Canada’s oil industry has been among those hardest hit by the coronavirus pandemic. Already struggling with low oil prices brought about by transport capacity shortage, Canadian oil producers this year had to contend with the slump in demand that the pandemic caused and a strong political push towards more renewable energy.  And yet, according to a new report, oil is set to remain Canada’s main source of energy in 2050.

Canada’s fossil fuel consumption peaked last year, according to Canada’s Energy Future 2020 report released this week by the country’s energy regulator. This year alone, production of oil is set to fall by 7 percent, or 335,000 bpd, because of lower energy demand, and electricity generation will decline by 3 percent as overall energy demand falls by 6 percent.

But these are the short-term effects of the pandemic. Over the next 20 years, the use of fossil fuels will gradually decline in Canada as it will in other places with ambitious net-zero plans for 2050, according to the Canada Energy Regulator report. Even so, in 2050, they will still account for two-thirds of all energy sources.

The report looks at two scenarios for energy developments over the next two decades: a reference scenario and an evolving scenario.

Under the first one—the reference scenario—current efforts to curb greenhouse gas emissions are not being built on. This means oil and gas use will remain relatively stable even after its peak, with this stable demand driving prices higher, to $75 a barrel in 2050.

Under the second scenario, oil consumption will be declining over the next two decades. By 2030, it would be 12 percent lower than it is now, and by 2050 it would be 35 percent lower than it is now. Of course, the decline in oil demand will not mean a decline in energy demand, so renewables—and nuclear—will flourish under this scenario. Electricity will displace a lot of oil as a source of energy, accounting for 27 percent of end-use energy demand in 2050, up from 16 percent at the moment.

The evolving scenario of the Canada Energy Regulator is based on several assumptions that all energy forecasts seem to make. These include much lower battery prices for electric vehicles and a continued strong decline in the costs associated with solar and wind power generation. Yet even with these assumptions, which will see EVs come to account for half of all car sales by 2050, oil and gas will still continue to satisfy two-thirds of Canada’s energy demand.

Canada is the world’s fifth-largest oil producer and home to the third-largest oil reserves. Yet, the Trudeau government is determined to reduce the country’s emissions substantially over the next three decades, in tune with the European Union, which has also pledged net zero emissions by 2050.

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Earlier this month, the government tabled a new emissions-cutting plan that envisaged regular reporting on the advancement of Paris Agreement emission reduction targets every five years. However, the plan did not mention how these targets would be met and how appropriate action would be enforced. In other words, it says emissions must be cut to net zero by 2050 and specific reduction targets must be set for the period until that year, but how these targets are to be hit is anyone’s guess.

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Yet even if there were specific steps outlined to reduce emissions as per the Canada Energy Regulator’s report, oil production would continue to grow until 2039 when, under the watchdog’s evolving scenario, it would peak at about 5.8 million bpd. Gas production would peak a year later, in 2040, at a daily production rate of 18.4 billion cu ft. From that moment onwards, both oil and gas output will begin to decline.

An increase of almost a million bpd from 2019 to 2039 is a substantial one. It certainly does not fit in with ambitious climate change fighting goals. However, to be fair, there are no ambitious goals. There is, based on the government’s plan, just the overall ambition to reduce emissions. This is a political environment that is relatively safe for the oil industry despite the other challenges such as anti-pipeline sentiments at the highest level. 

A continued increase in oil production does not fit in with the idea of an energy transition, even if renewable energy capacity also increases in the next two decades. Indeed, the Canada Energy Regulator notes in its report that “Achieving net-zero GHG emissions by 2050 will require an accelerated pace of transition away from fossil fuels.”

This would mean more pro-transition policies and more low-carbon technology developments, according to the regulator. It would also mean, if the above are pursued, more problems for Canada’s already deeply troubled oil and gas industry. However, the threat is purely potential, if Trudeau’s new emissions-cutting plan is any indication. Unless future governments really step on the gas on the matter of energy transition, Canada’s oil industry has a more or less secure future.

By Irina Slav for Oilprice.com

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