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Home > Speeches and Presentations > Speeches and Presentations 2009 > Canada's Energy Future - Update 2009

Canada's Energy Future - Update 2009

Presented by
Sheila Leggett
Vice-Chair
National Energy Board

World Congress of Chemical Engineering
Montreal, Quebec

24 August 2009

I wish to thank the WCCE organizers for inviting me to participate in this year's conference in Montreal.

The NEB

The NEB has two broad responsibilities that are derived from the National Energy Board Act.

Our regulatory role includes: oversight of the construction and operation of international and interprovincial pipelines, as well as, international and designated interprovincial power lines; authorization of pipeline tolls & tariffs; and authorization of energy exports (oil, NGLs, gas and electricity) and imports of natural gas.

More specifically, our goals state that facilities under NEB jurisdiction are safe and secure, have acceptable environmental outcomes, and respect the rights of people who may be affected.

Additionally, we are guided by a goal which states that Canadians benefit from efficient energy infrastructure and markets. Our advisory work includes informing the government, industry and the broader public about developments in energy supply and markets through our Energy Information Program. This includes the production of reports such as Canada's Energy Future, other Energy Market Assessments and making energy information available on our web site.

All of the NEB's work is based on stakeholder consultations.

NEB Pipeline Responsibilities

This slide shows the pipelines that are regulated by the Board - approximately 70,000 km of pipeline in Canada.

Natural gas pipelines account for about 2/3 of this total, and oil pipelines make up the other 1/3. In 2008, it is estimated that these pipelines shipped over $127 billion worth of natural gas, crude oil, petroleum products and natural gas liquids, at an estimated transportation cost of $4.4 billion.

Energy Information Program

In 2007, the Board released a comprehensive energy supply and demand report - Canada's Energy Future - Reference Case and Scenarios to 2030, that included 3 forward looking scenarios.

Much has changed in two years. We have just released the 2009 Reference Case Scenario, which is an update to the 2007 report. It is available on our website, and I will be giving some highlights from it today.

Reference Case & Scenarios

The 3 scenarios from the 2007 report included:

• Reference Case/Continuing Trends - the "business as usual" trend apparent at the beginning of the outlook period, maintained through to 2030. Characterized by high economic growth, energy demand growth, and moderate energy prices.
• Triple E - which assumes fairly aggressive environmental and conservation goals pursued at an international level. Economic growth is moderate. Energy prices are ultimately the lowest due to successful demand management strategies and abundant supply due to technology investment.
• Fortified Islands - the focus is on North American energy security. It has the slowest economic growth and highest energy prices. These outcomes are the result of continued geopolitical tensions and emphasis on developing indigenous energy sources.

These scenarios are important for framing my presentation.

One of the major conclusions from both the 2007 and 2009 supply and demand reports is: Canada's energy markets are functioning well and we have ample energy supply...

Some highlights from the latest Reference Case will help illustrate this, and introduce the unique challenges and opportunities for Canada.

2009 Reference Case Scenario: Canadian Energy Demand and Supply to 2020

These three key points from the just released report provide important context for considering the integration of alternative fuels and emerging technologies into the energy picture.

• We see a larger share of unconventional oil and gas.
• Also, there's an improving energy intensity, both from improving energy efficiency and a larger share of renewables in the electricity mix.
• And, energy demand growth slows significantly compared to what we've seen in the past decade.

Oil prices in Reference Case

Over the last decade, energy prices have proven to be volatile and future prices continue to be uncertain. This is reflected in the large range of assumed crude oil and natural gas prices which are considered in the Update. Namely, the Update uses a Reference Case and two alternate low and high price cases. The Reference Case for crude oil is US$90/bbl; low case is US$60/bbl and high is US$120/bbl by 2020.

Average natural gas price is US$5.50/MMBtu in a low case and US$11.00/MMBtu in the high case. The Reference Case uses US$7.50/MMBtu.

These price sensitivities offer an interesting insight into the Canadian economy. High energy prices hurt the manufacturing sector and erode personal incomes. However, as commodities sold on world markets, high priced energy also supports national economic growth.

Future Oil Supply Reflects Larger Unconventional Mix

This chart provides an illustration of the changing composition of crude oil in Canada. By 2020, oil sands will provide almost three quarters of Canada's total oil production; up from approximately 50 per cent at present. The top two lines (orange and light blue) represent non-upgraded and upgraded oil sands production. These more than replace declining conventional reserves, leading to more export opportunities.

In the Reference Case, Canadian crude oil output is estimated at 3.8 million b/d by 2020. In the Update outlook, Canada's huge oil sands resources represent an increasingly important source of non-OPEC petroleum supply. The rate of supply expansion depends primarily on the rate of recovery from the global recession.

Evolving Natural Gas Markets

Recent surges in investment in NE B.C. for development of shale gas indicate that there is high level of interest in securing long term natural gas supply in spite of periods of low gas prices.

At the end of June, a new terminal for receiving foreign LNG commenced operation. LNG import capacity into North America has increased to over 11 Bcf/d, including the 1.0 Bcf/d Canaport facility in Saint John, New Brunswick. Utilization of individual terminals will vary depending on market conditions and contractual arrangements.

The natural gas market has changed radically in the last few years in North America and the impact is significant.

Future gas supply reflects a larger unconventional mix

By the end of the outlook period, gas production reaches 16 Bcfd (450 million m³/d). As well, both shale and tight gas are projected to increase significantly, constituting two-thirds of total natural gas production by the end of the forecast period as compared to one-third at this time. The growing contribution of this unconventional source in North America is expected to decouple the historic relationship between natural gas and oil prices. As well, Canadian natural gas exports, which were projected to decrease sharply in the previous forecast, are now expected to stabilize in the medium to longer term.

As a result of the severe slowdown in conventional natural gas drilling activity and only gradual increase in unconventional gas drilling, Canadian natural gas production is projected to decline significantly over the 2008 to 2010 period. At the same time, Canadian natural gas demand is likely to recover and begin to grow as use for oil sands production and power generation continues to increase. This combination of declining production and rising Canadian gas requirements results in a lower net surplus available for export.

Electricity Supply in Canada Becoming Cleaner

With the retirement of coal plants in Ontario and expectations of significant growth in other generating technologies, the Canadian electric system is transitioning to lower emission intensity. Reduced growth in demand for electricity through energy efficiency also affects requirements for new generation.

Hydroelectric, nuclear and natural gas capacity are projected to increase in the future. Although the share of unconventional emerging technologies is expected to remain small at less than 15 per cent by 2020, large changes are projected in the magnitude of these generation technologies. Most notable is wind capacity, which is projected to form ten per cent of total installed capacity by 2020. Other technologies such as biomass, landfill gas, waste heat, solar and tidal power generation also grow significantly. By 2020, technologies such as carbon capture and storage (CCS) are expected to be used more broadly to contain emissions from fossil fuel power generation.

Total generation capacity increases 21 per cent between 2008 and 2020. Growth in generating capacity slightly exceeds growth in domestic consumption, which indicates growing opportunities for export.

Energy Demand Forecast to 2020 - Price Case

In terms of energy demand, total consumption is expected to continue to grow with population and economic growth. Energy demand growth rates are expected to slow down compared to past history and the Board's 2007 projection. This is due to slowing economic growth, assumed higher energy prices, and newly added federal and provincial energy demand management programs. Demand is projected to grow at 0.7 per cent per year in the Reference Case. In the low price environment, demand grows at 1.2 per cent annually. In a high energy price environment, demand grows at only 0.3 per cent a year.

I would like to highlight more results related specifically to energy demand. I think these results will provide a link to the technical sessions and the transportation fuel roundtable.

Comparison Historical and Forecasted Growth Rates

Two key assumptions behind the 2009 energy outlook are slowing population and economic growth. This graph compares historical to forecasted average annual change. Population growth drops below 1 per cent per year and GDP drops to 2.2 per cent year. The decrease in end-use demand is significant because we have declining demand growth coinciding with increases in emerging and alternative fuels. This is better illustrated through a sector by sector analysis…(next slide)

Industrial Energy Demand - Fuel Type

The industrial sector accounts for approximately half of the total energy demand in Canada.

Natural gas is, and is expected to remain, the largest fuel share, followed by electricity. Still gas & petroleum coke, and biomass hold a fairly large share, accounting for approximately 10 per cent of the sector fuel. Still ('process') gas and petroleum coke are primarily used in oil refining/upgrading. Biomass use is dominated by the pulp and paper industry.

A small percentage of this fuel demand is used as chemical feedstock, such as ethane for ethylene.

Industrial growth averages 0.3 per cent over the Reference Period. This aggregate average masks near term decreases, a steep increase around 2010-2011, wide regional disparity, and wide variances between types of industry.

If projected forward, The Triple E world that was outlined in the 2007 report would see wider use of biomass for industry fuel and electricity power generation. There would also be an increased use of petroleum coke and natural gas for cogeneration opportunities in large industrial facilities.

Transportation Energy Demand: Sub-Sector Share

The transportation sector demand includes passenger, freight, and off-road transportation. This is the second largest energy use sector in Canada and road transportation accounts for over 80 per cent of this sector's share.

The passenger transportation sector is projected to increase 1.2 per cent per year. As with other sectors in the 2009 forecast, demand growth is slower than the historical rates. This is almost half of the annual growth rate of the late 1990s.

Freight transportation is expected to increase by 1.8 per cent per year.

Transportation: Fuel Type

This is a dynamic time for the automotive sector in North America. Developments in government policy are also likely to reshape energy demand within the transportation sector. Proposals for more stringent fuel efficiency standards on motor vehicles have been proposed at the U.S. federal and state levels, as well as in Canada at the federal and provincial levels. Three provinces (ON, BC, MB) have an alternative fuel standard in place for ethanol, which were included in the analysis.

Legislation to reduce the carbon intensity of transportation fuels and to advance alternative fuels for the transportation sector are being developed in California. This policy is being examined at the national level in the U.S. and at the provincial level in Canada. Both the Ontario and British Columbia governments have indicated that they will adopt California's Low Carbon Fuel Standard.

Sufficient details on the future of vehicle fuel economy standards and the low carbon fuel intensity standards for Canada are currently not available to quantify for the 2009 Reference Case Scenario. However, the expectation is that these standards could lead to improved average fuel economy of the vehicle fleet in Canada and changes to the vehicle fuel mix.

Concluding Thoughts

As we prepared the 2009 report, we were very aware of the levels of uncertainty in almost every aspect of energy supply and demand analysis.

This is particularly the case in matters of environment related policy making which is changing, it seems, almost daily in North America right now.

What does this mean for engineering, research and development? So much is riding right now on the availability of appropriate technology:

• Cellulosic ethanol
• Carbon capture and storage
• Lower cost and higher efficiency solar PV
• Fuel cells
• Smart grids and moderization of electrical distribution
• Other??
• Will they be ready? what are other options? What kinds of technology integration, infrastructure, and policy synergies are needed?
• In our 2007 Canada's Energy Future report, we looked at what a "Triple E" world might look like. The technologies considered were all commercially available, even if not widely used. A comprehensive policy framework that included a modest trend towards monetization of emissions, ramped up equipment efficiency standards and building codes. Also infrastructure investment, research and development funding, and dedicated education and awareness campaigns, were all applied in moderation.
• Based on the changes that have happened in the last two years, a more aggressive and exploratory analysis for a revisited Triple E could be in order. Keeping in mind, this is from the NEB's perspective where market forces (affordability/competition), reliability, safety, and stakeholder relations are also part of our everyday world.
• This audience already knows the impossibility of simple solutions for energy issues. We look to the engineering community to help "fill in the gaps" in creating a more detailed and accurate picture of how Canada's energy future could unfold; to try and frame our Triple E scenario from the perspective of where we sit today: what should we include, how far and how fast can we integrate these technologies into the analysis?

Further Reference

• Canadian Energy Overview 2008 - An Energy Market Assessment - May 2009
  • Canadian Energy Overview 2008 - Energy Interview
• 2009 Reference Case Scenario: Canadian Energy Demand and Supply to 2020 - July 2009
• Canadian Pipeline Transportation System - Transportation Assessment - July 2009

In closing, I would like to point out of few NEB references, in particular, three recent energy information releases.

I encourage you to get in touch with us with feedback on our energy analysis, and also to discuss energy matters.

Thank-you.

 

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Date Modified:

2011-10-28