Canadian energy at a crossroads? Part 2
In my ongoing analysis of Canada’s energy future, I want to talk about several factors or forces that, combined, could indeed be transformative in their effects: end use markets (otherwise known as demand); climate and carbon; public confidence; and technology.
Let’s start with demand.
Energy discussions in Canada and elsewhere almost always focus on supply issues. One way or another, the narrative goes, demand will continue growing and we will need all sources of energy. And yes, energy efficiency will improve but there will still be demand growth.
Meanwhile in the actual world, energy intensity in OECD countries has declined by over one-third over the past three decades and that trend shows no signs of stopping. The International Energy Agency (IEA) 2015 outlook in its base case scenario suggests that some (OECD) economies may have reached a saturation point in their demand for energy services and that OECD demand will in fact decline slightly between now and 2040. But we live in a two speed world; the emerging markets story is different, and reputable forecasters all envisage substantial world demand growth to 2040.
But what if economic growth in emerging markets turns out to be slower than we had been expecting? What if local environmental factors, notably urban air quality, force radical changes in both the power generation and transportation sectors in places like China and India? What if emerging markets find their way out of the consumer energy subsidy nightmare in which many are trapped? What if emerging markets follow a very different demand growth trajectory than did OECD countries, more rapidly deploying efficient end use technologies as well as renewable energy sources?
All in all, Canadian suppliers of oil, gas and electricity face slow growing markets in Canada and North America.
The power generation sector has growth potential from claiming domestic market share in what has been termed a process of deep electrification. For oil and gas there may be better prospects if we can get access to markets outside North America. But there are many reasons to be cautious about any potential bonanzas, including possibilities such as those listed above that could slow demand growth, as well as the potential for alternative supplies, both fossil and non-fossil, to beat us to market or otherwise outcompete Canadian supplies.