Dwindling demand for Canadian crude will speed the clean energy transition ‘whether Alberta wants it or not’

Sliding global demand for Canada's oil and gas production between 2025 and 2050 will accelerate the energy transition away from fossil fuels faster than many in government are calculating, said the chair of international think-tank the Energy Transitions Commission (ETC).

Adair Turner said a declining market for the country’s fossil fuel exports will potentially strand oilsands assets but at the same time ratchet up the need for carbon-capturing technologies to clean up remaining production if Ottawa is to meet its mid-century emissions reduction targets.

Turner pointed to what he believes are over-optimistic Canada Energy Regulator (CER) forecasts suggesting international appetite for Canadian oil and gas would still come in at a daily four million barrels (bbl) and around 11 billion cubic feet (bcf) of oil and gas, respectively, by 2050, down from around 5.5 million bbl and 17 bcf today.

These demand projections are in yawning discrepancy with global net-zero figures backed by the ETC, which expects a worldwide market for closer to one million barrels a day (b/d) of oil and under six bcf/d of gas by 2050.

"Every country has a dominant myth about why it is different [when it comes to the energy transition], said Turner, speaking with Canada’s National Observer at Canada's Net-Zero Forum in Toronto on Tuesday.

“But when you consider that if Canada's net-zero and the global net-zero [forecasts] are scenarios where the rest of the world grasps the opportunity of using [renewable energy] technologies to get to net zero and does it, then Canada's oil and gas exports will fall dramatically whether [proponents of Alberta oil] want it or not.

"If in 2050, the world is going to be using 20 million barrels of oil a day, the cheapest and likely cleanest place to produce it will not be Alberta, it'll be Saudi Arabia and Iraq, where they get the stuff out of the ground for US$4 to US$5 a barrel with very little Scope 1 and 2 emissions,” said Turner. “That is a context which Canada needs to closely consider.”

Scope 1 refers to emissions directly controlled by a company, such as gas flaring, while Scope 2 covers emissions from burning fossil gas to generate electricity used to extract oil.

"There is a serious challenge, of course. It will be an income loss [given oil and gas' contribution to the national gross domestic product], but it is still going to happen faster [than forecast], first for oil and more slowly for gas,” he said.

The CER's bullish view of future international demand for Canadian oil and gas is further complicated by a disparity in electrification forecasts, with the ETC expecting 55 to 65 per cent of the world to be powered by green electricity by mid-century, while Canada falls off pace with a figure closer to 45 per cent.

"This bigger reliance on fossil fuels [in Canada] will mean it also has a much bigger role for a set of negative emissions technologies [primarily carbon capture and storage (CCS)] in order for it to add up to net zero [by capturing and sequestering higher levels of released emissions],” said Turner.

“So the 'equilibrium solution' [clean energy production plus emissions reduction] will be different and costlier.”

Turner makes allowance for the likelihood that blue hydrogen generation — run off fossil gas but with emissions-limiting CCS — could have a longer run as part of the country's energy transition than is currently being considered. But this would still require "the costs of CCS technology are brought down in a way that we have not seen so far."

Canada's solar and wind power fleet, though in its infancy with a combined 19 gigawatts (GW) installed nationwide, could grow to tap "what is a massive resource," he said.

While Canada is in the Northern Hemisphere and ”clearly not in the [solar] class of North Africa, the Sahara or Chile,” the country’s so-called “irradiation levels” — the intensity of the solar resource — are better than many parts of northern Europe where photovoltaic (PV) arrays continue to be widely installed, said Turner.

He added that Canada is home to world-leading offshore wind resources and “not-too-bad onshore wind, particularly across the Prairies.”

"There is a solution that electrifies Canada as rapidly and completely as we have suggested in [the ETC's] global scenarios and does so with renewables and at a reasonable cost."

Turner gauges CCS' potential industrial uptake on a like-for-like basis, with "all other competing [transition] technologies." Top of the table, he said, will be "highly modularizable" PV, electric vehicles and batteries, followed by heat pumps, wind, hydrogen electrolyzers, CCS and large-scale nuclear. Those that are "deployed fastest with greatest mass production" will be the commercial — and climate — winners.

"I would be surprised if [CCS] ends up being the lowest-cost [transition] solution because it won't be cheaper than putting in even more electrification, more renewables and so on. CCS will be about buying some quite high costs at the margins."

Turner remains “bewildered” by the failure of the international oil and gas industry to bring down the cost of CCS over the last 10 years. “Oil and gas has a huge long-term interest because it is the only available technology that could make continued large-scale fossil fuel production compatible with net zero. And the results aren’t there. So either they aren’t trying hard enough or CCS just isn’t coming down the cost curve.”