NEB imagines what a low-carbon future might look like for Canadian oil/gas sector

Various technology, policy, and social trends over the past decade point to the potential for a global shift towards a lower carbon economy. – NEB

The technology case set out in the Canada’s Energy Future Report 2018 imagines a 2040 of electric cars, highly energy-efficient industry, rapid growth of wind and solar, and global oil consumption that is 25 per cent less than today. Sound like science fiction? This is the future Alberta oil sands are already preparing for.

The annual report was released Wednesday by the National Energy Board. Chief economist Jean-Denis Charlebois told Energi News there are three trends that really stand out in this year’s analysis.


Chief economist Jean-Denis Charlebois, NEB.

“One, the energy mix is diversifying and getting greener, less carbon intensive. Two, which is probably the most important, Canada is becoming more energy efficient, which causes economic growth to decouple from energy use even further,” he said in an interview.

“Three, there continues to be significant potential for energy production in Canada and that includes the production of oil and gas.”

The report sets out four scenarios: reference (relatively slow change based upon moderate prices and technology improvement, current policies), low prices  and high prices (impact of volatile commodity prices), and technology (more robust climate policies, faster low-carbon technology adoption).

Impacts on Alberta’s oil and gas sector would be most severe under the technology case outcome – which is precisely the future anticipated by the oil sands companies.

What does a low-carbon future look like as envisioned by the NEB?

The national energy regulator modelled its assumptions on the International Energy Agency’s sustainable development scenario, which includes meeting commitments made under the Paris climate agreement, “declining fossil fuels use, increasing use of non-emitting fuels, increased energy efficiency, and emergence of new technologies.”

Policies: carbon pricing is the big one. The World Bank’s carbon pricing dashboard estimates that 53 countries now have some form of carbon price covering all or portions of their economies. Other policies include fuel efficiency regulations, support for alternative fuels, and emission standards and limits. Under both the reference and technology cases, the NEB thinks the carbon prcie will average $140 per tonne of emissions by 2040, a hefty increase from Alberta’s current price of $30, which would raise gasoline prices by about 33 cents per litre.

Oil/gas markets: While consultancy Wood Mackenzie forecasts global peak oil demand at 109 million b/d in 2036, the NEB’s technology case has consumption and prices beginning to slide in 2025, with prices between $64 and $69 in US currency. This would be good news for the oil sands, whose companies are planning to be competitive even if prices drop to the mid-$40 range. Natural gas demand is more bouyant as LNG replaces ever more coal and prices rise to $3.25/MMbtu in 2030 to $3.66/MMbtu in 2040.

Energy efficiency: Canadian industry adopts new technologies that use energy more efficiently – less energy per unit produced – the NEB thinks improvements could be as high as 15 to 30 per cent over the reference case by 2040.

Source: Canadas Energy Future Report 2018, NEB.

In the low-carbon future, Canadian energy use per capita is reduced by one third and energy use per dollar of GDP is nearly cut in half, according to the report.

The NEB’s technology case would appear to argue for less oil and gas production, not more than a million b/d higher than current output.

But this is a story about technology innovation in the Alberta oil sands, which will provide almost all of the supply growth during the forecast period.

“The key piece about oil and gas is that producers need to find a way to become increasingly competitive in a world where essentially demand for hydrocarbons is decreasing,” says Charlebois.

As Energi News has documented over the past five years, the mantra for oil sands CEOs is “becoming cost and carbon-competitive.”

Companies are driving down both their production costs and their greenhouse gas emissions by reducing or eliminating their consumption of natural gas, the main reason oil sands heavy crude has such a high carbon-intensity relative to lighter grades.

Since natural gas can be as high as one-third of the cost to extract bitumen from the oil sands, using less gas leads to lowers costs and emissions.

In the medium term, technology improvements dominate market impacts, and technology case production is higher than the reference case until 2030. Over the longer term, lower prices and higher costs of carbon emissions cause technology case in situ production trends to flatten out, according to the NEB report.

“I think the track record of Canadian producers speaks for itself, in the sense that they have been able to adjust to a low-price environment as we’ve seen over the last couple of years,” said Charlebois.

“We understand the assumption that there will be technology that’s being developed and that’s coming online so that they can become competitive in more of a carbon-constrained world.”

He says that the purpose of the report is to help educate Canadians so they can participate in the national debate about energy issues.

One issue that Canadians – and particularly Albertans – should be debating is the likelihood of the future envisioned in the NEB’s technology case. If oil sands companies are betting on a carbon-constrained future, perhaps we should as well.

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