On January 27, 2016, the National Energy Board (NEB) released its forecast of Canada’s energy supply and demand. The top line conclusion is that Canada will continue to produce oil and natural gas and remain a net exporter of fossil fuels. This is the case despite (a) oil price volatility and the precipitous price declines that occurred between mid-2014 and today,[1] (b) increasingly constrained pipeline capacity, and (c) continued uncertainty about the future of LNG production in Canada. If LNG projects come on-line sooner than 2019 (the NEB’s reference case assumption), there could be as much as a 45% increase in natural gas production by 2040. If there is zero Canadian LNG, then the NEB projects that the increase in natural gas production to 2040 will be more or less equal to that under its low gas price scenario (see Table 1).

As for electricity, the NEB’s forecast anticipates a 24% increase in installed generation capacity by 2040, to 173 GW (up from 140 GW in 2014). The 32 GW difference is made up of ~13 GW of facility retirements – mostly coal and nuclear - and ~45 GW of capacity additions. The majority of additions are natural gas and wind, which together represent 84% of the total. While these additions are almost evenly split, natural gas will generate about ~4x more energy than wind in 2040 (98 TWh compared to 23 TWh).[2] There are also new solar, biogas/geothermal, and some coal-based additions. By 2040, the reference case shows Canada’s electricity generation supply as made up of: hydroelectric 51% (-4 percentage points from 2014), natural gas 22% (+7 percentage points), wind 11% (+4 percentage points), biogas/geothermal/solar (+2 percentage points), coal 3% (-4 percentage points from 2014), nuclear 6% (-4 percentage points) and oil 2% (-1% percentage point).

A good portion of Canada’s hydrocarbon production is destined for export markets. However, domestic demand or end-use of hydrocarbons is also important to understand.[3] It is a reflection of both population growth and increases in economic activity.

Demand is measured across four sectors - residential, commercial, industrial and transportation – but does not include demand for electricity. Table 2 below shows increases in energy demand across all categories (leaving aside electricity) to 2040. While the absolute numbers may change depending on future price shifts, energy use grows even with low prices and no LNG development. A majority of the growth comes from the commercial and industrial sectors, in part because they represent a larger share of total demand to begin with. Demographic developments have a modest impact on demand given Canada’s expected population growth rate of less than 1% per year.

The overall trends in energy production and demand have implications for the management of greenhouse gas emissions. Encouragingly, Canada’s energy intensity is improving and is expected to continue to improve by 1% per year to 2040.[5] However, this will be insufficient to meet Canada’s current target to bring GHG emissions 30% below 2005 levels by 2030,[6] let alone accommodate any adjustments that might occur as a result of government decisions in the next few years.