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Release of Canada's Energy Future 2016: Energy Supply and Demand Projections to 2040
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30 minute Speech to the Toronto Board of Trade
Release of Canada’s Energy Future 2016: Energy Supply and Demand Projections to 2040
January 27, 2016
National Energy Board Chair Peter Watson
- Volatile, Uncertain, Unprecedented…use any of these words to characterize the past eighteen months in Canadian energy.
- I doubt there is a single market observer who could have foreseen the dramatic fall in the global price of crude oil, one of Canada’s largest exports, from $110 (US) a barrel in mid-2014 to about $30 (US) recently.
- 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.
- This uncertainty affects all of us as Canadians – and as Canada’s national energy regulator, a key aspect of the NEB’s mandate is to study energy matters over which parliament has jurisdiction, and to provide the government with advice on those issues.
- It’s our job to take the long view.
- We look at today’s energy market uncertainties and then explore what their long-term implications are for our country.
- 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.’
NEB OUTLOOK REPORTING
- 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.
- It is also unique because the results in this report rely upon the expertise of not only the Board’s excellent group of economists and technical staff, but also 158 experts from across Canada including environmental organizations, academics, government, industry, and industry associations who were consulted during the process.
- In Toronto alone, we consulted with twenty-two experts for this document.
- 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.
- If Canadians were aware of us, it was probably because of our role in holding hearings on pipeline applications.
- Or they knew about us because of our responsibility in regulating the lifecycle of Canada’s 73,000 km of international and interprovincial pipelines and 1,400 km of international power lines.
- We kept our heads down…we quietly did our work and then quietly released our reports.
- Industry experts took note, few others noticed.
- Today, things have changed.
- With this incredible amount of uncertainty, the need has never been greater for Canadians and policy makers to get objective, fact-based information on Canada’s energy system.
- And it also reinforces to the NEB that we need to be better at providing open and transparent energy data and information.
- Canadians deserve no less.
THE FINE PRINT
- 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.
- Last year, when we first began our analysis for this report, we believed that we had put in place a very broad range of energy price projections.
- A range much broader than virtually any other set of projections in Canada.
- It turns out that taking this approach was the right thing to do, as resource prices have dropped so dramatically in the past short while.
- And what is most important, is that the Energy Futures Report explores the long-term implications of these – and many other – uncertainties.
HIGHLIGHT 1: LOWER FOR LONGER?
- 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 is dominating the headlines.
- Today’s dramatic supply increases, tepid global economic growth and massive inventory build in crude oil, have led observers to question how low prices can go and if those prices will be lower for longer.
- But a short-term view is not what Energy Futures is about; it is about taking the long view.
- 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.
- It is this long-term perspective that I think is the value of the Energy Futures Report; helping Canadians, from the public to policy makers, to understand the energy market uncertainties and how they may play out.
HIGHLIGHT 2: ENERGY PRODUCTION
- 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.
CONSTRAINED PIPELINE SCENARIO
- 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.
- The alternative scenarios in Energy Futures 2016 strike me as particularly relevant in today’s context.
- As recently noted by Bank of Canada Governor Stephen Poloz, falling world prices for oil and other commodities have had a major impact on Canada’s economy.
- The Bank estimates that they represent ‘a loss of more than $50 billion in national income, or about $1,500 for every Canadian’ (Jan. 7, 2016).
- Our analysis in Energy Futures 2016 indicates that the development of future energy infrastructure in Canada - whether for oil or natural gas - directly impacts export prices, future production growth, and the overall economy.
- It is a harsh reality that Canada has no influence on global commodity prices.
- However, Canada does have control over policies and regulation, as well as the choices it can make on market access and infrastructure development; and the development of new technologies to address our environmental objectives, as we transform our energy systems for a lower carbon future.
- These are challenging, uncertain, and clearly interesting times; and as our Minister of Natural Resources, the Honourable Jim Carr, recently noted – he chooses to see them as a time of opportunity.
- And so should we all…understanding our current and future context…and making the most of the opportunities we have to lead into the future.
HIGHLIGHT 3: ENERGY ISSUES ARE ENVIRONMENTAL ISSUES
- That brings me to our third highlight, the link between energy and the environment.
- And with that in mind, I am very pleased that the NEB’s Energy Futures Report includes a ‘Greenhouse Gas Emission’ section.
- Now before I get into some of the commentary on the GHG section of the report, I suspect that some of you may be asking why an energy regulator is talking about greenhouse gas emissions and environmental issues.
- That answer is quite simple – energy issues are environmental issues.
- Most of my professional career has been focused on integrated analysis to support energy and environmental outcomes.
- And so, when I arrived at the NEB it was natural for me to expect that the NEB’s Energy Futures Report would have something to say about climate policy and GHG emissions.
ENERGY USE IN CANADA
- So let’s start with energy use.
- 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.
- As long as there is demand for energy, markets will function to provide the supply, whether from domestic or international sources, with little consequential impact on global energy use and the associated 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.
GREENHOUSE GAS EMISSIONS
- A few other comments on GHG’s.
- Between 2005 and 2013, Canada’s total GHG emissions dropped by about three percent.
- And during this period, GHG emissions from electricity generation dropped by about 30 percent.
- This decline is mainly attributed to a reduction in coal-fired generation in Canada, largely related to Ontario’s coal phase out, a growing supply of renewable generation, and a decline in other industrial plant emissions, partly due to the fallout from the 2008 economic downturn.
- In our projection period of 2014-2040, the use of coal for electricity generation will continue to decline, driven by retirements of aging coal-fired generation units.
- And so, while the greenhouse gas intensity of the mix of fossil fuels we use decreases, the overall growth in fossil fuel consumption means Canada’s GHG emissions will increase for some time given current policies and energy use trends.
- Now, let’s take a moment to examine the electricity outlook.
- Canada’s total electricity generation capacity will increase by about one percent a year to 2040 with the majority of additions to this capacity coming in the forms of natural gas, wind and hydroelectric power.
- We project that hydroelectric generation will remain the dominant source of electricity supply in Canada as it has numerous advantages including flexibility, lack of CO2 emissions and cost-stability.
- In addition to hydroelectric generation, the capacity of wind, biomass and solar generation nearly doubles over the projection period.
- Natural gas electrical generation capacity will have a far greater role in Canada in 2040, contributing about twenty per cent of Canada’s power generation.
- Factors contributing to the increase include shorter construction times for these facilities, lower GHG emissions than coal, and a well-developed natural gas pipeline network in Canada.
THE NEXT BIG STORY
- 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.
- 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.
- 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.
- With the Paris agreement, we have perhaps reached a critical mass for meaningful action on a global scale.
- And with the recent policy announcements in Canada, we seem to have reached a similar critical mass at home.
- These are significant issues for us all and - given the importance of natural resources to Canada - it’s not good enough to just react to the change around us
- We need inclusive discussions about energy, the environment, infrastructure and market access. These need to be real conversations between industry, ENGOS, governments, Indigenous Peoples and other Canadians rather than the polarized debates we have seen to date.
- We need to reject the negative and divisive. We need to demonstrate our ability to work together
- And these efforts need to be fed by unbiased, reliable, and accessible long-term energy analysis to support common points of understanding.
- And that is why I am so pleased that you joined me today as we shared with you the National Energy Board’s long-view; Canada’s Energy Future 2016: Energy Supply and Demand Projections to 2040.
- I encourage all of you – and all Canadians – to reflect on these critical issues, and to consider their impact not just for today, but for the future.
- Thank you.
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