The net-zero emissions goal to mitigate human-caused climate change will have the significant side effect of stranding assets in Canada’s oil and gas sector.
Natural gas producers are fighting back and hope to ship liquified natural gas (LNG) as a cleaner-than-coal transition fuel to export markets.
Still, oil and gas aren’t going away completely.
Canada’s oil output in 2019 was 4.9-million barrels per day. A report released in April by Canada’s Energy Regulator forecasts the country’s output will increase to 5.3 million barrels a day by 2050, when it expects to realize its goal of reaching net-zero emissions. Without measures to limit climate change, Canada’s oil production could rise to 7.2 million barrels a day by 2045, the regulator estimates.
Natural gas production in Canada stood at 15.7 billion cubic feet per day in 2019. Assuming prices fall and there’s reduced demand for gas as users swithc to renewable energy sources, natural gas output would fall to about 13.0 billion cubic feet per day by 2050. However, with higher prices, a lack of climate change action and higher LNG exports, Canada’s natural gas output could actually rise to 23.5 billion cubic feet per day by 2045, the report suggests.
LNG is natural gas chilled to -160 C, which turns it into a liquid that takes up significantly less space, allowing it to be carried in tanker ships to markets in Europe and Asia.
The federal government’s goal is to make Canada “the cleanest LNG producer in the world,” according to Ian Cameron, a spokesperson for Natural Resources Minister Seamus O’Regan.
There are five LNG projects at various stages on the British Columbia coast.
Two Eastern Canada projects — branding themselves as net-zero operations — are proposing carbon capture use and storage (CCUS) to dispose of the greenhouse gases (GHGs) generated, as well as partnerships with the affected First Nations.
Environmentalists, opposed to any new fossil-fuel projects, do not buy this rebranding approach, dismissing it as greenwashing.
Canada’s gas-export projects propose LNG as a transition fuel to replace coal, which has seen a surge in use to generate electricity in much of Europe and Asia. When burned, natural gas produces roughly half the carbon dioxide that coal does.
But Pieridae Energy Ltd. of Calgary recently put its planned Goldboro LNG port in Nova Scotia on hold, citing “pandemic-led disruptions” which have “made the current version of the project impractical.”
And despite an environmental assessment by a Quebec agency suggesting its project could generate more GHGs and even delay the transition to renewables, California-based Symbio Infrastructure Limited Partnership hopes to make a final investment decision for its Énergie Saguenay LNG project in Quebec later this year.
An evaluation by the BAPE, Quebec’s environmental assessment agency, has found that the project’s suggested GHG savings may be overly-optimistic, and that the 400 tanker ships that would need to pass in and out of the Saguenay Estuary each year could further endanger the already at-risk beluga whales.
While Quebec Premier François Legault criticized the old Energy East pipeline proposal, which would have seen Alberta-produced oil carried through Quebec to the Irving Oil Refinery, he speaks favourably about Énergie Saguenay.
It could “save the planet,” Legault has said in the Quebec national assembly.
“With the pipeline and the plant, we are talking about $14 billion (in investments) and 4,000 well-paid jobs,” Legault said.
Of the five LNG ports proposed in British Columbia, two it Kitimat — Kitimat LNG and LNG Canada — are the furthest advanced. They would be supplied with natural gas from the also incomplete Costal GasLink pipeline, which TC Energy, the company building it, has planned to open in 2023.
“LNG Canada will be the lowest-emissions intensity LNG facility in the world when it begins exporting,” Cameron told iPolitics in an email.
However, European buyers are less bullish on LNG as a transition fuel.
Frans Timmermans, who oversees the European Union’s Green Deal, has admitted there is room for LNG until enough clean energy can be deployed.
“Fossil gas may still play a role in the transition from coal to zero emission electricity,” Timmermans said in March. “But I want to be crystal clear with you — fossil fuels have no viable future. That also goes for fossil gas, in the longer run.”
The International Energy Agency (IEA), which was created in 1974 to ensure the security of oil supplies to its member countries, projected in May that in a world where energy-related carbon dioxide emissions reach net zero by 2050, that the price of oil would be US$25 that year, meaning “significant stranded capital and stranded value” for oil producers.
Oil trades now at about US$70 a barrel. Last May, amid pandemic lockdowns, oil fell to US$36 a barrel.
At US$25 a barrel, only the lowest-cost producers, chiefly in the Middle East and excluding Canada, could continue to pump oil. Refineries would close.
“No new natural gas fields are needed in net-zero emissions beyond those already under development,” the IEA report continues.
“Also not needed are many of the liquified natural gas liquefaction facilities currently under construction or at the planning stage. Between 2020 and 2050, natural gas traded as LNG falls by 60 per cent.”
The future of natural gas, according to the IEA report, is in extracting hydrogen, a carbon-free fuel that can also be generated from water by electrolysis, using renewable energy sources such as hydro, solar or wind.
The now-high cost of producing hydrogen and hydrogen infrastructure will have to come down, though.
The IEA estimates that by 2050, world demand for hydrogen will increase almost sixfold as this fuel is used in steel and chemical production, as well as in transport, accounting for 13 per cent of global energy demand.
Hydrogen produced by electrolysis would absorb about 20 per cent of global electricity supply in 2050, while natural gas, paired with carbon capture, usage and storage, would consume about 50 per cent of global natural gas demand, the IEA projects.