OPINION | New report from the Canada Energy Regulator contains significant gaps

This column is an opinion from Sara Hastings-Simon, a senior researcher at the Payne Institute for Public Policy at the Colorado School of Mines, and a research fellow at the School of Public Policy at the University of Calgary.

The recently released Energy Future 2020 report (EF2020) from the Canada Energy Regulator is the latest long-term energy outlook that builds on the history of projections published by the precursor to the agency, the National Energy Board, since 1967. 

If you read any of the media coverage of this year's report, you might have come away thinking Canada's oil production is forecast to grow by at least 18 per cent, or as much as 43 per cent, over the next 20 years. That isn't necessarily the case.

The Energy Futures are intended as a set of potential futures to inform policy decisions. Rather than encompassing a broad set of potential futures, the core scenarios presented are actually very narrow in their range of assumptions, and there is a significant gap between global trends and the possible energy futures considered in the EF2020. 

The disconnect is apparent when looking at the scenarios for Canadian oil production in contrast to future global oil demand.

Realizing the range of oil production in the EF2020 scenarios would require one of two things to be true: The first, that there is no change to global oil demand over the next three decades, is a future that almost no one believes in anymore, whereas the second — that Canada achieves massive market share growth — is one that no Canadian politician has articulated a compelling plan to achieve.

Understanding the different scenarios 

The EF2020 includes only two fully modelled scenarios — a reference scenario and a so-called "evolving" scenario. The potential mid-century net zero future is described only conceptually and not included in any modelling.

The reference scenario is one where no new actions or legislation are implemented, creating a picture of the future with trends frozen in place. It serves as an important modelling tool to quantify the impact of new measures that may be under consideration — a reference against which to measure the change — but it is a very unlikely future.

The "evolving" scenario is one that continues trends along their current trajectory. For example, already announced policies are put into law and new legislation is developed without any significant acceleration in the pace of action. 

Missing is any modelling of scenarios that go further; an acceleration of policies to represent a world that is moving faster on climate action — a direction that many governments, both within Canada and beyond, have indicated as possible or even likely following the pandemic.

Definitions of the scenarios are included in the modelling reports but risk being ignored in the policy discussion.

Canadian oil production and global demand

Of particular interest for Alberta are the scenarios for crude oil production in the EF2020.

In the central "evolving" scenario, crude oil production peaks in 2039 at just over 5.8 million barrels per day (MMb/d), this represents an increase of 20 per cent over the 2019 figure.

In situ bitumen production grows by 37 per cent over the projection period, with significant growth coming from expansions to existing facilities (making up 15 per cent of total oilsands production by 2050). However, some growth comes from new in situ facilities.

In a world with a growing number of countries taking actions toward mid-century net zero targets, resulting in a decline in oil demand, increasing oil production in Canada would require capturing an increasing market share of that declining global demand.

One way to try to determine just how much our market share would have to grow to meet the projections in the different EF2020 scenarios is to look at future scenarios from other sources.

Both the BP Energy Outlook and International Energy Agency's (IEA) World Energy Outlook scenarios provide important context to understand the range of futures considered in the EF2020 work.

The "evolving" Canadian scenario from EF2020 is consistent with BP's "BAU" scenario, which BP describes as one where "government policies, technologies and social preferences continue to evolve in a manner and speed seen over the recent past." Under this scenario, Canadian oil market share rises slightly, from five per cent of global production to six per cent.

However, in the more ambitious "Rapid" and "Net Zero" scenarios from BP, where climate action accelerates, maintaining the oil production growth in the "evolving" scenario implies a significant market share increase for Canadian oil, doubling to 10 per cent, or more than tripling to 16 per cent, respectively, by 2050. 

While there could be scope for Canada to gain some market share given the long production lifetimes of the assets, growth of this magnitude is inconsistent with the ongoing exits of oil companies from the oilsands and the flow of international capital to other regions. We must also keep in mind that, in a world with decreasing demand for oil, all producing regions will be ramping up competition to maintain or grow market share.

Results are similar for the IEA's scenarios that go beyond today's stated policies, which see oil demand falling as much or more than the BP scenarios. 

While there is some qualitative discussion of a "toward net zero" scenario in EF2020, it is largely focused on approaches to reduce emissions from oil production, as opposed to examining how production increases might fail to materialize in a world using significantly less oil.

Considering the range of scenarios

These calculations aren't a forecast of the future — there is no way to know which of the global oil demand paths will come to fruition, and there will be production declines from existing fields over the next 30 years that all oil producing regions will be working to fill.

But the results highlight a growing gap between scenarios for future oil production in Canada and global trends, and underscore how much of our energy future in Canada, and in particular the global demand for our oil, is determined by events outside of our control.

Scenario modelling is useful to create a range of possible futures against which governments can plan, and to test if those plans are realistic. But to be useful, scenarios must span the full range of likely potential futures, and the EF2020 scenarios don't meet that bar.

The result is some potentially large blind spots in our understanding of the range of likely futures at home, and the implications for our economy in Alberta.

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