CANADIAN ENERGY STRATEGY CHANGES FOCUS
A few weeks before the start of the New Brunswick provincial election campaign, the Alward Government released a report, authored by Jupia Consultants. It outlined the economic impacts possible from five energy infrastructure and natural resource projects in the province. The report is one vision of New Brunswick’s economic future. But is it a realistic one?
On August 29th, 2014, Canada’s Premiers released a revised, Canadian Energy Strategy. The development of the Strategy was, until now, led by the Premier of Alberta and was largely focussed on facilitating the movement to market of that Province’s increasing oil sands production.
The revisions to the strategy announced in Charlottetown were significant as they reflect a much wider focus for the National Energy Strategy than intended by Alberta. For instance, “Climate Change”, which was not mentioned in the old draft, is now front and centre in the vision and principles section of the Strategy. The changes were the price of getting Ontario and Quebec to sign on and take a leadership role in Canadian Energy Policy development.
The added emphasis on addressing climate change in the Strategy will see a focus on clean energy and the need to reduce greenhouse gas (GHG) emissions, which are produced by burning fossil fuels.
In Charlottetown, Ontario Premier Wynne effectively placed the West on notice when she drew attention to the inevitable need for national targets to reduce Canada’s greenhouse gas emissions.
A SHOWDOWN?
The stage is being set for a showdown on how Canada’s GHG quotas will be shared when they are eventually established. One thing is clear, this is not good news for those who plan to produce, refine, and market the most carbon intensive energy, now seemingly at odds with the direction of Canada’s two most influential provinces.
A FAILURE TO RECOGNIZE CHANGING DYNAMIC?
After four years in government, the Jupia report represents the Alward Government’s idea of what might happen if their vision of development for New Brunswick is embraced by voters on September 22nd.
With the lion’s share of impacts identified in the Jupia report coming from construction of energy infrastructure, it’s clear that New Brunswickers are being offered the promise of another short term boom cycle as the solution to an economy still stagnating after the last construction bust.
The government commissioned report provides a vision that establishes carbon-intensive fossil fuel development as key to New Brunswick’s future growth and prosperity, not exactly a direction consistent with the new thrust of the Canadian Energy Strategy.
This isn’t the first time that we’ve failed to catch the winds of change. The New Brunswick Energy Hub was supposed to bring a decade of construction jobs and revenue from a second oil refinery, a second nuclear reactor, the Point Lepreau refurbishment and a Liquified Natural Gas receiving and re-gasification terminal.
As we know too well, the second refinery was shelved, the second nuke fizzled, the problem-plagued Lepreau refurbishment was over budget and late, and the LNG terminal, which was built for a market that no longer exists, remains an under-performing asset.
The energy hub failed to deliver the promised longterm benefits, not because of local conditions but because of events that weren’t anticipated by project proponents or the politicians who were riding their bandwagon. This is history that shouldn’t be repeated.
Unfortunately the Jupia report, like the Energy Hub, reflects the same fatal flaw in the current Government’s vision for development. It fails to anticipate the impact of emerging national and global trends that are shaping markets for energy and altering how forward-looking development planners are positioning for success.
FIVE TRENDS
So while we must do everything possible to preserve the petroleum sector jobs we now have, here are five trends our politicians should address before they consider expanding our reliance on high carbon, energy intensive development:
- The most successful developed economies are witnessing a delinking of energy consumption from growth as sunrise industries replace over-mature, energy intensive ones.
- Demand for oil in OECD countries is steady or in decline, while increases in demand from some developing economies have not materialized to the extent forecast just a few years ago. Cheaper energy alternatives are allowing some third world consumers to leapfrog the “oil age” and transition directly to renewables, especially solar.
- According to the International Energy Agency’s 2014 Oil Market Outlook, “…the peak in oil demand growth for the [global] market as a whole is already in sight.” This slowdown in demand growth is occurring as unconventional supplies are also coming on stream.
- A growing consensus on the need for action to address climate change will further reduce demand or demand growth for fossil fuels through policies to lower greenhouse gas emissions. That is, if the world is to remain below the internationally agreed limit of +2 degrees of global warming.
- New efficient technologies are reducing the cost of renewable energy, to the point where renewables are now at or near grid parity with other sources of electricity in many jurisdictions. That grid parity is moving farther into northern latitudes with each technological enhancement and with each reduction in cost. It should reach us within this decade.
WE’RE MISSING THE SUNRISE
These trends suggest that the “sunrise” in the energy sector is in the developing technologies associated with renewables and clean energy and not in the increasingly challenged fossil fuel sector. Ironically, the new efficient and cheaper offerings of renewable energy technologies are probably a greater threat to the future profitability of the fossil fuel industry than any policy that puts a price on carbon.
SHALE GAS DEVELOPMENT IS NOT A SILVER BULLET
That is not to suggest that the potential for shale gas development in the province should be ruled out. That may be the one fossil fuel opportunity that has potential.
However, those who see a natural gas industry developing at anywhere near the scale or in the time line envisioned by the Government’s report should insist on a reality check. The report paints an overly optimistic picture that raises expectations that relief from our economic problems is just a few short years away. Rosy broad-brush comparisons with other jurisdictions that only tell us what happened there and not why, can only distract us from establishing the necessary preconditions for development in New Brunswick while raising unreasonable expectations as to the possible scale and timing of economic impacts.
Pennsylvania, which serves as the basis for some of Jupia’s modelling of industry impacts, has a long history in oil and gas development and an active population of more than 100 operating natural gas companies. It is a poor analogue for a province that has just two operating companies nine exploration phase companies and very little experience with modern oil and gas development.
NEW BRUNSWICK DOESN’T HAVE A COMPREHENSIVE STRATEGY FOR DEVELOPMENT
Attracting new entrants to scale up exploration is made more difficult by the lack of a clear provincial development strategy. Without a provincial development road map, we see management by crisis. The New Brunswick Government being sued by one exploration company for an estimated $100 million in damages. This gives the province the wrong kind of profile within the pool of North American companies that should be on the Province’s investment target list. Getting to Jupia’s estimated 75 wells per year by 2020 requires a large leap of faith and some additions to the base of operating companies.
LNG IS A DECADE OR MORE AWAY – IF EVER
Another of thepoliticians’ wish list projects is an LNG liquefaction plant and export terminal. This is another long-shot. Without a secure, long-term, source of natural gas and the infrastructure to deliver it to tidewater on the Bay of Fundy, there is no case for investment. The gas supply, in the volumes required, is likely a decade or more away. But, as we’ve seen with the “New Brunswick Energy Hub”, a decade is a lifetime in the rapidly changing world of energy. Just as North American LNG import terminals were made redundant by the success of North American Shale gas, those that assume the energy world is static, are setting themselves up to be left behind in someone else’s dust.
NEW PIPELINES DEPEND ON EXPANSION OF ALBERTA’S OIL SANDS
Promoters of the west-to-east pipeline and marine export terminal can take little solace in the fact that Ontario and Quebec have now signed onto the Canadian Energy Strategy. The Strategy’s newly added recognition of climate change and the need to reduce GHG emissions, represent a forewarning of the inevitable conflict between the almost mutually exclusive objectives of increasing oil sands output and reducing Canada’s greenhouse gas emissions.
Keep in mind that an increase in oil sands output underpins the business case for the proposed Energy East pipeline. That pipeline is a key component of the Alward government’s vision. New Brunswick’s “energy pipeline” future appears headed for rough weather and there isn’t a plan “B” in sight.
ELECTIONS ARE AN OPPORTUNITY TO COMPARE POLITICAL VISIONS
During this election campaign, we should challenge politicians to deliver a vision that outlasts five year construction cycles. We need thinking that anticipates global trends in energy, thinking that gets us onto the platform before the next train arrives, not after it has left the station. Better still, we should be building the next energy train ourselves, rather than waiting for a promised ride on the Silver Bullet Express.
Michael Edwards provides advice on energy issues.
