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Canadian Energy Centre

A Matter of Fact: The IEA’s updated net zero scenario is still unrealistic


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From the Canadian Energy Centre

By Deborah Jaremko

Canada can lead the world with reliable, affordable energy supply and clean technology as countries work to reduce emissions

The International Energy Agency (IEA) has updated its net zero scenario, pushing for governments to implement more aggressive climate policies on the energy industry.  

The IEA itself acknowledges the scenario is “a pathway, but not the only one” for the energy sector to reduce emissions to net zero by 2050. 

The agency acknowledges the world is not on this trajectory, but the Government of Canada uses the net zero scenario as the basis for policies like its proposed oil and gas emissions cap, which will hurt Canadians without environmental gain 

“We’re the fourth-largest oil producing country, and we’re the only ones that are saying oil and gas is not here to stay. That’s a huge roadblock for all of us,” Gurpreet Lail, CEO of Enserva, the national trade organization representing energy service and supply companies, told the Globe and Mail during the World Petroleum Congress last week. 

Canada can lead the world with reliable, affordable energy supply and clean technology as countries work to reduce emissions. But the sector needs to be allowed to thrive rather than being phased out while it is needed.  

Here are the facts.  

Fact: The IEA net zero scenario is not a forecast 

The IEA’s updated net zero scenario envisions that the world does not need any new coal, oil and natural gas projects. By 2030, it imagines world oil demand will drop by 23 per cent, natural gas demand by 18 per cent, and coal demand by 44 per cent.  

It’s difficult to see how this could actually come about, given that even with accelerating investment in low carbon energy resources the world’s consumption of oil, gas and coal is as high or higher than it has ever been. And rising.  

The IEA reports both oil and coal demand are at record levels. The agency itself projects the world’s total energy consumption – which increased by 15 per cent over the last decade – will increase by a further 24 per cent by 2050.

On the world’s current trajectory, the IEA says oil, gas and coal will still account for 62 per cent of world energy supply in 2050, compared to 78 per cent in 2021.   

“There’s no evidence that oil demand is going to peak any time soon,” Arjun Murti, former partner with Goldman Sachs, said at the recent Global Business Forum in Banff.

“Oil is not in its sunset phase.” 

Fact: The IEA net zero scenario is unrealistic 

The IEA’s net zero scenario includes components that are unrealistic.  

For example, it says electricity transmission and distribution grids need to expand by around two million kilometres each year to 2030. But it also acknowledges that today, building these grids can take more than a decade, putting that scale and timeline already out of reach.   

The net zero scenario also hinges on a “unified effort in which governments put tensions aside and find ways to work together.” But the IEA also acknowledges the world today is “a complex and low-trust geopolitical environment.”  

Consider that Russia is trying to boost trade with Asia as economic ties with the West shrivel over Moscow’s actions in Ukraine, according to Reuters News. In just one example, state-owned Gazprom plans to start gas deliveries to China through the Power of Siberia pipeline in 2025 and expand that service in 2030 with Power of Siberia-2.    

Russia’s invasion of Ukraine accentuated the world’s reversal away from the concept of globalization, where everyone benefits from the global economy, leading energy analyst and Pulitzer Prize-winning author Daniel Yergin said on a recent ARC Energy Ideas podcast 

“The era of globalization was what I call the WTO consensus: we’re all in this global economy together. In China, hundreds of millions of people come out of poverty. India enters the global economy, standards of living go up and you get really impressive economic performance,” Yergin said.  

“Well, that era is ending and it’s heading pretty fast now as we move into this new era of great power competition, which hopefully does not become great power confrontation.” 

Energy is at the heart of the “new map,” as Yergin calls it. 

Responsibly produced, reliable energy from Canada can benefit world energy security while helping reduce emissions. That is why it is essential the sector is not phased out through government policy. 

Fact: Canadian energy and clean technology can help reduce world emissions 

One of the fastest and most effective ways to reduce emissions is to switch from coal-fired power to power generated from natural gas, traded globally as LNG.    

Consider that between 2005 and 2019, emissions from the U.S power sector dropped by 32 per cent because of coal-to-gas switching, according to the U.S. Energy Information Administration.   

Natural gas from the LNG Canada project alone could reduce emissions in Asia by up to 90 million tonnes annually, or the equivalent of shutting down up to 60 Asian coal plants, the project says.  

That’s a reduction of more than the entire emissions of the province of British Columbia, which were 64 million tonnes in 2022.    

Expanding Canada’s LNG exports to Asia could reduce emissions by 188 million tonnes per year, or the annual equivalent of taking all internal combustion engine vehicles off Canadian roads, according to a 2022 study by Wood Mackenzie.   

One of the reasons LNG from Canada has a lower emissions intensity than LNG from other jurisdictions is the success producers have seen reducing methane emissions. It’s an opportunity for technology exports. 

The IEA views cutting methane emissions from oil and gas as a critical component of achieving climate targets.  

The latest data shows that oil and gas producers in Alberta decreased methane emissions by 44 per cent between 2014 and 2021, a 10 per cent drop from 2020. The sector is expected to surpass the target of reducing methane emissions by 45 per cent by 2025.   

“I don’t know of any other jurisdiction that is as far forward in terms of its methane management as Canada,” says Allan Fogwill, chief operating officer of Petroleum Technology Alliance Canada.  

“There’s nothing to suggest we couldn’t have similar impacts in the United States, the Middle East, or former Soviet countries that also are involved in oil and natural gas production.” 

Fact: Canada’s carbon capture and storage leadership can benefit the world 

The IEA says “rapid progress” is required to deploy more carbon capture, utilization and storage (CCUS) projects to reduce emissions.  

This is another area where Canada’s energy sector can take the lead 

Since 2000, CCS projects in Saskatchewan and Alberta have removed more than 47 million tonnes of emissions, or the equivalent of taking more than 10 million cars off the road. This work has helped inform development of major CCS projects globally including Northern Lights in Norway.  

Canada has five of the world’s 30 commercial CCS facilities, accounting for about 15 per cent of global CCS capacity even though Canada generates less than two per cent of global CO2 emissions, according to the Global CCS Knowledge Centre.  

Among CCS projects under development in Canada is one of the largest in the world, proposed by the Pathways Alliance of oil sands producers.  

The first phase of the Pathways CCS project will connect 14 oil sands facilities to a CO2 storage hub in northern Alberta. The target is to reduce emissions from operations by 22 megatonnes by 2030 on the way to net zero in 2050. 

Fact: Oil and gas still needed in IEA net zero scenario 

Even in the IEA’s net zero scenario, in 2050 about 14 per cent of world energy needs are still supplied by oil and gas.   

This includes non-combustion uses like petrochemical feedstock and asphalt, which crude from Canada’s oil sands is particularly well suited to supply. Researchers with Queen’s University recently found that asphalt from Alberta’s oil sands can extend pavement lifespan by 30 to 50 per cent.    

The world needs more Canadian oil and gas, not less.   

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Start-up of Trans Mountain expansion ‘going very well’ as global buyers ink deals for Canadian crude

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A worker at Trans Mountain’s Burnaby Terminal. Photo courtesy Trans Mountain Corporation

From the Canadian Energy Centre

By Deborah Jaremko

Chinese refiner pays about US$10 more for oil off TMX compared to sales value in Alberta

Canada’s oil sands producers are “back in the limelight” for investors following completion of the Trans Mountain pipeline expansion, according to a report by Enervus Intelligence Research.

For the first time in the better part of a decade, there is now breathing room on the system to ship all of the oil producers are able to sell off the coast of B.C.

Up until this May, Trans Mountain was regularly overbooked. Not anymore.

The crude carrier Dubai Angel picked up the first shipment from the long-awaited expansion on May 22, setting sail for China and a customer of oil sands producer Suncor Energy.

Analysts estimate Trans Mountain loaded 20 vessels in June, compared to a pre-expansion average of five per month.

“You’re seeing multiple buyers. It’s going very well,” said Phil Skolnick, managing director of research with New York-based Eight Capital.

“You’re seeing the exact buyers that we always thought were going to show up, the U.S. west coast refineries and as well as the Asian refineries, and there was a shipment that went to India as well.”

The “Golden Weld” in April 2024 marked the mechanical completion and end of construction for the Trans Mountain expansion project. Photo courtesy Trans Mountain Corporation

Canadian crude in demand on the global market

Asian markets – particularly China, where refineries can process “substantial quantities” of extra heavy crude and bitumen – are now “opened in earnest” to Canadian oil, the International Energy Agency (IEA) said in its June Oil 2024 report.

“There’s demand for this crude and people are going to make deals,” said Kevin Birn, chief analyst of Canadian oil markets with S&P Global.

The IEA said Canadian crude will increasingly compete with heavy oil from other countries, particularly those in Latin America and the Middle East.

June’s loading of 20 vessels is slightly lower than the 22 vessels Trans Mountain had targeted, but Skolnick said a few bumps in the project’s ramp-up are to be expected.

“About three months ago, the shippers were telling investors on their calls, don’t expect it to be a smooth ramp up, it’s going to be a bit bumpy, but I think they’re expecting by Q4 you should start seeing everyone at peak rates,” Skolnick said.

Delivering higher prices

Trans Mountain’s expanded Westridge Terminal at Burnaby, B.C. now has capacity to load 34 so-called “Aframax” vessels each month.

One of the first deals, with Chinese refiner Rongsheng Petrochemical, indicates the Trans Mountain expansion is delivering on one of its expected benefits – higher prices for Canadian oil.

Canada’s Parliamentary Budget Office has said that an increase of US$5 per barrel for Canadian heavy oil over one year would add $6 billion to Canada’s economy.

The June deal between Rongsheng and an unnamed oil sands shipper saw a shipment of Access Western Blend (AWB) purchased for approximately US$6 per barrel below the Brent global oil benchmark. That implies an AWB selling price of approximately US$75 per barrel, or about US$10 more than the price received for AWB in Alberta.

Expanded export capacity at the Trans Mountain Westridge Terminal. Photo courtesy Trans Mountain Corporation

More pipeline capacity needed

Oil sands production – currently about 3.4 million barrels per day – is projected to rise to 3.8 million barrels per day by the end of the decade before declining slightly to about 3.6 million barrels per day in 2035, according to the latest outlook by S&P Global.

“Despite the recent completion of the Trans Mountain Expansion project, additional capacity will still be needed, likely via expansion or optimization of the existing pipeline system,” wrote Birn and S&P senior research analyst Celina Hwang in May.

“By 2026, we forecast the need for further export capacity to ensure that the system remains balanced on pipeline economics.”

Uncertainty over the federal government’s proposed oil and gas emissions cap “adds hesitation” to companies considering large-scale production growth, wrote Birn and Hwang.

Global oil demand rising

World oil demand, which according to the IEA reached a record 103 million barrels per day in 2023, is projected to continue rising despite increased investment in renewable and alternative energy.

June outlook by the International Energy Forum (IEF) pegs 2030 oil demand at nearly 110 million barrels per day.

“More investment in new oil and gas supply is needed to meet growing demand and maintain energy market stability, which is the foundation of global economic and social well-being,” said IEF secretary Joseph McMonigle.

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Canadian Energy Centre

What’s next? With major projects wrapping up, what does Canada’s energy future hold

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From the Canadian Energy Centre

By Mario Toneguzzi

‘This is the first time Canada will enter the global marketplace as a global player, so it is an incredibly important change for the industry’

With the recent completions of the Trans Mountain expansion and Coastal GasLink pipelines, and the looming completion of LNG Canada within the next year, there are few major energy projects with the green light for one of the world’s largest and most responsible energy producers.

Which leaves a lingering question: In a world that has put a premium on energy security, what’s next for Canada?

Heather Exner-Pirot, a senior fellow and director of the natural resources, energy and environment program at the Macdonald-Laurier Institute, said Natural Resources Canada’s major projects inventory “has been in a pretty sharp decline since 2015, which is concerning.”

“It’s not just oil and gas but also mining, also electricity . . . It’s the overall context for investment in Canada,” said Exner-Pirot, who is also a special adviser to the Business Council of Canada.

“When we look at BC, we see TMX, Coastal GasLink, very soon LNG Canada will be finishing up. That’s probably in the order of $100 billion of investment that that province will lose.

“So you do start to think about what happens next. But there are some things on the horizon. I think that’s part of it. Other LNG projects where maybe it wasn’t politically popular, it wasn’t a social license, and maybe the labour force was also constrained, and now is opening opportunities.”

recent analysis conducted by Exner-Pirot found that between 2015 and 2023, the number of energy and natural resource major projects completed in Canada dropped by 37 per cent. And those that managed to be completed often faced significant delays and cost overruns.

One notable project Exner-Pirot expects to fill the void is Ksi Lisims LNG, which is being developed on the northwest coast of Canada to export low-carbon LNG to markets in Asia. The project represents a unique alliance between the Nisga’a Nation, Rockies LNG and Western LNG.

Ksi Lisims LNG is a proposed floating LNG export facility located on a site owned by the Nisga’a Nation near the community of Gingolx in British Columbia.

The project will have capacity to produce 12 million tonnes of LNG per year, destined for markets in the Pacific basin, primarily in Asia where demand for cleaner fuels to replace coal continues to grow.

Rendering of the proposed Ksi Lisims floating LNG project. Image courtesy Ksi Lisims LNG

As well, the second phase of the LNG Canada export terminal in Kitimat, B.C. shows increasing signs of moving forward, which would roughly double its annual production capacity from 14 million tonnes to 26 million tonnes, Exner-Pirot added.

While nearby, Cedar LNG, the world’s first Indigenous-owned LNG export facility, is closing in on the finish line with all permits in place and early construction underway. When completed, the facility will produce up to three million tonnes of LNG annually, which will be able to reach customers in Asia, and beyond.

According to the International Energy Agency, the world is on track to use more oil in 2024 than last year’s record-setting mark. Demand for both oil and natural gas is projected to see gradual growth through 2050, based on the most likely global scenario.

Kevin Birn, chief analyst for Canadian oil markets at S&P Global, said despite the Trans Mountain expansion increasing Canada’s oil export capacity by 590,000 barrels per day, conversations have already begun around the need for more infrastructure to export oil from western Canada.

“The Trans Mountain pipeline, although it’s critical and adds the single largest uplift in oil capacity in one swoop, we see production continue to grow, which puts pressures on that egress system,” he said.

Photo courtesy Trans Mountain Corporation

Birn said Canada remains a major global player on the supply side, being the world’s fourth-largest producer of oil and fifth-largest producer of natural gas.

“This is a really important period for Canada. These megaprojects, they’re generational. These are a once-in-a-generation kind of thing,” Birn said.

“For Canada’s entire history of being an oil and gas producer, it’s been almost solely reliant on one single export market, which is the United States. That’s been beneficial, but it’s also caused problems for Canada in that reliance from time to time.

“This is the first time Canada will enter the global marketplace as a global player, so it is an incredibly important change for the industry.”

Exner-Pirot said Canada has the ability to become a major exporter on the energy front globally, at a time when demand is accelerating.

“We have open water from B.C. to our allies in Asia . . . It’s a straight line from Canada to its allies. This is a tremendous advantage,” she said, noting the growth of data centres and AI is expected to see demand for reliable energy soar.

“We are seeing growing electricity demand after decades of plateauing because our fridges got more energy efficient and our washers and dryers got more energy efficient. Now we’re starting to see for the first time in a long time more electricity demand even in developed countries. These are all drivers.”

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