Canadian Energy in a Global Marketplace

Canadian Energy in a Global Marketplace [PDF 1656 KB]

Canadian Energy in a Global Marketplace

PNWER’s 26th Annual Summit

Peter Watson, Chair and CEO

July 19, 2016

Introduction

• The past two years in energy markets have been a wild ride, to say the least. This has been a time of unprecedented uncertainty.
• Among the many factors contributing to this uncertainty are:
• Rapidly changing energy production technologies;
• Geopolitical events that affect global energy supplies and prices;
• New climate change policies and agreements; and
• Regulatory decisions that affect major energy projects.
• But as we all know, our energy future will not be determined by a single force, but rather, the interaction of many.
• Energy systems and the dialogue around them are becoming increasingly complex. 
• In addition, public and private stakeholders want – and increasingly expect – to be part of that dialogue. They also want accessible and transparent energy information that can be used to inform that discussion.
• Today, I want to fuel that conversation by introducing you to some of the NEB’s innovative energy information products.  In the process, I’m going to provide a brief description of:
• Where we are now
• Where we might be going
• And some of the factors likely to influence the role of Canadian – and U.S. – energy in a global marketplace.
• In order to more effectively demonstrate the energy markets concepts and forecast information, I am going to use a tool designed to reimagine how we tell Canada’s energy futures story.
• This visualization tool was created to present the data from the Board’s flagship publication, Canada’s Energy Future 2016: Energy Supply and Demand Projections to 2040, in an interactive an accessible way.
• As I go through the details, you will see demonstrations of several difference energy scenarios on the screen.
• All of these demonstrations and many more can be found on our website.

Transition Section

• To start, I should note that the NEB is primarily an energy transportation regulator.
• In 2015, the NEB regulated approximately 73,000 kilometres (45,000 miles) of interprovincial and international pipelines in Canada, along with approximately 1,400 kilometres (870 miles) of international power lines.
• NEB-regulated pipelines shipped approximately CA$99.7 billion worth of crude oil, petroleum products, natural gas liquids, and natural gas to Canadian and export customers at an estimated transportation cost of CA$7.3 billion.
• NEB-regulated international power lines transmitted approximately CA $3.4 billion of electricity into and out of Canada.
• In support of that mandate, the NEB also regulates various aspects of energy trade, actively monitors energy markets, and produces a wide range of objective, fact-based energy information products.

• Canada’s Energy Future 2016: Energy Supply and Demand Projections to 2040, is perhaps our best-known product. It provides supply and demand projections and possible energy futures scenarios that may unfold between now and 2040.
• Although Energy Futures focuses on Canada, the reality of globally integrated energy systems means that these projections also have implications for the U.S.
• We are each other’s largest energy trading partners.
• We will also increasingly compete with one another in global markets.
• Finally, we can expect to be influenced by some of the same trends in energy and climate change policy.

Markets Section

• Despite generally lower commodity prices, Canadian energy production remained relatively steady in 2015.
• However, lower prices led to the value of net Canadian energy exports decreasing by CA$32.4 billion or almost 38% from 2014 to 2015.

VISUALIZATION: Crude Oil Production by Region

• Crude oil production in Canada increased in 2015 to an average of 3.9 million barrels per day.

• The Alberta oil sands currently account for 61% of Canada's total oil production.
• The impact of low prices on Canadian oil production has been, and is expected to remain in the short-term, relatively muted due to recently completed and currently under construction oil sands projects.
• This is unlikely to change even after the wildfires near the oil sands a couple months ago. Damage to the town of Fort McMurray was devastating and will have long-term impacts, but the oil sands production outages were mostly temporary.

• Canada exported record volumes of crude oil in 2015, with the vast majority going to the U.S., but the value of the exports declined due to low prices.
• As you can see on the screen, the Energy Futures Reference Case forecasts that Canadian oil production will grow by 56% by 2040 to 6.1 million barrels per day by 2040.
• 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 recent outlooks by other respected forecasting agencies such as the International Energy Agency and the U.S. Energy Information Administration.
• Recent projections by the Canadian Association of Petroleum Producers (CAPP) are more in line with the NEB’s Low Price Case. CAPP projects 4.9 million barrels per day by 2040, similar to the NEB low price case of 4.8 million barrels per day.
• IHS Cera’s latest outlook projected production growth between the NEB’s Reference and Low Price Cases.
• The Reference Case projects considerable increases in Canadian oil production. However the development of new pipelines to take Canadian oil to tidewater ports or U.S. markets is a notable uncertainty.
•  A relevant question emerges: ‘what does the future look like if pipeline projects do not proceed?’
• So the NEB modelled what the impact on oil production would be if no new major oil export pipelines were built, including Keystone XL, Northern Gateway, Trans Mountain, and Energy East. This is the Constrained Case, seen on the screen.
•  In this scenario, we project that the use of crude-by-rail would increase, which is a more expensive mode of shipping, and which would lead to lower prices for Canadian producers.
• The NEB projects overall Canadian oil production to grow about 5.6 million barrels a day by 2040 under a Constrained Pipeline Case – about eight % lower than in the Reference Case.

VISUALIZATION: Natural Gas Production by Region

• Natural gas production in Canada decreased slightly in 2015 to just under 15 billion cubic feet per day.

• Robust natural gas supply in the U.S., mainly from the Marcellus and Utica regions in the Northeast, resulted in lower demand for Canadian exports.

• The Energy Futures Reference Case projects that Canadian natural gas production will increase by 22% from 2014 levels to 17.9 billion cubic feet per day in 2040.
• However, the Reference Case also expects this trend of reduced U.S. demand to continue in the future, with overseas Liquefied Natural Gas (LNG) exports being a key driver of future increases in Canadian production.
• If you look at the data visualization for gas on the screen, you can see that Energy Futures also explores High LNG and No LNG cases related to LNG exports from Canada’s west coast.
• Compared to the roughly 18 billion cubic feet per day of gas production in 2040 in the Reference Case, the High LNG case results in 21 billion cubic feet per day, and the No LNG case results in about 15 billion cubic feet per day.

VISUALIZATION: Electricity Generation

• Electricity generation in Canada held fairly steady, although 2015 saw record electricity exports to the US, a 30% increase over the previous year.
• About 11% of Canadian electricity production was exported to the US.
• The value of electricity net exports grew in 2015 by $507 million.

• On the screen, you can see Canada’s electricity generation mix in each province and territory and how it will shift by 2040. 
• The Energy Futures Reference Case projects that Canadian electricity production will continue to hold steady until 2040, with coal generating capacity declining and natural gas-fired generating capacity increasing significantly.
• Canada is a global leader in renewable power.  In 2015, Canada generated over 65% of its power from renewable sources, including hydro (represented by the blue circle in this demo), which accounts for more than 60% of total generation. 
• Canada is the world’s second largest producer of hydro power, behind China.
• Non-hydro renewable sources (wind, solar, and biomass) have grown rapidly and now account for 11% of total capacity.
• Using the visualization tool, we can isolate a few sources to show how vastly the reliance on coal will decline and renewable resources, such as solar/wind/geothermal (represented by the green circle in the visualization) will increase.
• Note that this projection was completed before Alberta and Saskatchewan announced their decisions to phase out coal by 2030.

• Because of recent developments such as the Alberta and Saskatchewan coal announcement, the NEB is in the process of updating Canada’s Energy Future.
• Planned for release later this year, the update will use decreased oil and gas price assumptions in the Reference Case to more accurately reflect recent trends. Major, recently announced federal and provincial policy changes will also be incorporated.
• In addition, the update will explore future uncertainties related to high and low prices, and to climate change policy.

• In Canada, governments are focused on better aligning energy production and consumption with climate change policies such as the Paris Agreement and the Alberta government’s Climate Leadership Plan, to name a few.
• As a regulator, the NEB’s role is not to recommend or endorse a certain policy direction. Rather, our goal is to identify potential implications across the energy system of various options and uncertainties.

• Going forward, the challenge for all of us will be balancing the public’s desire for movement on climate policy with the commercial realities of energy markets. 
• For example, public expectations about renewable energy are high in terms of how much we can do and how fast we can do it.  We need to respond and show leadership, but also manage expectations.
• Renewables have been growing quickly and policymakers will likely continue to provide support, but there are significant financial, technological, and regulatory challenges to achieving the kind of additional growth that many people expect.
• Public expectations are also high in terms of how much changes within certain sectors might affect GHG emissions.
• In Canada, power production accounted for 11% of emissions in 2014 – about the same as the agricultural sector.
• Emissions from the oil and gas sector (including the oil sands), accounted for 26% of the total in 2014. This figure is similar to the 23% share attributable to the transportation sector.
• No single sector can bend the emissions curve and all will need to be part of a broader conversation on energy production, transportation, and consumption.
•  This conversation must also include the implications of any changes for our highly integrated North American energy market, as well as our ability to compete for new customers in global markets.
• Events like this one are an important means of having the conversation… sharing information, and fostering collaboration.
• In the volatile and uncertain reality of the global markets today, it is hard to find that anchor, that reliable space in which we can stop and think and share information. All the more reason why dialogue, cooperation and collaboration – between levels of government, between regions, between the stakeholders in the energy landscape – is so important right now.
• Thank you.