Thanks to more efficient technology and government climate change policies, Canadians will be burning less fossil fuels in the future, according to a new report from the National Energy Board. The decline will likely be very slow between now and 2040, however, and it won’t affect the Western Canadian oil and gas sector, which continues to expand throughout the forecast period.
“Energy Futures 2017 shows that real progress is being made towards a low carbon future, says Shelley Milutinovic, chief economist of the NEB. “Canadian fossil fuel use peaks and then begins to decline, with the extent of that decline depending on future policy and technology assumptions.”
Western Canadian natural gas production has been under pressure from cheap U.S. shale gas, losing market share in the American Midwest and Eastern Canada. TransCanada recently lowered transportation tolls on the Canadian Mainline in a bid to cut costs for shippers. “We know our customers are facing new competitive challenges, and we are working with them to find solutions so we can all share in the long-term success of the Western Canada Sedimentary Basin,” said Tracy Robinson, TransCanada’s senior vice president, Canada Gas. The Canadian Association of Petroleum Producers fears Canadian natural gas exports could fall as much as 50% by 2030.
In the NEB’s reference case (which assumes a $50/ton carbon tax), gas output gradually declines to a low of 14.6 billion cubic feet a day (Bcf/d) in 2022, then rises steadily until it peaks at 16.8 Bcf/d in 2040. Prices are also expected to rise, from a low of $2 million British thermal units(MMBtu) last year to $4.30 in 2040, driven by increased demand for power generation and liquified natural gas exports to Asia. Growth is slower in the high carbon case, primarily in Alberta, which loses 1 Bcf/d over the forecast term.
Crude oil production rises 59% (from 4 MMbbl/d in 2016) to 6.3 MMbbl/d by 2040 in the reference case, driven entirely growth in the Alberta oil sands. The high carbon case slows growth by nine per cent and production drops to 5.7 MMbbl/d. Almost all of that increase comes from Alberta in situ production, with mining showing only a slight rise in output. The pace of technology improvement is a major uncertainty, according to the NEB: “ EF2017 assumes gradual technological improvement in the sector and more or less rapid technology development could impact the oil sands production projections. Potential advances that could change the supply projections include solvent-based processes, electrification, and CCS technology.”
Despite the pervasive hype around electrification of transportation, the NEB predicts EVs will be adopted very slowly in Canada and have a negligible impact on consumption. Only 11,500 EVs were sold in Canada last year, just 0.6% of all passenger vehicle sales, and the reference case assumes that will rise to three percent in in 2020 and 16%in 2040; self-driving technology is not widely adopted and has little impact on adoption. The technology case is much more optimistic because it assumes Quebec will continue to provide large EV subsidies (currently $8,000, higher than the U.S. federal subsidy), forecasting EVs to make up six percent of total sales in 2020 and 47% in 2040.
Even so, more stringent fuel economy standards and higher EV adoption only reduces transportation energy consumption (primarily gasoline and diesel fuels) declines an average of less than one per cent a year (0.5% in the reference case and 0.6% in the high carbon case). And that calculation includes the impact of higher fuel economy standards for freight hauling and other commercial trucking applications, according to Matthew Hansen, an NEB analyst who worked on the forecast. “New for this report is the inclusion of the emission standards for heavy-duty vehicles. These are key elements behind reduced transportation and total fossil fuel projections,” he wrote in response to emailed questions.
Canadians shouldn’t be surprised that consumption of oil and gas will play a large role in the economy long past 2040. “Energy systems are complex and diverse, so changes in factors like energy efficiency can take time to work through the system,” says Hansen. “The share of emerging technology can increase rapidly, but when you start from a small base it can take a while to have a big impact. So, in that sense, fossil fuels continuing to play a large part of the energy system in these scenarios is not surprising, but it also highlights the bending of the fossil fuel trajectory in these scenarios as a pretty significant change.”
That trajectory bends very slowly over the next 20 years or so. The NEB’s reference case - which is based on the current economic outlook, a moderate view of energy prices, and climate and energy policies similar to those of today - shows Canadian fossil fuel use peaking around 2019 and flattening out in the long term.
Technologies that could bend the trajectory more steeply and more quickly, such as electric vehicles, are immature and, barring unforeseen technical disruptions, will be a long time making a significant impact on Canadian oil and gas consumption, according to Hansen.