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Home > Energy Reports > Energy Futures > 2008 Energy Futures Workshop - Session 1A - External Context

2008 Energy Futures Workshop - Session 1A - External Context

2008 Energy Futures Workshop - Session 1A - External Context [PDF 388 KB]

2008 Energy Future Workshop
Session 1A
External Context
Ottawa, Ontario

Presented by
John McCarthy
Business Unit Leader
Commodities Business Unit
National Energy Board

22 January 2008

Speakers

Good morning, everyone. In case you missed the introductions this morning, my name is John McCarthy and I am the Business Unit Leader, Commodities at the National Energy Board.

The title of this session is Energy Context. We will explore a couple of the variables expected to have an important impact on how energy markets function in the future and that are exogenous to the NEB's analysis.

The first thing that I would like to do is briefly introduce our speakers for the session this morning. We have:

• Dr. Marwan Masri who is the President and CEO of the Canadian Energy Research Institute,
• Shelley Milutinovic who is the professional leader of economics at the National Energy Board, and
• Tony Young who is the Director General of the Economic Analysis Directorate at Environment Canada

Unfortunately, due to illness Dr. Michael Lynch is unable to join us today. Shelley has graciously agreed to present the work that was prepared in advance by Dr. Lynch. Thank you Shelley.

The session this morning is scheduled for 90 minutes. The intent of this session is to examine some of the key forces that are expected to shape energy markets over the next three decades. In particular, the role that geopolitical forces have on Canadian energy markets and energy prices. As well, we will examine some of the policy developments at the national level that will have an impact on Canadian energy markets.

I will start with a brief summary of how geopolitics and environmental issues are considered in the Energy Futures report, then each of our speakers will give a 20 minute presentation. These presentations will provide additional information and/or alternative views to the work that was undertaken in the Energy Futures report. We have allocated about 15 to 20 minutes at the end of the session for questions, and we encourage you to hold your questions until after all the speakers have presented. I will take the last couple of minutes of the session to briefly summarize some of the key messages that we hear in the session today.

External Context, Scenarios and Analysis

The future of Canada's energy markets hold a significant amount of uncertainty. The NEB attempts to address this uncertainty by examining a number of different energy scenarios.

Scenario development:

• The NEB, with the help of energy market experts, identified those factors expected to have an important and/or uncertain influence on energy markets over the next three decades.
• A number of factors were identified and grouped into three key themes, including geopolitics and the role of government, social values, and economic and market issues.
• Scenarios storylines were then constructed so that they varied along these key themes. The main assumptions, such as energy prices and economic growth projections, were also influenced by the key themes and resulting storylines.
• Two of the major issues that emerged as key distinguishing characteristics between the scenarios was geopolitical relationships and action on the environment. These are the issues that appear to be continually on the minds of Canadians. This was noted through our various information gathering exercises as well as the two rounds of consultations that we undertook in the development of the Energy Futures report.
• Across all scenarios we assume that current trading relationships are maintained and respected as well we also assumed that action on the environment will continue to progress as we move forward.
  • In Fortified Islands we explore what could happen if geopolitical tensions were to escalate and remain challenging for the next three decades.
  • In the Triple E scenario we introduce a number of energy and environmental policies to mange energy demand.
  • In Continuing Trends, we assume business as usual developments in geopolitical relationships (generally stable but allows for some increased or decreased tension at different time periods) and environmental progress (continued improvements in energy efficiency and energy intensity however no additional energy programs and policies are put into place)
• In the end, by varying the expected influence of the major themes three distinct energy scenarios were created and three very different paths for energy demand and supply emerged.

Geopolitical Context

The geopolitical context is important to Canadian energy markets.

• Crude oil is a globally traded commodity. Natural gas is continentally traded however this could change as LNG increasingly ties natural gas markets around the world together.
• The major natural gas and crude oil producers in the world are located outside of major consuming regions. For example, in 2006 the largest crude oil producing region was the Middle East whereas the largest energy consuming country was the United States. It is important to note that energy resources are increasingly being concentrated in regions of the world where there is geopolitical instability. This instability results in uncertainty and leads to shocks to global crude oil prices seemingly on a day-to-day basis as new headlines are reported.

Global Energy Demand

• In addition, energy is required to drive the significant growth of developing countries, such as China and India. This has put significant upward pressure on global energy supplies to meet energy demand resulting in higher energy prices.

The geopolitical context shapes the NEB analysis largely through assumptions regarding energy prices and economic growth.

Energy and the Environment

Environmental developments have an important impact on Canadian energy markets.

As increased evidence of the impacts of energy production and use around the world mounts there is a corresponding increase in the demand for environmental management.

The social value changes are being reflected in energy and environmental policies in Canada at the national level as well as at the provincial level.

The NEB considers environmental social changes in the Triple E scenario. We assume that a number of policies and programs are adopted around the world as well as in Canada. These include increased energy efficiency programs, R&D funding, changes to urban design, financial incentives, and a price on CO2. These assumptions allow us to significantly dampen energy demand growth over the next 30.

Scenario Signposts

Uncertainty regarding energy prices, economic growth, geopolitical conditions, and the demand for environmental sustainability continues. Everyday headlines in the newspapers lend support to different scenarios that we consider in the Energy Futures report.

For example, at the beginning of the year, oil prices spiked to $100 per barrel for the first time. This was driven by a number of factors including geopolitical tensions, a falling US currency and significant global energy demand. A couple of weeks ago a report was released by CIBC World Markets, which suggest that gasoline could increase to $1.50 per litre as future oil supply might not be sufficient to keep pace with global energy demand. The report suggests that “High costs and technically challenging fields, like the Canadian and Venezuelan oil sands, the Kashagan project in Kazakhstan and Russia's Sakhalin II, have left global supply growth vulnerable to project delays”. Geopolitical tensions, weak economic growth and difficultly accessing global energy supplies are hallmarks of the Fortified Islands Scenario

On the other hand, increased awareness of sustainability issues in North America demonstrated by the coverage of these issues in popular media and in the movies suggests that the social value change required in the Triple E scenario could be underway. However, uncertainty remains over the specifics of how these issues will be addressed in each jurisdiction.

We will look to our speakers to help shed some additional light on these issues.

 

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Date Modified:

2011-10-28