Fossil fuels remain key to energy future, according to report

The U.S. is eager to grab new business, which underscores the urgent need for Canada to secure access to offshore markets for our oil and gas

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Fossil fuels remain key to energy future, according to report

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By Jock Finlayson
and Denise Mullen
Business Council of British Columni

The International Energy Agency (IEA) World Energy Outlook 2017, released in early November, provides a useful update on the shift to a lower carbon global energy system.

The stepped-up deployment of clean energy technologies and moves toward electrification continue in many nations. At the same time, rising investment in energy efficiency is lessening the need for supply additions.

However, fossil fuels still represent the bulk of global energy production and will continue to do so for the foreseeable future.

Even if virtually all nations implement aggressive climate change policies, the projected share of fossil fuels in the world energy mix in 2040 exceeds 60 per cent. Under the more likely scenarios modelled by the IEA, fossil fuels account for between 75 and 80 per cent of global primary energy in 2040. The table below summarizes the IEA’s baseline energy demand forecast.

None of this is surprising. The current energy transition is not much different from those in the past. Energy transitions are a long and complex process. Among the factors impeding rapid change are huge past investments in legacy energy systems, cost considerations, and the uneven global distribution of renewables – along with their intermittency, lower energy density and vast spatial requirements.

The IEA sees global energy demand increasing by 30 per cent to 2040. For perspective, this increment in demand equals all of the energy now consumed by China and India combined.

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Denise Mullen

China is an important driver of trends in the energy world. It will be the biggest investor in energy production and transmission between now and 2040. China is on track to expand its electricity infrastructure by a quantum equivalent to the existing U.S. power network in the next two decades. It will also be responsible for one-quarter of the increase in worldwide natural gas demand. By 2030, the IEA forecasts that China will be the top global oil consumer, displacing the United States.

The other major energy player is the U.S. It has become a net (and growing) exporter of natural gas – at the expense of Canadian producers. By the mid-2020s, the U.S. is expected to be a net exporter of light crude oil as well, mostly in the form of refined petroleum products. According to the IEA, rising U.S. oil production will satisfy up to 80 per cent of the increase in global oil demand – a development that was unthinkable a decade ago.

For Canada, the expansion of petrochemicals and other energy-intensive manufacturing in the U.S. is a mixed blessing. If there is sufficient pipeline capacity, more Canadian oil can be shipped to American refineries for processing. On the other hand, supported by abundant, low-cost fossil fuels, the U.S. is set to become an even more formidable competitor across much of the manufacturing supply chain, as well as in the energy industry itself.

The prospect of escalating American protectionism only adds to the challenges facing Canada as the U.S. emerges as the new global energy superpower.

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Canada and the United States compete for similar market opportunities and similar pools of investment capital. Unlike Canada, the U.S. appears eager to grab new business and use its shale gas and tight oil resources to pursue every advantage. All of this underscores the urgent need for Canada to secure access to offshore markets for our oil and gas products.

The IEA predicts that natural gas will satisfy 25 per cent of global energy demand by 2040. Four-fifths of the growth in demand occurs in emerging economies. Liquefied natural gas (LNG) represents almost 90 per cent of the projected growth in long-distance gas trade to 2040.

The expanding role of natural gas generally, and of LNG specifically, in the global energy system points to significant opportunities for Canada – if we can temper our propensity for self-sabotage.

In the ongoing debate over whether to build pipelines and pursue oil and gas development, some politicians and environmental groups claim that this is yesterday’s business, implying that securing access to Asia-Pacific markets for Canada’s energy doesn’t matter.

The IEA’s latest report confirms that nothing could be further from the truth.

Jock Finlayson is executive vice-president of the Business Council of British Columbia. Denise Mullen is director of Environment at the business council.

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