As the world grapples with the onslaught of anthropogenic climate change, the energy industry is increasingly looking to chart a course for the future where it remains relevant. The decline and fall of the oil & gas industry has been mooted for years, but is its demise a foregone conclusion, or are its obituaries being written too soon? Much has been made of the advent of clean, green energy – but where will it come from and when? For Canada’s energy sector, these questions need swift, decisive resolutions at this critical juncture. We asked Lorne Rollheiser, the Head of the national Oil & Gas Industry Group at Gowling WLG, to assess the state of Canada’s energy sector, what lessons can be learned from past failures, and where Canada’s energy transition will take it from here.
The Future of Fossil Fuels
The U.S. Energy Information Administration’s International Energy Outlook 2019 projects renewables to be the most used energy source globally by 2050. However, rather than forecasting a drop in oil & gas usage reminiscent of a typical decline curve, it predicts a steady rise in the worldwide use of petroleum and a significant increase in the use of natural gas. This would seem to align with an inclusion in ExxonMobil’s 2020 Annual Report citing the Brookings Institute that states, “[g]lobal demand for energy will increase as the world’s population grows by an expected 1.6 billion people in the next two decades to more than 9 billion; the middle class will expand to more than 5 billion people by 2030, with almost 90 percent of the next 1 billion entrants into the middle class living in Asia.”
An April 6, 2021 analysis by TD Economics states that “[e]fforts currently underway to shift the landscape of energy demand away from fossil fuels are expected to lower oil & gas consumption by between 40-50% in North America and we anticipate this could lead to a net displacement of 312,000 to 450,000 jobs in the sector through 2050.”
If the above predictions are accurate, these sources suggest that global oil use will be higher in 2050 but it will access this supply from outside of North America. Meanwhile, North America will focus on renewable energy and essentially “outsource” fossil fuel production. TD Economics notes this would be similar to what occurred in the U.S. and Canadian manufacturing sectors in the 1990s.
It seems beyond doubt that the world will continue to use a lot more energy. Whether Canadian energy companies decide to stick to their current production profiles, transition away from fossil fuels, or (more likely) broaden the scope of energy sources they target, they will have a role to play. National and corporate pledges to be carbon neutral over the next three decades have not, at least for now, changed the world’s path on what former U.S. President Obama termed an “all-of-the-above” energy strategy.
Setting aside speculation about the precise nature of the future, there is little doubt that Canada’s energy sector will continue to experience significant change. It seems to be the one constant in the oil & gas industry and energy markets. It also seems clear, aided by the analysis mentioned above, that the future of Canada’s energy production matrix will be greatly affected by whether or not future fuel sources will be produced and used domestically or whether transmission and storage technologies will allow for a clean energy trade as exists in the global oil market.
Hopes for Hydrogen
In respect of clean fuel sources, hydrogen has been attracting a lot of attention as an energy carrier that could take up a meaningful amount of global energy demand. It can be produced from either renewables (by using solar or wind to power electrolysis) or fossil fuels (by steam reforming, oxidation methods, or gasification). When produced using fossil fuels, hydrogen can be cleanly produced if the process is combined with a carbon capture and storage facility (referred to as blue hydrogen). Hydrogen can be transported in gaseous form by pipeline, or by road, rail or sea in cryogenic liquid tanker trucks or tube trailers using compression. In addition, it can be transported as ammonia and then converted back to hydrogen.
These processes each have challenges to their immediate adoption for mass use. Hydrogen brittles current pipeline infrastructure, cryogenic transport is energy intensive in bringing the hydrogen to liquid form, and the conversion of ammonia back to hydrogen reduces energy efficiency. While chemists, engineers and scientists continue to make progress on improving the technologies needed to lower delivery cost, improve energy efficiency, and minimize hydrogen leakage, it is imperative that policymakers and administrators concurrently seek to ensure the regulatory structure through which such projects will need to pass is also efficient and allows us to enhance our energy mix. To be blunt about it – if we are striving to have net zero carbon energy production as soon as possible, we cannot have regulatory approval processes that take years for project proponents to navigate.
Counting the Cost of Missed Opportunities
Canada’s continued inability to establish a LNG export market comes to mind as a cautionary tale. Despite having tremendous natural gas resources and the opportunity to ship LNG cargoes that would displace fossil fuel usage with higher carbon intensity, Canada currently has one LNG import terminal in New Brunswick and one LNG export terminal under construction in British Columbia.
Meanwhile, V. Venkatachalam and M. Milke in EnergyNow Media, calculate LNG export growth from 2000 to 2019 from the following countries as:
- Qatar: 14.7 Bcm to 103.8 Bcm, or a 606% increase;
- Australia: 10.8 Bcm to more than 99.4 Bcm (820%);
- United States: 1.8 Bcm to 42.5 Bcm (2261%);
- Russia (using the latest data from 2009), up from 8.1 Bcm to 33.0 Bcm in 2019 (307%).
Canada has missed the figurative and literal boat in being a part of the global LNG energy market. Few, if any, energy production methodologies have universal support. Fossil fuels emit carbon. Solar fields have large land use footprints. Wind projects are noisy and harmful to birds. Hydro-electric projects disrupt natural water flows and affect the environment around them. Nuclear continues to be unwelcome.
However, if Canadians wish to change the energy complex, things need to be planned, financed, approved and ultimately - built. All of this takes time and money and the more time it takes the more money it costs.
Fortunately, concerns about hydrogen seem to be limited to overcoming technical issues of cost and efficiency, and it enjoys broad support among governments. Whether the technological hurdles can be finally overcome, and assuming no intervening technologies displace its rise, hydrogen holds significant potential to alter the energy use landscape. Like LNG before it, Canada has the opportunity to be a leader in this field.
Final Thoughts – Canada’s Carpe Diem Moment
A well-used saying that occasionally shows up on bumper stickers or signs in traditional oil producing regions that have weathered multiple boom-and-bust cycles says, “Please, let me have just one more oil boom … I promise not to waste it.” As the energy business in Canada changes there is an unpleasant possibility that such saying could be updated to read, “Please, let me have another chance to lead the world in building carbon reducing energy projects … I promise not to delay.”
COVID brought sudden and unexpected disruption to lives and people have been forced to adapt and move ahead. As Canada and the world begins to emerge from COVID and move to a restart of economies with the new mantra of “build back better”, let us hope that we are able to seize this opportunity to make use of Canada’s resources and expertise to be a part of the global energy transition thoughtfully, effectively, and without delay.
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Lorne Rollheiser is a partner in Gowling WLG's Calgary office and head of the firm’s national Oil & Gas Industry Group.
Lorne has 20+ years of experience practising in natural resources and energy law — including as in-house counsel with two of North America’s largest independent oil and gas producers. This unique background positions him strongly in the market and equips him to offer sophisticated legal advice that’s in tune with the day-to-day realities of the sector.
Working closely with domestic and international exploration and production clients, Lorne focuses his practice on a range of complex energy-related matters associated with the planning, development, and execution of upstream and midstream projects.
Lorne has also led teams in a multitude of high-stakes M&A and amalgamation & divesture transactions. Representing buyers and sellers alike, Lorne helps clients manage the sales process, conduct due diligence, coordinate the submission or receipt of bids, and negotiate and draft definitive purchase and sale agreements.