Canada's Energy Future (as of 2016)

February 10, 2016
Denise Mullen

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).

Table 1
Volume of Canadian Energy Produced in 2040
% Change in Production of Oil and Natural Gas
from 2014 Levels to 2040, according to NEB

Oil (MMb/d)*
Natural gas (Bcf/d)**
% Change
from 2014
Crude Oil 6.1 MMb/d +56%
Natural Gas 17.9 Bcf/d +22%
Crude Oil 6.9 MMb/d +78%
Natural Gas 24 Bcf/d +60%
Crude Oil 4.8 MMb/d +25%
Natural Gas 16 Bcf/d +6%
* MMb/d=Million barrels per day ** Bcf/d=Billion cubic feet per day

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.

Table 2
Energy End Use by Category
Residential Commercial Industrial Transportation
2014 1513 1459 5965 2690
2040 1635 1914 7461 2858
Percent Change 8% 31% 25% 6%

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.

[1] 2010 to July 2014 prices were fairly stable, fluctuating between ~US$100 and US$115 per barrel. In July 2014 there was a dramatic drop from ~US$100/bbl to US$48/bbl by January 2015. The oil prices has further declined to ~US$30/bbl as of early February 2016.

[2] TWh=Terawatt hours. One terawatt hour is equal to a sustained power of approximately 114 megawatts for a period of one year. The watt second is a unit of energy, equal to the joule.

[3] End use includes non-energy use and producer consumption (i.e., energy used to produce other commodities such as petrochemical feedstock, lubricants and asphalt, and energy used to produce oil and natural gas).

[4] The petajoule is equal to one quadrillion (1015) joules. 210 PJ are equivalent to about 50 megatons of TNT.

[5] Energy intensity = energy use per unit of economic activity.

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