus the Reference Case sees an increase in both East Coast and Oil Sands production. In the Continuing Trends, the East Coast production begins to decrease from the high levels in 2015.

Triple E sees a slowing in the growth of oil sands production, as well as deepening of the decline in the production from East Coast. This is a direct result of lower oil prices and costs of environmental measures. The lower price in this scenario discourages development on marginal plays, with noticeable impact on East Coast offshore and oil sands.

Under the Fortified Islands scenario, high oil prices and preference for indigenous sources provide a further boost to oil sands production. The decline in the East Coast production also slows down as satellite pools are developed.

The notable growth in oil sands supply assumes timely development of markets and transportation infrastructure

In response to the higher crude oil supply, there is an increase in oil exports.

Natural Gas Supply

One of the most significant changes on the supply side is the steep decline in the natural gas production from the Western Canada Sedimentary Basin (WCSB).

The mid-range prices in the Reference Case and Continuing Trends are not high enough to prevent the decline in natural gas production.

However, the high prices in Fortified Islands result in increase in production from northern, offshore and unconventional gas sources.

The production in Triple E declines steeply due to the low prices. However, there is an influx of liquefied natural gas (LNG) imports which compensates for reductions from Canadian basins. This contributes to over half of Canadian requirements by 2030.

Electricity Supply

Turning to the electricity supply, electricity supply and demand is closely linked to economic growth…growing over 25% in the Continuing Trends scenario and to a lesser extent in the other scenarios.

The fuel mix is still expected to be dominated by hydro power. The alternative and emerging technologies, including wind, small hydro, and biomass gain share in the Reference Case and scenarios, but since they are starting from a small base, the share of these technologies in the supply mix remains small. Under the Triple E scenario we see 13% to 14% of the nation's electricity coming from these sources in 2030.

Of note is the coal phase out in the Reference Case in Ontario by 2015. The coal does bounce back with the use of advanced technologies such as integrated gasification combined cycle (IGCC) after 2015.

New transmission lines are required to meet the growing demand for electricity and new generation. Electricity trade, both internationally and inter-provincially, increases in all cases.

Green Gas (GHG) Emissions & Intensity

Lastly, I'd like to address greenhouse gas (GHG) emissions. Our stakeholders were very interested in understanding what would be the effect of these scenarios on GHG emissions. It is important to note that we can only address emissions as they relate to energy consumption. Our study did not consider the effect of agriculture or forestry carbon sinks nor did we consider any emissions trading implications. Therefore, we offer a partial analysis of Canada's GHG emissions future. To a large extent, GHG emissions are an outcome of energy demand trends, and therefore GHG emissions increase with growing demand in the Reference Case and almost all scenarios.

In the Reference Case, GHG emissions are expected to increase by 1.5% per year as compared to the historical rate of 1.7% per year.

In Continuing Trends, due to the lower economic growth and corresponding lower energy demand, the growth in GHG emissions slows down to 1.2% per year. This further dampens to 0.6% in Fortified Islands where energy prices are high encouraging energy conservation and economic growth is the lowest.

The biggest change occurs in Triple E, where we assumed a suite of policies and programs (more aggressive than those in existence today) directed at balancing energy use, environmental impacts and economic growth. The GHG emissions decline at 0.1% per year. The decline in these emissions is unprecedented in history.

If you consider GHG emissions as a percentage of GDP, you can see in all scenarios improvements are achieved, in line with the steady replacement of existing capital stock (buildings and vehicles) with more energy efficient technologies. This leads to a decrease in emissions intensity as shown in the graph on the right.

Overview Messages

I would now summarize the key results in these overview messages.

Overview Messages

Canadian energy markets are expected to function well with energy prices balancing energy supply and demand.

Energy prices are expected to remain higher than historical levels due to international demand-supply factors. In the scenarios we examined, the price of oil ranges between US $35-$85 in 2005 dollars, as compared to US$20 in 1990.

Despite the higher energy prices, the energy demand is expected to increase with growth in the economy. The pattern of energy consumption is largely predetermined by the make-up of the existing stock of energy-using devices such as buildings, appliances, cars, industrial motors. As the stock turns over, and is replaced by new and more efficient stock, the energy efficiency will improve. This is further bolstered by penetration of new technologies, which generally promote cleaner combustion. These efficiency improvements partially offset the growth in demand.

Energy demand management initiatives will also play a key role in dampening this growth.

Overview Messages

With well functioning energy markets, appropriate signals will generate ample supply of energy. Based on our study we feel that Canadians will have adequate supply to meet their needs.

Fossil fuel and conventional energy sources will continue to be the dominant source of supply. However, non-fossil fuels and non-conventional hydrocarbons will play a bigger role.

A significant example is the growing share of oil sands, which will likely require changes to refineries.

Energy exports constituted 20% of total Canadian exports of all goods and services in 2005. Total net exports of energy are expected to increase through the forecast period. However, the growth rates vary by energy commodity and scenario. The net exports of oil reach new heights led by the increase in oil sands production. There is also an increase in electricity exports. Natural gas exports decline dramatically in two of the three scenarios.

Overview Messages

Controlling GHG emissions resulting from the consumption of energy is the biggest challenge currently facing Canadians.

Notable improvements are being made in the way Canadians consume and produce energy. However to achieve more significant reductions in GHG emissions, Canadians would have to make important lifestyle changes as well as implement policies and programs to control the growth in the use of energy and to promote switching to cleaner fuels.

Overview Messages

The many challenges identified in the analysis can be successfully overcome. The "enablers" include technology, policy, adequate investments, public engagement and high quality analysis to facilitate timely decision making.

Technology can offer solutions to many challenges in the energy system ranging from ways to expand the boundaries of conventional resource supply to energy efficiency improvements.

Policy that integrates across multiple objectives of economic growth, environmental sustainability and development of the energy sector is another significant component. To achieve these multiple objectives the policy frameworks will need to integrate across governments and consider regional differences with respect to energy and emissions, evolving energy systems and the changing global environment.

Major investments are needed to develop new sources of energy and infrastructure to meet the growth in energy demand as well as replace the ageing infrastructure.

These investments will require public engagement and acceptance. A balance will need to be established between public acceptance and the need for timely decision making.

As energy issues become increasingly complex, requiring timely decision making, there will be a growing need for quality analysis to facilitate decision making. We hope that analysis such as those provided in this Report will be a step in this direction.

Questions?

We will now open the session to your questions.

 

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Date Modified:

2011-10-28