Changing Conditions and Changing Needs: Designing the Illusive “National” Energy Strategy

1. Changing Conditions and Changing Needs: Designing the Illusive “National” Energy Strategy Bob Page, PhD TransAlta Professor of Environmental Management and Sustainability ISEEE, U of C Chair, National Round Table on the Environment and the Economy 2010 IPAC Conference August 23, 2010 Ottawa

2. Introduction • Energy production and exports – critical drive of Canadian economy – creates the difference with the US economy. • Energy exports involve every province except PEI. • Focus usually on oil and gas but electricity is also important. • Policy divisions for oil and gas producing provinces vs. consuming - Ontario vs. AB • Emphasis now on bilateral energy trade with US – NAFTA gave up energy sovereignty to ensure access to the US market. • However today the greatest expansion in oil and gas consumption will be in Asia not North America. Our strategy must reflect these new market conditions.

3. Components in a Strategy • The IEA scenarios show the new energy parameters and the need for a national energy strategy including oil and oilsands, natural gas, electricity, coal, uranium and nuclear, and renewables. • Every policy is so pervasive it includes investment strategy, taxation, subsidies, regulation, market mechanisms, environment, technology, and social acceptance often with conflicting objectives. • Leadership has been lacking here in Ottawa and within federal provincial relations – allowing policy vacuums and fragmentation • Incentives must be sufficient to attract hundreds of billions in investor capital. • Policy must be integrated into a “systems” approach linking all energy sectors.

4. Energy “Systems” Analysis

5. New Conditions for Security? • Security now means the entire supply chain in energy – following hurricanes Katrina and Rita in 2005 – the hub of the US energy systems (the gulf coast) was seriously damaged – 27% of production and 21% of refining – much of the disruption was not because of facility damage but because they could not access electric power. • Asian demand – according to the IEA 50% of global energy market increase will come in Asia – especially China and India – global struggle for new oil supply between China and the US/EU – must have sufficient energy to support economic growth – impact on the oilsands – $20 billion in Chinese investment. • Pipeline infrastructure begins to shift to reflect these new markets – “Enbridge Northern Gateway” • Diversification and flexibility – supply security and stability required diversification – many oil and gas companies into renewables – supply chain vulnerabilities – market availability and pricing – technology breakthroughs which will require international partnerships such as CCS.

6. Conflicting Visions of Energy Security • Obama / Chu - vision of US energy independence is conservation, efficiency, renewables – to lower need for oil imports – lower demand not increase supply. • Harper – wishes to increase supply with new oilsands production and exports to divert other US oil imports. • US environmental lobby- climate change is destroying the earth and dirty oil imports must be stopped. • Carbon protectionism in the US climate change legislation – low carbon fuel standards and border adjustment fees to protect US jobs.

7. Factors in North American Energy Security • American foreign policy is hostage the middle east energy supply. • State owned national oil companies own nearly 90% of new oil reserves - loss of economic rents to western private sector companies. • War or revolution impact production – Nigeria – nationalization in Russia. • Katrina and extreme weather seriously damage US energy security far worse than any terrorist. • New environmental controls and regulation add serious new costs for non conventional oil and gas. • Economic drain on the US economy - financing both sides in the Afghanistan war.

8. Hydro Exports • Electricity – hydro exports – Quebec, Manitoba, BC, major revenue source. • Lower the emission rates of the US utilities. • Are they “renewable” in the US? • Economic incentive to N/S not E/W grid connections – no national grid -Provincial jurisdiction. • Reliability of transmissions – ice storms – need for new investment. • Climate change and water levels in hydro reservoirs.

9. Electricity Exports

10. Natural Gas Exports • Canada has been the major supplier to the US. • Challenged in the last few years by LNG – imports which are more expensive. • Fall in natural gas prices because of huge new reserves from shale gas etc. – this appears to be a long term supply – provided long term deliverability proves up. • Low prices create incentive for US coal fired power plants to switch to gas – large increase in demand. • Environmental critics in New York State pressing to stop shale gas development – spread? • As US markets decline – huge new BC gas fields considering LNG exports from Kitimat.

11. Natural Gas Exports

12. Oil Exports • Canadian policy since 1960’s –oil exports in the west and imports in the east. • Conventional oil declining and being replaced by heavy oil and oilsands product. • Canadian exports now about 20% of US imports. Venezuela, Mexico, Saudi, and Russia around 10%. • Large new pipeline expansion into US by TCP and Enbridge – all the way to the Gulf Coast – competition for OPEC imports. • Challenge to build new heavy oil refining capacity to take oilsands product. • Better controversy in US about allowing oilsands product – increases with BP Gulf spill and Enbridge pipeline leak – low carbon fuel standard.

13. Oil Exports

14. Pipelines

15. Conclusions • We are moving from conventional to non conventional oil and gas and increasing regulatory costs and constraints. • We are losing the battle in the US for increasing oilsands exports we must lower carbon emissions or potentially lose this market. • Energy exports hugely significant in the Canadian balance of payments - near 50 billion dollars per year - this helps to finance many things including transfer payments from Alberta to Québec. • Canadian pipelines expanding oil exports to gulf coat to compete and challenge OPEC imports and gulf production – local competitive rivalry and tensions. • Americans assume access to Canadian energy supply while Canadians assume it is a bargaining chip.

16. Conclusions (cont.) • US environmental regulations on coal fired power plants will help to boost Canadian hydro exports – renewables definition – but climate change and reservoir water levels could be a constraint (Northern Ontario this summer). • If there is a massive switch from coal to gas fired power plants in the US then Canada might regain some market share in the US but conventional gas production declining. • Asian markets are critical for future oilsands expansion with projects like Enbridge's Northern Gateway – also potential for LNG exports from BC or the Arctic - creates bargaining chip in Washington • Canada a high cost oil producer needing firm or rising world oil prices – the security of our industry require new export markets, not just US.