The Canada Energy Regulator issued its latest Canada’s Energy Future report on June 20, and the document contains important news for Alberta. Our oil and gas production is set to drop sharply in the next few decades. The analysis has important implications for Alberta’s economy. It also lets us model the future emissions of the province’s oil and gas sector.
But before we dig into the meat of Canada’s Energy Future, let’s look at what the report is — and just as importantly, what it isn’t.
Background of Canada’s Energy Future
The CER has been issuing its Canada’s Energy Future reports yearly since 2007, but this one is a significant departure from previous versions — so significant that the CER skipped 2022 to rework its methodology.
In the past, the agency used its modelling tools to envision Canadian energy supply and demand, given foreseeable long-term market conditions.
This year, at the request of Jonathan Wilkinson, federal Minister of Natural Resources, the agency took a different approach. Instead of running its models without restrictions, EF2023 considers three different scenarios:
- A Current Measures scenario in which Canada and the rest of the world continue to produce and consume fossil fuels under the policies that are in place today. This scenario assumes “limited future action to reduce GHG emissions.”
- A Canada Net-zero Scenario in which Canada achieves net-zero emissions by 2050, but the rest of the world moves more slowly in limiting emissions.
- A Global Net-zero Scenario that assumes Canada achieves net-zero emissions by 2050 and that the rest of the world “reduces emissions enough to limit global warming to 1.5℃.
CLIMATE, ENERGY AND ALBERTA’S FUTURE
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The Realism behind Net-zero Scenarios
At first glance, net-zero scenarios might seem to be a product of ideological thinking — an arbitrary policy direction preferred by those who support climate action and the limiting of greenhouse gas emissions.
But given the policy trends we see in the world today, it’s far more likely that net-zero scenarios are, in fact, realistic assumptions about the future. The European Union explicitly aims to be “climate-neutral” by 2050. More importantly, the United States — the largest consumer of our fossil fuels — has embarked on a far-reaching overhaul of its economy with the Inflation Reduction Act of 2022.
The IRA creates large government investments in clean energy and modernizing energy infrastructure. It also incentivizes private sector investments in clean energy and transport and consumer investments in electric vehicles, geothermal heating, rooftop solar, and similar measures.
These moves are certain to impact energy production in Alberta and Canada. Canada exports around 85 per cent of its oil, mostly to refineries in the U.S. Midwest and Gulf Coast. As gasoline demand shrinks, these refineries will curb their intake of Alberta bitumen. That will happen soon. Beginning in 2035, California will require all new vehicles sold to be zero-emission vehicles, and with its large fleet, California has a massive influence on U.S. automobile markets. Gasoline is typically distributed near the place where it’s refined. We’ll know the end is nigh when EV sales start climbing in the Midwest and Gulf Coast.
Given global responses to the climate crisis, it’s inevitable that demand for our fossil energy will shrink. In this sense, EF2023 simply echoes what the International Energy Agency, Equinor, bp, Bloomberg New Energy Finance, Rystad Energy, the International Institute for Sustainable Development (PDF), and the Pembina Institute have all been saying for some time. Fossil energy is yesterday’s fuel. Its use will be sharply curtailed in the near future.
Early Reactions to EF2023
The report made a big splash, and analysts and media outlets have begun to digest its findings. Writing in the Calgary Herald, Chris Varcoe highlights some of its findings — peak oil within three years and a 76 per cent production decrease between now and 2050, when oil prices skid to around $24 USD per barrel. Gas production declines by some 37 to 68 per cent, depending on the net-zero scenario under examination.
Counting on domestic consumption to make up the difference? Don’t bet on it. It’s true that Canada’s electrical grid will need to grow as EVs replace the internal combustion engine and heat pumps supplant conventional furnaces. But methane gas won’t be the driver. As Chris Severson-Baker at the Pembina Institute notes, “Under both of the CER’s net-zero scenarios, renewable energy becomes the backbone of Canada’s energy system and we achieve a net-zero grid by 2035.” Severson-Baker also notes good news on this front: a need for hundreds of thousands of skilled workers to build the new economy.
At The Energy Mix, Mitchell Beer reports that EF2023 creates “deep uncertainty for [the] oil sands.” Beer quotes CER Chief Economist Jean-Denis Charlebois, who states that while efficient producers will continue to make money as prices drop, others will face “an impairment for the incentive to invest and maintain a certain level of production.”
The Story That Numbers Tell
To my way of thinking, the heart of EF2023 lies in its data — the downloadable spreadsheets for, among other things, crude oil and methane gas production. These numbers tell a story — the specific quantities of oil and gas Alberta is likely to produce in the years ahead and the GHG emissions that will result from those fuels.So stay tuned! I’ll run through the numbers for oil and gas in my next two posts. Then I’ll sum it all up and see just how much of the carbon budget for 1.5℃ Alberta fossil fuels will use up under the three EF2023 scenarios.