Energy runs the world. It meets our most basic needs, such as having a warm place to live, lights to read by, and a means of cooking food. It also underlies our ability to travel great distances, transport goods for trade, and build amazing products from smart phones to artificial hearts.
Oil and natural gas have formed the backbone of an energy revolution that has transformed the lives of billions for the better. Oil and natural gas have the promise and opportunity to transform the lives of billions more, with Canada at the lead as a sustainable, responsible and innovative energy producer.
As the world moves to a lower-carbon future, some have pronounced the doom of the hydrocarbon industry. This does not stand up to scrutiny. Oil and natural gas have a critical role to play in meeting the world’s energy needs for the foreseeable future. We examine five reasons why.
Reason 1: We need more energy
“If you look at any forecast, we’re going to see growing energy demand,” says Jackie Forrest, director of research at the Calgary-based ARC Energy Research Institute.
Forrest’s comment is backed by the latest energy outlook from the International Energy Agency (IEA). The IEA’s World Energy Outlook 2016 projects that by 2040 the world will need 31 per cent more energy than we use today. Others draw similar conclusions. BP in its latest report estimates global energy demand to grow around 30 per cent by 2035, while the U.S. Energy Information Administration says this could even reach 48 per cent by 2040.
“We’re going to see a huge increase in the energy system because we’re seeing a growth in population, more countries increasing their wealth and many people demanding mobility,” Forrest says.
The IEA numbers make for serious reading. According to the agency, 1.2 billion people still lack access to electricity. And 2.7 billion are without clean cooking fuels, instead depending on wood, charcoal or animal dung for fuel. It’s clear many people around the world are looking to low-cost, efficient energy sources simply to boost their quality of life to standards we in the West have long taken for granted.
So if more energy is required, what’s it going to take to get us there? In practical terms, it’s going to take all forms of energy—and that includes oil and natural gas.
“People often hear about the rapid growth rate of renewable energy. But even if this happens, at the end of 2040, renewables will still make up only seven per cent of the world’s entire energy mix,” says Terry Abel, CAPP’s executive vice-president. “Most people would be surprised to learn that hydrocarbons—oil, natural gas, coal—together will still make up more than three-quarters of the future energy mix in 2040.”
This forecast is part of the IEA’s central or “New Policies” scenario, which incorporates countries getting serious about meeting climate pledges made in Paris in December 2015.
“If government leaders stick on the path today, even including the agreements signed in Paris, this future still implies growth in oil and gas,” Forrest says.
Reason 2: Oil and natural gas: plentiful, powerful, transportable
We don’t have to go far to realize what’s behind continued demand for oil and gas: They pack a lot of energy punch within their molecules.
“Nothing can compete with oil and natural gas in terms of economics or their utility. At $50 a barrel, it’s fairly cheap to use oil versus other alternatives,” says Forrest. “Liquids fuels have a lot of energy density. When you get a tank of gas, you can travel really long distances—and that’s a big advantage,” Forrest says.
There’s also their abundance. It used to be that society worried about peak oil. But through innovation, we’ve found plenty more. That’s true especially today, as unconventional technologies have unlocked new shale gas and tight oil reserves, vastly growing the world’s hydrocarbon reserves. In fact, according to BP’s latest energy outlook, there’s enough technically recoverable oil in the ground to meet double the world’s needs by 2050.
Alternatives to oil and gas are becoming more viable. Improvements to solar technology are allowing this energy source to take on a larger role, specifically in electricity production. As well, more electric cars are entering the market. Even so, they do not spell an end to hydrocarbon-driven energy.
“There are still a lot of cars that run on gas and diesel in the world,” says Forrest, who estimates there are more than a billion light duty vehicles (LDVs) on the road currently. As well, while more cars may be electric, hydrocarbons are often used to generate the electricity needed to charge up these vehicles. For example, both the U.S. and China currently depend on hydrocarbons for at least two-thirds of their electricity production.
Another important advantage for hydrocarbon energy sources—particular in supplying developing and emerging economies—is they can be efficiently transported over large distances via tankers and pipelines. Places like Canada with plentiful energy resources and modern energy infrastructure can export these resources to places elsewhere where energy is in short supply and high demand. This option isn’t possible for most alternative energy sources where you need to be relatively close to the source (as is required for hydro) or build significant infrastructure to access or create the energy supply (think nuclear, solar and wind).
As well, energy sources such as natural gas can be counted on to fuel electricity generation backstopping more wind and solar.
“When the wind isn’t blowing or the sun isn’t shining, we will still need a backup. That can come from natural gas, which is always available when you need it and is economic,” Forrest says.
Reason 3: Innovation can solve the carbon dilemma
To meet the world’s growing energy demands while shifting towards a lower-carbon future requires innovation. This applies to renewable energy sources which today cannot meet the burden of providing energy security to large populations without improvements that deal with the high cost, large land footprints and intermittency of these sources.
By the same token, innovation will enable oil and natural gas to continue as an important part of a growing energy mix within a lower-carbon future. Canadian producers are already working hard to find ways to significantly reduce carbon emissions associated with the production of oil and natural gas.
Groundbreaking research, for example, is taking place through Canada’s Oil Sands Innovation Alliance (or COSIA). Five years ago, 13 oil sands companies formed COSIA—a unique partnership that’s committed to better environmental performance in key areas, including greenhouse gases. To do that, they’ve set aggressive targets. They’re pooling their resources and sharing knowledge, best practices and even intellectual property. Already they’ve shared more than $1.3 billion of intellectual property representing more than 900 technologies and innovations. This is a magnitude of intellectual property sharing unique in the world.
“Through literally hundreds of projects, the companies are achieving environmental performance goals they’ve set for themselves. And the improvements through innovation are translating into new value for the companies involved and the industry,” says Gordon Lambert, a former vice-president of sustainability at Suncor Energy and one of the founders of COSIA.
Elsewhere, industry is partnering with research institutions, like the University of Calgary, to create environmentally effective technologies. Armed with a $75-million grant from the Canada First Research Excellence Fund, a team of 270 researchers at the university is working with producers to find lower impact ways to extract energy from unconventional oil resources with less energy and less water.
Lambert, who’s also a former member of the Alberta government’s climate change leadership panel, calls these and similar efforts “mission critical” to the industry’s future.
“To be positioned for success in the 21st century, our industry has to be resilient in a carbon-restrained future. And the way in which we can do that is through innovation. Innovating to produce hydrocarbons with less energy inputs, which in turns translates into less GHG outputs and lower costs, will be the essence of our industry’s future carbon competitiveness,” he says.
Reason 4: Canadian energy: abundant, reliable, sustainable
While we’re still very much a continental oil and gas player supplying mostly our neighbor to the south, new pipelines and export facilities could change all that, putting us on the world stage. When that happens, the “made in Canada” sticker on oil and gas products could carry a lot of weight with foreign customers.
“I think we’ll find that the world will welcome Canadian oil and gas production. Our resources come from a stable political regime. The sources are consistent and constant, and we have long, steady-producing entities,” Abel says.
Add to that, Canada’s oil and natural gas is produced under a world-class regulatory system. A 2014 study by Worley Parsons comparing Alberta’s environmental policies, laws and regulatory systems with other oil-producing regions, ranked Canada near the top.
“Canada undergoes quite a bit of scrutiny in the development of its resources. We have some of the most stringent environmental regulations, and the transparency to go with it,” says Abel, who previously worked as a senior executive at the Alberta Energy Regulator.
Abel says Canada, with its responsibly produced oil and gas, has the opportunity to make a difference on the world stage. Alberta has introduced a carbon leadership plan with a hard cap on oil sands GHG emissions. And the industry already invests heavily in technology and innovation.
“If the world wants to see cleaner, more responsible oil and gas, then they will want Canada to be in the mix of suppliers,” he says.
Reason 5: Petrochemicals and almost everything you own
We shouldn’t forget that oil and natural gas are needed to create petrochemicals, the building blocks used to manufacture many of the products we count on every day.
Walk into any home, and there’s something made using petrochemicals: the paint on the walls, the lightweight winter jacket, the smartphone in our pockets. Petrochemicals are also behind carbon fibre and other advanced materials that make airplanes lighter (and more fuel efficient) and wind turbine blades stronger, while allowing for breakthroughs like lightweight and flexible artificial limbs.
“Our chemistry industry touches many aspects of our society, and petrochemicals are a big part of that,” says David Podruzny, vice-president of business and economics for the Chemistry Industry Association of Canada (CIAC). CIAC represents Canada’s $53-billion chemistry sector, which relies on natural gas liquids and oil for high-value feed stocks.
According to Podruzny, just under five per cent of oil and about 20 per cent of Canada’s natural gas consumption gets converted to petrochemicals. And that’s an application he doesn’t see disappearing soon.
“Nor should it disappear,” he adds, noting there are close to $12-billion in investment decisions under consideration for Canada that would use natural gas or biomass as raw material to make petrochemicals. “We make petrochemicals with the lowest carbon footprint on the planet,” says Podruzny, “Who will benefit if these investments move elsewhere?”
“Even as society talks about decarbonizing our economy and some talk about even eliminating the use of oil and natural gas, I challenge that. I see new value from hydrocarbons 50 years from now where they are used to make new materials that add to our quality of life,” Podruzny says.
It’s a broader outlook for oil and natural gas that ultimately challenges industry to capture even more value from the resource, yielding new products and applications for now, and well into the future.