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Home > Speeches and Presentations > Speeches and Presentations 2008 > Canada's Energy Future

Canada's Energy Future

Presented by
Gaétan Caron
Chair and CEO
National Energy Board

CERI Natural Gas Conference

26 February 2008

I am very pleased to be your keynote speaker this morning. The National Energy Board is a strong supporter of the work of the Canadian Energy Research Institute. CERI has had a strong history of addressing complex energy related issues and there are no shortage of these going forward.

The topics for discussion during the conference today are supply-demand, prices and politics. My focus will be Canada's energy future, as we see it at the National Energy Board, with emphasis on the demand components. I will draw heavily from the study we completed in November entitled "Canada's Energy Future: Reference Case and Scenarios to 2030". By the same token, I will tell you where the NEB is going, to ensure the responsible development of Canada's energy sector for the benefit of Canadians.

The NEB and Energy Demand

Canada is in a unique position in the global economy as a major energy consumer, producer and exporter. We have a large, cold country with a resource based economy. This results in Canada being one of the highest energy users in the world. Significant amounts of electricity, coal, crude oil, and natural gas are produced and exported every year and contribute to Canada's economy. In fact, Canada is listed among one of the top ten largest energy producers and exporters in the world. There are also many indirect spin-off effects of the energy industry, affecting sectors like government, banking, construction, manufacturing, and research and consulting.

Given the importance of energy resources in Canada, the National Energy Board has a mandate to monitor the outlook of energy supply and demand in Canadian markets and to provide Canadians with energy information. Since 1967, the Board has been doing a long term assessment of the supply and demand of energy in Canada. This is the purpose of a report on Canada's Energy Future and this is why, last month, we held a follow-up forum in Ottawa to continue the dialogue about Canada's energy future. The forum acted as our final round of consultations with Canada's energy experts and was a resounding success. The forum confirmed that the work the NEB is doing is necessary, useful and should be continued. As well, it validated the key findings within our report and which will be discussed in greater detail through out this presentation.

Canada's Energy Future: Reference Case and Scenarios to 2030

The study underlines that Canada's position of strength in energy comes with a number of challenges:

• high and volatile energy prices;
• decreasing conventional reserves;
• the need to diversify supply;
• an ageing and constrained infrastructure;
• and growing environmental concerns.

This was outlined in our Canada's Energy Future report. The report provided a comprehensive outlook of energy supply and demand for the years 2005 to 2030. The study consists of a reference case analysis from 2005-2015 and an analysis of three scenarios, which extend out to the year 2030. Through the use of scenarios we examined increased emphasis on energy security and increased emphasis on integrating environmental goals into the question of the energy future.

In developing this report, we consulted with over 250 energy experts and held two cross-Canada consultations with representatives from industry, provincial and federal government, academia, NGOs, and interested Canadians. I am sure that there are a number of individuals in this room who participated in the development of the report. We took that input and using economic and geological models developed 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.

Our work is comprehensive and integrates all energy forms. It serves as a reference for Canadians interested in energy issues. We are proud of that.

Key Findings

Canada's Energy Future considers whether there will be adequate energy supplies to meet Canadians' needs until the year 2030. Having examined this question under a variety of scenarios and we can conclude the answer is yes. Canadians will have ample energy supplies over that period. This applies to natural gas as well as other energy forms. As well, the report underlines a number of challenges and important choices Canadians will have to make involving energy production, efficiency, and dealing with energy emissions.

The key report findings that I will discuss during this presentation, include natural gas demand, supply and export outlooks and what this means for Canadian energy markets.

Reference Case and 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.

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 is a continuation of 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.

Energy Demand Grows

In response to the growing economy and population, total energy demand increases across all the scenarios examined in the report. Looking specifically at natural gas, demand is expected to increase driven by increasing oil sands production and increased natural gas fired electricity generation.

By 2030, oil sands production is expected to at least double from today's levels. Although the industry is a large natural gas user, efforts are under way to reduce its dependence on this fuel. This includes pursuing energy efficiency improvements and to gradually adopt alternative fuels and technologies, such as bitumen gasification. As a result, although natural gas demand in oil sands applications increases it does not increase at the same rate as oil sands production.

Investments in natural gas-fired electricity generation are also expected to increase. In Ontario, combined-cycle gas will be relied on to help meet demand following the phase out of coal-fired generation, which is assumed to occur in all scenarios by 2015. In addition, there are expected investments in natural gas-fired generation in British Columbia, Alberta, Saskatchewan and Newfoundland and Labrador.

Improvements in Energy Efficiency

Historically, energy efficiency has been improving in Canada. This is expected to continue in all scenarios. Energy efficiency improvements partially offsets demand growth. However, total natural gas demand continues to increase with population and economic growth. This is true for all scenarios with the exception of Triple E. Concerted efforts to manage energy demand and support alternative energy sources reduces natural gas growth expectations. Changes included improvements in building codes, increased energy efficiency standards for energy using equipment, and fuel switching into solar and geothermal power. As a result there is a small decrease in residential and commercial natural gas demand in the Triple E scenario.

Ample Energy Supplies to Meet Demand

Overall, Canadian natural gas supply is expected to decline in the Reference Case and in two out of the three scenarios considered by the Board. This is largely a result of the maturing Western Canada Sedimentary Basin. Conventional gas from western Canada is still the largest component of supply, but is in decline in all scenarios. On average, new conventional gas wells are less productive than those discovered previously. That means you get less output for the same amount of drilling effort and cost.

Unconventional gas resources, such as coal bed methane, tight gas and shale gas are expected to offset these declines to some extent in the Reference Case and Continuing Trends Scenario. However, the mid-range prices in the Reference Case and Continuing Trends are not high enough to prevent the overall decline in natural gas production. Prices in these scenarios end up at Henry Hub 2005US$7/MMBtu.

The Triple E scenario has the lowest natural gas prices. By 2030, natural gas prices are at $5.50/MMBtu. This is due to cooperative global relations, which leads to access to abundant, inexpensive natural gas supplies from around the world. The low prices also lead to steep natural gas production declines in Canada. In this scenario, there is an influx of liquefied natural gas imports which compensates for reductions from Canadian basins. In fact, LNG contributes to over half of Canadian requirements by 2030.

Unconventional resources play an important role in the Fortified Islands Scenario. Fortified Islands is the Board's high price case at 2005$12/MMBtu. In this scenario, the emphasis is on developing Canadian energy sources and the price is sufficiently high to support this development. As a result, Canadian natural gas production increases.

Canadian Natural Gas Net Exports

Total net exports of energy are expected to increase through to 2030. 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.

However, natural gas exports decline in two of the three scenarios. Canadian gas demand is increasing in all cases and production is declining in all but one scenario. As a result, Canada is projected to become a net importer of natural gas by 2030 in two out of the three scenarios. It is only in Fortified Islands that net gas exports are above current levels for most of the period.

In the Continuing Trends and Triple E scenario, LNG markets evolve and imports are sufficient to meet Canadian and US demand. If a more unsettled international environment were to occur that limited imports into North America then we would be in the Fortified Islands scenario, where natural gas prices are higher and Canadian gas exports to the U.S. are generally increasing rather than decreasing.

Our energy future: a question of balance

Our analysis indicates that Canadian energy markets are expected to function well with energy prices balancing energy supply and demand. At the same time, Canada will face a number of challenges (e.g., high and volatile energy prices, ageing and constrained infrastructure, and growing environmental concerns). I believe these challenges can be successfully overcome, through technology, policy, investments, public engagement, and high quality analysis and information to support timely decision making in the market place. We hope that analysis such as those provided in our report is a step in this direction.

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 effective public engagement. This will be required on the part of everybody: regulators, policy makers, investors, consumers, producers, pipeline companies, and associations, among others. As part of the journey, in many cases, regulators such as the NEB will be seeking to determine the overall public interest. At the NEB, we define the public interest as follows:

« The public interest is inclusive of all Canadians and refers to a balance of economic, environmental and social interests that changes as society's values and preferences evolve over time. As a regulator, the Board must estimate the overall public good a project may create and its potential negative aspects, weigh its various impacts, and make a decision »

Our energy future: overall conclusions

In summary, energy demand is expected to increase with economic growth. Canadians will continue to improve energy use demonstrated by improvements in energy efficiency - this will partially offset demand growth. In the energy efficient Triple E scenario, we see declines in natural gas demand in the residential and commercial sector. However, it is expected that overall Canadian natural gas demand will continue to increase over the next 25 years.

Ample energy supplies will be available to meet Canadian needs. Fossil fuels and other conventional energy sources continue to dominate supply mix. Non-conventional supplies will gain share. Canadian natural gas production and net exports decline in two out of the three scenarios. However, Canadians will continue to have access to ample supplies of energy. In the low price case secure world these resources will be imported via LNG and in the high price case energy insecure world Canadians will look towards unconventional resources to supply their needs.

Canadians will face a different environment in the next 25 years than in previous years. Fortunately, Canada has the gift of abundant natural resources and Canadians have the opportunity to make important choices and shape our energy future. Decisions taken today by every Canadian will over time go a long way towards creating a sustainable future.

A vision of where the NEB is going

So what does this mean to the NEB? The role of the regulator is to make decisions in the public interest which influence industry outcomes. Our work on energy markets is an example of what the NEB, as your federal regulator, does in the public interest. Expect the NEB to keep doing this. Feel free to talk with our staff or our Board members about the energy studies you would like us to undertake. At least once a year, we re-assess our plans in that regard. At this time, we are already planning to publish our annual short-term Canadian natural gas deliverability report in the fall.

An important part of our work also is the regulation of gas and oil pipelines, their tolls and tariffs, exports and imports of hydrocarbons, and some specific aspects in the electricity sector.

A vision of where the NEB is going

Our vision of the future of NEB regulation is clear and simple: it is getting better all the time, and we are committed to making it better all the time. There are two areas of continual improvements which I would like to outline.

First, we are striving to improve our own processes. For example, we launched last month a Land Matters Consultation Initiative, aimed at improving everyone's understanding of:

• effective company interactions with landowners
• an NEB process which is accessible to all
• pipeline abandonment, financial aspects; and
• pipeline abandonment, technical aspects.

At the same time, we are working towards engaging persons with environmental interests in the continual improvement of environmental protection. We are also completing a pilot for online filing ofnon-hearing applications, making the filing requirements more transparent so that companies can build applications that match their projects in terms of complexity. This way, our staff can focus on more complex issues that require more analyses, making our work more effective from a safety and environmental standpoint, making the work more interesting, saving time and money for industry, and upholding our high standards of safety and environmental excellence. We should go live with the full system in the spring.

A vision of where the NEB is going

The second broad area of improvements relate to our interactions with other government processes, notably the environmental assessment process. In that respect, we actively support and we are contributing to the following government-wide initiatives:

• The Major Project Management Office announced by the Federal Government in Budget 2007, and launched concretely by Minister Lunn on October 1^st, 2007.
• Support the Northern Regulatory Improvement Initiative launched by Minister Strahl of Indian and Northern Affairs Canada on November 7^th, 2007. As part of his announcement, Minister Strahl announced the appointment of Neil McCrank, former Chair of the AEUB, to lead this effort.
• The regulatory improvement work carried out under the auspices of the Conference of Energy and Mines Ministers, with the goal of sharing best practices among federal, provincial, and territorial regulators throughout Canada. The NEB works through our association of regulators, CAMPUT, in this area.

I strongly believe that, with this continual improvement agenda, things really are getting better all the time. We are building on a strong foundation, we have a strong team, and we are learning to constantly adapt to an ever increasing workload. Almost paradoxically, the fact that the NEB, like everybody else in Calgary, is experiencing a staff turnover rate far greater than we would all like to see, requires us to work on our people agenda. This is what we are doing. Only good things can come out of a strong focus on people with a focus on continual improvement!

Your feedback and input welcome

When we work on energy matters, we work on the present, and we invest in the future. Canadians are counting on us to ensure responsible development of the energy sector.

I also encourage you to be in touch with us for feedback on how we are doing, for suggestions on energy analysis, and also simply to debate energy matters. While we are an independent regulator, we are not a cloistered agency. Our ongoing interactions with energy sector stakeholders, landowners, persons with environmental interests, and citizens from all walks of like, continually improve our understanding of what is on the mind of Canadians when it comes to energy matters. Having this understanding allows us to improve our performance and fulfill our accountability for results on behalf of Canadians. So please do contact us. We may be reached at:

http://www.neb-one.gc.ca
Calgary phone number: 403-292-4800
Toll free: 1-800-899-1265

In the mean time, I will be pleased to answer your questions. Thank you for having heard me this morning.

 

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Date Modified:

2011-10-28