Canadas Energy Future: Towards A Canadian Energy Policy Process

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Canadas Energy Future Towards A Canadian
Energy Policy Process

• A Presentation to the
• Canadian Council of Energy Ministers
• September 2003

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Contents

• I Preface
• II Demand
• III Supply
• IV Other Issues
• V Conclusions Recommendations

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I.1 Preface

• The 19 associations that participated in the
  process of creating this presentation cover
  virtually the entire energy industry.
• The industry participants all agree that
• There has been a strong record of market-driven
  success in developing our energy resources and
  delivery infrastructure over the past 20 years
• There has been a significant improvement in
  energy efficiency, particularly at the industrial
  sector, over the past decade
• The key issue for the coming two decades will be
  assuring the continued security and reliability
  of Canadas energy supply.

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I.2 The Consensus View

• Therefore, Canadians best interests will be
  served by creating a Canadian energy policy
  process that would bring Industry together with
  Federal, Provincial and Territorial Energy
  Ministries to work on resolving
  cross-jurisdictional barriers and
  inter-departmental obstacles to the development
  of Canadas diverse energy resources.
• This policy process should be guided by 4
  principles
• 1) Markets Work
• 2) Investment Matters
• 3) Smart Regulation
• 4) Smart RD

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II.1 Canadian Energy Demand Tracks Economic,
Population Growth

• Since 1990, there has been steady and significant
  growth in demand for energy, driven by strong
  real GDP (2.7 per year on average) and
  demographic growth (1.1).
• On average, Canadian energy demand has grown
  1.5 per year since 1990.

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II.2 The Canadian Energy Sector Has Grown
Steadily Under Market-based Policies

• Since the late 1980s when the shift to a
  market-based energy policy was completed, the
  value-added contribution of the Canadian energy
  sector to the overall economy has grown steadily
  despite a variety of external shocks.
• Energy sector value-added has grown more quickly
  (1.7 per annum since 1990) than overall demand
  for energy (1.5) as the sector has become more
  efficient and expanded exports to the US.

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II.2 Energy Demand Is Rising Across the Board

• Despite the rising efficiency of newer car
  truck models, Canadian domestic demand for motive
  fuels has been rising relatively constantly since
  the early 1990s.
• Domestic natural gas demand has adjusted in
  response to prices, but rising demand from
  residential use, industry and the electric power
  sector has been driving the long-term demand
  trend upward.
• Although consumers have been more efficient in
  their use of electricity, strong economic growth
  and greater penetration of air-conditioning and
  information technology in the residential and
  commercial sectors have boosted electric power
  demand.

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II.3 Energy Intensity/Demand-Side Management

• The energy intensity of all sectors of the
  economy has improved over the past decade as a
  result of both structural change and improved
  efficiency. However, in some Canadian energy
  markets, there is not a strong supply-side
  business case for aggressive DSM.
• Experience with successful DSM programs indicates
  that without clear price signals, large-scale
  retail consumer buy-in will require large
  government expenditures.
• Government Energy Efficiency and Industry DSM
  programmes will still need to be part of an
  overall Canadian energy strategy. Strong
  public/private partnerships, such as those
  currently being pursued by NRCan and other
  Provincial Territorial energy ministries, will
  continue to be necessary to implement EE/DSM
  programmes effectively.

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II.4 Canada Supplies the Continental Energy Market

• Energy demand in the highly integrated North
  American energy market has risen by an average of
  1.1 per year since 1990.
• The US clearly intends to try to reduce its
  dependence on overseas energy and is looking to
  expand trade with reliable suppliers such as
  Canada.
• Canadian policy choices will have little impact
  on US demand. Under an appropriate framework,
  Canadian policies have had and will continue to
  have a significant impact on incremental NA
  supply going forward.

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II.5 NA Energy Demand Will Continue to Rise to
2020

• The North American economy has become less energy
  intensive over the past decade as the amount of
  energy input required for each unit of GDP in
  Canada and the US has declined steadily.
• While the NA economy has become less energy
  intensive, per capita energy demand has remained
  flat.
• Therefore energy demand is likely to continue to
  rise at a pace somewhere between the rates for
  economic and demographic growth. Demand will
  therefore continue to rise at approximately the
  same rate (1.5) over the next two decades.

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II.6 Overseas Imports Will Be Necessary to Meet
NA Energy Demand

• North American demand for energy continues to
  exceed NA supply. Indeed, Canadas share of US
  energy imports continues to slip as US dependence
  on overseas imports increases.
• As a consequence, market prices will become
  increasingly dependent on overseas supply trends.
• While this has long been the case for oil,
  overseas supply will also gradually become an
  increasing part of the NA supply of natural gas.

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III.1 Canadian Oil Supply Will Increasingly Rely
on Non-traditional Sources

• Canadian oil production is forecast to continue
  to exceed Canadian demand.
• Conventional oil production in the western
  Canadian sedimentary basin is expected to
  continue to decline gradually.
• With an effective policy framework driving
  appropriate market conditions, this decline will
  be replaced by increased production from the oil
  sands and the East-coast offshore fields.

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III.2 Canadian Natural Gas Supply Will Also
Diversify

• Canadian production of natural gas from
  conventional sources has stabilized.
• Growing NA demand means that lower cost
  conventional gas supplies are being augmented
  with higher cost conventional and
  non-conventional supplies.
• Swifter supply-side adjustment would limit the
  negative impacts of higher cost on consumers and
  the economy.
• Increasing gas production will require the right
  policy conditions to improve deliverability,
  support for investment in new sources, and above
  all, a continued willingness to allow all energy
  prices to be based on market principles.

New Sources
Source CERI
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III.3 Electricity Demand is Closing in on
Capacity

• Electricity supply will need to grow by 35 over
  the next twenty years to meet expected demand.
• This requires new and replacement investment of
  18,000 23,000 MW by 2010 and 38,000 45,000 MW
  by 2020.
• It has been estimated that the cost of
  replacing/building this capacity will be close to
  C150bn over the next 20 years.
• In many areas of Canada, reserve margins have
  narrowed considerably. This is partly due to
  restructuring, but it is also indicative of the
  fact that investment has not kept pace with
  demand growth.

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III.4 Alternative Fuels Technologies
Canadian Alternative Electricity Capacity MW,
2002

• There are many emerging energy technologies.
  While many show long-term potential, some are
  already commercially viable and have the
  potential to make a significant contribution to
  Canada's growing energy needs in a supportive
  policy environment. However, none of these
  technologies alone holds the answer to all of
  Canadas diverse and growing energy needs.
• Emerging energy policy should focus on removing
  barriers to investment and encouraging wide scale
  deployment of the more mature technologies, in
  order to achieve the economies that come from
  scale.

Sources CIEECAC Annual Renewable Energy Review,
March 2003, Canadian Wind Energy Association
July 2003
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III.5 Alternative Fuels

• The latest NEB mid-point projection for emerging
  alternative energy sources would see
  alternative energy use rise by 31.1 to 828.1PJ
  in 2020, making up 7.2 of total energy demand.
• The NEB is also projecting that total energy use
  of emerging alternative fuels for transport
  will increase by 188.6 to 61.8PJ, or 2.1 of
  total transport fuels in 2020.

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IV.1 Energy Transmission DistributionPotentia
l Bottlenecks

• Assuring Canada has a diverse and reliable energy
  supply means making sure that supply can be
  brought to market. This requires an integrated
  and efficient delivery capability both for long
  distance transmission and local distribution of
  electricity, gas and oil.
• Unfortunately the Canadian energy distribution
  network is getting older and in some
  regions/areas bottlenecks are starting to emerge.
• Both of the NEBs latest scenarios for energy
  supply and demand call for significant investment
  in new transmission distribution networks to
  accommodate new and existing sources of energy
  more effectively.

Electricity (Major Export Lines) Proposed Gas
Pipelines Gas Pipelines Oil Pipelines
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IV.2 Energy Industries Contribute to the Canadian
Economy

• In 2002, the Canadian energy sector accounted for
  6.3 of all Canadian economic activity.
  Investment in the energy sector in 2002 exceeded
  C37Bn, making up over 23 of all investment.
• Canada exported C46.9bn worth of energy products
  to the US in 2002, accounting for 14.5 of all
  Canadian exports to the US and 9.2 of total US
  energy supply.
• Canada has historically had a competitive
  economic advantage due to an abundance of
  reliable low-cost energy. If abundant energy
  supplies are not available, the overall
  competitiveness of the economy will suffer.

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V.1 Key Policy Principles

• In order to assure Canadas ability to continue
  to develop and deliver an abundant, reliable,
  affordable energy supply going forward, the
  policy process must be guided by four principles
  
• 1) Markets Work An acknowledgement that
  market-based solutions have, and will continue be
  the basis for success in the Canadian energy
  sector, along with a sustained commitment to
  market integration within Canada and North
  America.
• 2) Investment Matters A commitment to
  competitive fiscal and tax arrangements designed
  to make Canada the investment destination of
  choice in North America
• 3) Smart Regulation - A determined focus on
  building a political and administrative culture
  committed to maximizing economic growth while
  minimizing environmental impacts
• 4) Smart RD - An increase in support for
  research and development for energy (both
  conventional and emerging alternatives) and
  technology to assure long-term reliability
  through diversity.

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V.2 Towards A Canadian Energy Policy Process

• Meeting Canadians future energy needs will
  require that governments and industry work
  together to establish a high-level dialogue to
  elaborate an energy policy perspective for Canada
  in the North American context.
• The objective of this process should be to create
  a practical platform that promotes the
  cross-jurisdictional and inter-departmental
  problem solving necessary to remove the
  increasing obstacles to the development of
  Canadas diverse energy resources.

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V.3 Policy Directions

• More specifically, a Canadian energy policy
  process should seek to
• Work towards an integrated strategy to remove
  unnecessary obstacles to key projects of national
  interest and local benefit.
• Foster better conditions for energy sector
  capital investment with a view to steady,
  incremental gains in investment in both supply
  and deliverability.
• Design environmental management systems that are
  timely, certain, effective, and encourage
  desirable investment.
• Review and reduce barriers as appropriate to the
  movement of energy across borders with an outlook
  towards strengthening energy market integration.
• Increase support for the development of Canadian
  energy sources (both traditional and emerging).