British Columbia will surpass Alberta as Canada’s biggest natural gas producer by 2028, driven largely by LNG exports, according to a new outlook by the Canadian Energy Regulator (CER).
The Canada’s Energy Future 2021 outlook projects Canada’s energy use and production between now and 2050, with projections varying depending on two main scenarios – current policies and evolving policies. The latter is one in which Canada and other countries adopt even more stringent climate change policies, like higher carbon taxes, than what are currently in place or announced.
Canada’s carbon tax is set to rise by $15 a year until it hits $170 per tonne in 2030 – a current policy. An evolving policy scenario would be one in which the tax would continue to rise past 2030 or increase in price.
In both scenarios, the outlook projects less domestic use of fossil fuels and increased use of electricity. It predicts, for example, that coal will make up less than 1% of Canada’s energy mix by 2035, compared to 5% in 2019.
But production of oil and gas in Canada is not projected to decline commensurate with a decline in fossil fuel consumption in Canada, since much of the oil and natural gas that Canada produces is exported.
In other words, the amount of oil and gas Canada will produce going forward depends not just on Canadian climate action policies, but policies enacted by other countries as well, which will have an impact on demand for things like oil and natural gas.
The CER report predicts oil production in Canada will increase by about 800,000 barrels of oil per day (MMb/d) by 2032 – a 16% increase from today’s 5 million MMb/d – before plateauing.
Generally, the CER predicts Canada will use less energy overall, due to increased efficiency.
“Total primary energy use falls 21% from 2021 to 2050 as energy efficiency improves,” the report projects.
Despite that decrease in primary energy use, the outlook forecasts a significant increase in the production and use of electricity, as parts of the economy, including transportation, switches from fossil fuels to electricity and hydrogen.
“Despite total energy use declining, electricity demand grows 44% from 2021 to 2050 in the Evolving Policies Scenario, much of it from new areas such as electric vehicles and hydrogen production. Canada’s electricity system also gets greener, going from 82% low and non-emitting in 2021 to 95% in 2050.”
Half of that 44% increase comes from increased electrification in the industrial, residential, and commercial sectors.
“The other half comes from electric vehicles in transportation and the production of hydrogen," the report states.
“Wind and solar generation provide much of this additional electricity over the projection period, given their low cost. Natural gas generation is increasingly equipped with CCS (carbon capture and storage)."
In Alberta and Saskatchewan, coal power will be phased out increasingly by thermal power from natural gas.
“Natural gas-fired electricity generation remains a relatively important share, about 15%, of the electricity supply of Alberta and Saskatchewan in the main net-zero electricity scenario.”
As for oil production, the CER report projects it will increase at a slower pace than in the past decade, topping out at 5.8 MMb/d by 2032, and eventually falling to 4.8 MMb/d by 2050. It projects longevity for Alberta’s oil sands.
“Canadian crude oil production levels are resilient through to 2050 despite the Evolving Policies Scenario’s relatively low prices and steadily more ambitious climate policies," the CER report states. "This largely stems from the nature of the oil sands facilities, which are long-lived and have low operating costs once built. Throughout the projection period, the vast majority of oil sands production is from facilities that are producing today.”
As for pipeline capacity, under the evolving policies scenario, the expansion of the Trans Mountain pipeline, “comes close” to providing the takeaway capacity for exports. But continued constraints on export capacity by pipeline and rail is expected to continue to result in a discount on the price Alberta oil producers get for their oil.
Under current policies, Alberta oil exports will continue to be “constrained below projected levels without additional pipeline capacity.”
In other words, even with the completion of the twinning of the Trans Mountain pipeline, there still won't be enough pipeline capacity, under a current policies scenario, so Alberta producers would continue to get less for their oil than if takeaway capacity matched production.
As for natural gas, domestic demand will fall in some areas, but increase in others – power production in Saskatchewan and Alberta, for example, or the production of hydrogen. But falling domestic demand will made up in an expected growth in exports, in the form of LNG exported from B.C.
“Investment in natural gas production is spurred by assumed liquefied natural gas (LNG) exports in both scenarios,” the report states.
“In the Evolving Policies Scenario, nearly 40% of Canadian natural gas production is liquefied and exported to global markets by 2050.”
By 2050, the CER projects natural gas production in Canada will fall by 17%.
Increased natural gas production in the next few decades will be concentrated in the Montney formation, with growth occurring more in B.C.
“In both scenarios, natural gas production from the Montney Formation, which straddles the Alberta-B.C. boundary and is rich in higher value natural gas liquids (NGLs), grows significantly," the report forecasts. "In many other regions, production is stable or declines throughout the projection.
“Much of the production growth related to LNG exports occurs in B.C. and production in B.C. surpasses that of Alberta by 2028.”
However, the CER outlook notes that additional LNG development beyond what is already approved is “uncertain.”
“We assume that 75% of the natural gas that will be liquefied will come from natural gas production dedicated to supplying LNG facilities. This means that this 75% comes from production that only exists because LNG export capacity exists and is above and beyond what would be produced based solely on our North American natural gas price assumptions.
“Future LNG development is uncertain and could be significantly different than implied by these assumptions.”