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Home > Speeches and Presentations > Speeches and Presentations 2008 > The Board and Energy Development in Canada

The Board and Energy Development in Canada

Presented by
Sheila Leggett
Vice President and Board Member
National Energy Board

Forum québécois sur l'énergie
Montreal, Quebec

11and 12 November 2008

The Board and Energy Development in Canada

Hello everyone.

My name is Sheila Leggett and I am very pleased to be speaking to you today as Vice-Chair and Member of the National Energy Board. Our offices are located in Calgary, Alberta.

On a personal note, let me say how pleased I am to be back here, meeting with Quebec's energy stakeholders. And I'm even more pleased to be back in Montreal, where I spent most of my childhood.

I would also just like to add how proud I am of the Board's achievements. 2009 will go down as a memorable year for all of the Board's employees: we will be celebrating our 50th anniversary, and we were delighted to learn last month that MacLean's magazine included the Board as one of Canada's top employers for 2009.

I would also like to thank the organizers of the 7th Forum québécois sur l'énergie for inviting me to speak about the Board's views on Canada's energy future in the long term, energy issues and energy trends in the shorter term.

I will be giving my presentation in French. As you no doubt have noticed, French is not my first language, so please don't hold it against me if I make mistakes!

Agenda

Agenda

To give you a clear idea of who we are and what we do, I'll begin with a brief overview of the NEB and its role.

With me today is Stéphane Thivierge, one of our market analysts and co-author of the report I will be speaking about.

Please note that the titles of some recent and upcoming publications are included at the end of the presentation document you were given.

The NEB and its role

The NEB and its role

The NEB is an independent federal agency that regulates several aspects of the energy industry under its jurisdiction.

Also, because our activities include monitoring energy supply and demand on Canadian markets, we are required to provide Canadians with information on the energy industry.

The Board's purpose can be summarized as follows: to promote safety and security, environmental protection and efficient energy infrastructure and markets in the Canadian public interest.

Canada's energy future

Canada's energy future

As I just mentioned, the focus of my presentation is the report titled Canada's Energy Future - Reference Case and Scenarios to 2030, which the Board published last fall.

The key objectives of the report were to analyse Canada's energy markets and stimulate discussion of energy issues. The following were analysed in the report:

  • A reference case for the period 2005 to 2015; and
  • Three scenarios for the period 2015 to 2030.

Please note that the Board is currently updating the reference case and its assumptions, for publication in late 2009.

First, I would like to specify that developing this report required consulting some 250 energy experts.

Two Canada-wide tours were held to meet with representatives from industry, provincial and federal governments, academia and NGOs, and a good number of Canadians interested in energy issues.

Using the information gathered, and drawing on its own analyses and expertise, the NEB created a series of economic and geological models to be used to develop energy supply and demand projections for Canada.

Reference case and scenarios to 2030

Reference case and scenarios to 2030

Understanding the results of our analyses first requires a solid understanding of the assumptions used in terms of energy prices and economic conditions. This information is the basis for the reference case and each of the three scenarios.

Using the reference case and the three scenarios, we can examine the future while taking into account the uncertainty caused by economic and geopolitical factors, including social trends and technological developments.

I'll start with the reference case and then the scenarios.

  1. The reference case (2005-2015) represents the NEB's view of energy supply and demand during the next 10 years, based on decisions made and on current trends.

    It is characterized by moderate energy prices and commercial activities continuing as usual. Based on past observations, we could expect that the relationship between natural gas and oil prices will continue to hold.
  2. As I said a few minutes ago, there are three scenarios. They are based on a set of assumptions that are not only consistent but are designed to confirm possible conclusions. These scenarios are all seen as plausible, and one scenario is no more plausible than another.
    1. The Continuing Trends Scenario is essentially an extension of the reference case over another 15 years, i.e., to 2030. The trends that are apparent at the beginning of the outlook period are maintained over the long term.
    2. The Triple E Scenario is characterized by energy demand management and cooperative efforts. In short, the economic, environmental and energy objectives are balanced with a combination of energy markets and cooperative international agreements on a global scale.

      The Triple E Scenario is also unique because it entails more moderate economic growth owing to compromises between economic growth and environmental protection. Preference is given to green fuels, meaning renewable energy sources, from nuclear to natural gas, and carbon pricing of emissions.
    3. The Fortified Islands Scenario focuses on the continuity of supply in North America, leading to lower economic growth and higher energy prices.

This combination of factors is the result of a sense of insecurity in the world, while geopolitical tensions continue to negatively impact access to inexpensive sources of energy.

Summary of key assumptions

Summary of key assumptions

GDP (gross domestic product) growth forecasts

For our last estimate of the reference case, we predicted growth in the real GDP (real gross domestic product) at 2.9% for the period 2004 to 2015. Please note that for the purposes of this calculation, the growth rate corresponds to the average annual rate, and the reference year is 2004.

For the three scenarios, GDP growth forecasts predict a change of 1.8% to 2.5% for the period 2004 to 2030.

Energy price forecasts

Despite the inevitable uncertainty surrounding energy prices, we used the following assumptions:

  • The price of WTI (West Texas Intermediate) crude oil ranges from US$35 to US$85;
  • Natural gas prices at the Henry Hub range from US$5.50 to US$12 per MMBtu (million BTU).

Energy demand

Secondary energy demand has increased an average of 1.8% per year between 1990 and 2004. This percentage is used in the Reference Case for the years 2004 to 2015.

Growth in energy demand ranges from 0.3% to 1.4% per year across the three scenarios.

Greenhouse gas emissions

Greenhouse gas emissions

Greenhouse gas (GHG) emissions

In the Reference Case, GHG emissions are an outcome of upward and downward energy demand trends. Growth in GHG emissions ranges between -0.1% and 1.5% per year. Energy demand is rigid in the short to medium term as it is shaped by established industries, devices, services and habits.

In the Triple E Scenario, however, GHG emissions decrease by 0.1% annually between 2004 and 2030, the result of policies directed at balancing energy use, environmental impacts and economic growth.

We'll now take a brief look at some results for each scenario.

Total Canadian secondary energy demand by fuel

Total Canadian secondary energy demand by fuel

The graph on the screen and the next two describe total Canadian secondary energy demand, by fuel.

According to data from the Reference Case, total Canadian secondary energy demand grows annually by 1.8% from 2004 to 2015.

From 1990 to 2015, the petroleum products share increases from 42% to 46%, whereas the electricity share falls from 19% to 17% and the natural gas share from 31% to 29%.

The main findings of the Reference Case with respect to demand, supply, risks and uncertainty are as follows:

Energy demand

Energy demand will remain strong despite higher energy prices, the result of strong economic performance and an increase in personal income.

Energy supply

Over the next decade, Canadians will see, among other things, the impact of energy supply decisions.

Some observations:

  • Oil sands development will continue growing and result in changes at the refinery level and in pipeline infrastructure;
  • Canada will continue to depend on Western Canadian gas production;
  • Coal supply will stay the same, while nuclear capacity will in large part be restored; and
  • Emerging technologies such as wind power, will start to have a substantial impact on the production mix across Canada.

Reference Case - Risk and uncertainty

Risk and uncertainty with respect to the Reference Case can be summarized as follows:

  • Obtaining the regulatory approvals required to put a new pipeline into production to carry Mackenzie Delta gas as of 2015.

Continuing Trends Scenario - Issues and implications

With respect to Continuing Trends - remember, this is essentially the Reference Case but extended to 2030. That being said, total secondary energy demand in Canada grows by about 1.0% per year from 2015 to 2030.

This slower growth is attributable to slowing economic growth over the last 15 years of the Continuing Trends Scenario.

Until 2030, the situation can be summarized as follows:

  • Oil's share will continue growing with the rapid intensification of oil sands activity in Western Canada; and
  • Electricity and natural gas demand will also continue growing, but not as quickly as demand for oil. Note that the increase in electricity prices have a moderating effect on growth in demand.

The issues and implications of the Continuing Trends Scenario are as follows:

  • Energy demand growth and changing supply profiles will both require investment in new infrastructure;
  • Oil sands production should account for over 85% of total oil supply in Canada by 2030;
  • Declining conventional natural gas production and growth in demand for gas for oil sands production in the West is gradually eating into existing natural gas reserves in the West; and
  • Canada will gradually shift from its role as a net gas exporter to that of a net importer by the end of the target period.

Also, the risks arising from the Continuing Trends Scenario include policies aimed at demand management, given that these are not as significant as they are in other scenarios.

Total Canadian secondary energy demand by fuel (continued)

Total Canadian secondary energy demand by fuel (continued)

Let's look now at the Triple E Scenario, also referred to as balancing energy, economic and environmental factors.

In the Triple E Scenario, total secondary energy demand in Canada increases by 0.3% per year from 2004 to 2030.

  • Oil still accounts for a large share of total Canadian demand, at 49% in 2030;
  • Electricity's share decreases somewhat, reaching 17% in 2030; and
  • Bio-fuels and other emerging sources of energy grow from 6% in 1990 to 8% in 2030.

Triple E Scenario - Issues and implications

The Triple E Scenario is characterized by greater awareness of energy issues, resulting in certain behavioural and lifestyle changes.

Owing to energy efficiency improvements and carbon dioxide capture and storage technologies, this scenario presents a drop in GHG (greenhouse gas) emissions.

It is important to note that GHG emissions decrease, despite growth in economic activity.

The major challenge of this scenario is the fact that its success depends on demand management, a decrease in GHG emissions, technological developments and international cooperation.

Total Canadian secondary energy demand by fuel (continued)

Total Canadian secondary energy demand by fuel (continued)

Under the Fortified Islands Scenario, total secondary energy demand in Canada grows by 0.7% per year during the period 2004 to 2030.

Oil accounts for 51% of total Canadian secondary energy demand, and bio-fuels and other emerging sources of energy remain stable at 6%.

While the national economy overall suffers from high energy prices, the Western provinces benefit from a series of massive developments of oil and gas reserves.

Fortified Islands Scenario - issues and implications

Of all the scenarios, the Fortified Islands Scenario involves the lowest economic growth. In short, activity increases in energy producing regions but declines in the manufacturing regions.

Compared with previous years, growth in energy demand slows, the result of higher energy prices and slow growth in incomes and in the economy in general.

Because maintaining natural gas production is driven by high prices, Canada remains a net exporter of natural gas, whereas under the other scenarios, Canada becomes a net importer before the end of the study period.

To make the scenario a reality, international relations have to remain tense, because restricted access to oil and gas keeps energy prices high, and energy prices drive economic conditions as well as energy supply and demand trends.

Key conclusions

Key conclusions

The key conclusions of Canada's Energy Future can be summarized as follows.

With respect to energy markets and resources, Canadian energy markets are expected to function well, with energy prices acting to ensure there is sufficient energy supply to meet energy demand.

Availability of energy resources in the future is not expected to be an issue. As an element of efficient energy markets, energy prices will provide appropriate market signals for the development of adequate energy resources.

In terms of demand and experts, fossil fuel energy continues to be the dominant source of supply, although other non-conventional and non-fossil fuel supplies begin to play a larger role.

Energy supply is quite price-responsive, but energy demand is not. The pattern of energy consumption depends in the make-up of the inventory of energy-using devices, such as buildings, appliances, cars, and so on).

In Canada, total net energy exports are expected to increase in the future, however, this growth varies by commodity and scenario. For example, while the oil and electricity exports are higher than the historical levels in all scenarios, net natural gas exports see growth only in Fortified Islands.

The expansion of export markets will be directed by market forces and could take various forms:

  • Growth in existing export markets
  • Displacement of competing volumes from existing export markets, or
  • Accessing new offshore markets.

GHG emissions

Under the three scenarios, GHG emissions increase or decrease slightly. Reducing emission rates further will require ambitious energy programs and encouraging Canadians to change certain behaviours.

Key conclusions (continued)

Key conclusions (continued)

To achieve the multiple objectives of economic growth, environmental protection and energy sector development, policies will have to be integrated at all levels of government, and will have to take into account factors such as wide regional differences in energy consumption and emissions, evolving energy supply systems, and a changing global environment.

Major investment in infrastructure and new sources of energy supply will require balancing public acceptance and engagement.

The report's conclusions are still solid:

  • In terms of energy, the opportunities and difficulties are the same for all Canadians;
  • Current volatility in financial and commodity markets and the economic slowdown increase the uncertainty of short- and long-term energy forecasts, and
  • This volatility could interfere with certain events or projects.

What we can say is that the outlook for the next 25 years is very different for all Canadians. Fortunately for them, abundant natural resources will allow them to make important choices that will shape their energy future.

The Board will continue acting as an effective partner to help plan a promising and lasting future. Armed with these tools and options, Canadians have the means they need to make the necessary changes. It is just up to us to do what is needed to maintain and improve our quality of life.

The immediate future

The immediate future

Before closing, I would like to address the energy outlook for the winter, 2008-2009.

The NEB Winter Outlook is intended to provide Canadians with an independent analysis of current and upcoming energy issues including demand, supply and pricing. However, the current global economic situation has created a particularly volatile and uncertain environment for energy markets.

A global economic downturn is significantly impacting energy demand and, in turn, prices. This theme is explored in each of the following energy market outlooks.

Falling oil prices and growing volatility.

Crude prices are expected to average in the range of US$50 to US$75 per barrel over the winter. Although global inventory levels are low and OPEC has recently committed to production cuts, the market is primarily concerned with the current economic downturn and falling demand.

Heating oil prices have been rising over the past number of years, largely in response to higher crude oil prices. With crude oil prices ranging from US$50 to US$75 per barrel, average Canadian heating oil prices this winter are expected to be lower than prices seen last year. Crude oil prices are highly uncertain, however and could move higher or lower, depending on key market factors. Heating oil supplies in Canada will likely be adequate to meet consumer needs this winter. However, US inventories are at the bottom of the five year ranges, providing some support to prices.

Natural gas - Barring any prolonged cold weather, natural gas prices are likely to remain on the lower end between US$6.00-9.00/MMBtu over the course of the winter. Since summer 2007, North American natural gas prices have deviated from the typical pricing relationship with crude oil, meaning that record high crude oil prices are not pushing the price of natural gas upward significantly.

This winter, assuming normal weather, natural gas prices are likely to remain disconnected from crude oil, given the amount of additional domestic North American production being projected, and lower demand resulting from a slower US economy.

Natural gas prices are expected to remain below the price in the rest of the world. In general, Asian and European natural gas prices are more closely tied to oil prices. The impact from the price difference will be lower LNG imports this winter, since it will be shipped to the higher price areas.

Growth in US gas supply has more than offset any reductions in LNG imports and Canadian production. The Rockies Express pipeline has allowed more production from the western US to enter the market and this, combined with additional production from shale, has meant a significant year over year increase in natural gas production. In addition, with lower US demand due to a slowing economy and mild weather this summer, gas storage is on track to be full for the upcoming winter season.

The combination of weaker demand and higher gas availability suggest that there will be sufficient gas supplies this winter.

Adequate electricity supply this winter with some tightness in Western markets

Overall, electricity jurisdictions are expected to have adequate supplies of generation to meet upcoming winter loads. Aside from unforeseen occurrences, there should be no supply interruptions for the average Canadian consumer.

However, energy supply is an ongoing concern in Western Canada. In the past few years, the demand for electricity in Western Canada has outpaced supply. As a result, western energy reserve markets are declining.

However, in some areas of the country, the economic slowdown has resulted in reduced demand. The manufacturing industry has been hit hard by the slowdown and, as manufacturing plants and mills shut down, demand has decreased.

A growing understanding of, as well as efforts to reduce greenhouse gas emissions, is also influencing electrical energy supply on a number of fronts. In the last few years, wind generated power has grown significantly, and is expected to continue to do so in the years to come.

There is also renewed interest in nuclear power generation. As a result, a number of facilities in the East are being refurbished. These provinces (ON, QC, NB) will be better positioned to handle energy demands.

Thank you!

Thank you!

As mentioned a few times, the Board is proposing to evaluate recent changes during the next Reference Case update. After basic assumptions are reviewed, stakedholders across the country will be consulted on the changes, and the analysis will be released in 2009.

Meanwhile, I encourage you to send us your comments on our analyses, or simply, to discuss energy issues. We are a regulatory body, it is true, but we are still approachable.

Through our ongoing interactions with energy sector stakeholders, landowners, those interested in the environment and all Canadians, we are continuously learning more about the energy concerns of Canadians, which in turn, helps us perform better and be more accountable for outcomes. So please, feel free to contact us.

Thank you.

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Date Modified:
2011-10-28