The decision by Shell Oil to delay going all-in on its liquefied natural gas project near Kitimat received a lot of attention last week, but an energy report that helps put that decision in context appears to have barely registered on the radar screen.
Shell, faced with plummeting profits brought on by the price of oil falling off a cliff, is facing financial austerity, at least for the short term. It is eliminating 10,000 jobs, deferring spending and delaying various investments.
The company now says it will wait until December before making a final investment decision on its LNG Canada project, for which it partners with several other companies. It’s quite conceivable the delay could be even longer, particularly if oil and gas market prices don’t improve significantly by then.
It’s also possible that the other front-runner in the B.C. LNG sweepstakes – Petronas’ project near Prince Rupert – may also delay its own FID, since it is presumably facing the same fiscal challenges as Shell.
None of this would be particularly good news for Premier Christy Clark, who made establishing an LNG industry in this province the focal point of her election platform in 2013.
The anti-LNG and anti-pipeline groups popped champagne corks in celebration, but a recent report by Canada’s National Energy Board shows that celebration may be very premature and in fact may never have cause to occur.
The NEB’s report, entitled Canada’s Energy Future, is ground in sober and scientific analysis, and not in romantic notions of getting rid of fossil fuels anytime soon, despite what you may hear at various anti-oil protests.
The NEB has projected Canada’s energy needs and production to the year 2040 and has concluded they will both rise significantly. Oil production (primarily from Alberta’s oil sands) will rise an astounding 56 per cent while natural gas production will increase 22 per cent, with LNG “an important driver” of that growth.
The NEB points out it doesn’t matter whether any new oil pipelines are built or not. The demand for the resource remains, and therefore Alberta’s bitumen will move one way or another – most likely via rail cars, which are considerably more dangerous than pipelines (a relevant fact seemingly lost on the anti-pipeline lobby).
The energy board acknowledges that fluctuating commodity prices may bring some volatility to the situation, but low prices will simply slow the growth of oil and gas production and consumption, not reduce it.
The NEB tosses to the curb the rhetoric coming from the environmental movement and from self-congratulating conferences of politicians vowing to take action to significantly curb greenhouse gas emissions.
“Fossil fuels remain the primary source of energy in Canada over the projection period,” states the NEB’s analysis, and it notes their use will rise by 22 per cent over today’s consumption levels. As a result, greenhouse gas emissions will rise too.
Renewable energy projects, such as wind and solar, may increase over time but not anywhere near the point of being able to match the energy needs provided by oil and gas, the NEB notes. Renewables provide about nine per cent of energy production, so they would have to grow at a phenomenal rate to have a significant impact (wind farms require an enormous capital outlay, and few companies seem willing to go that route).
What does all this mean for a proposed LNG industry in B.C. and pipelines such as Kinder Morgan’s? In all likelihood, they will all come to fruition eventually. For example, Shell Oil has simply “delayed” its decision on whether or not to proceed with its LNG project and it hasn’t walked away from anything.
Protests and sloganeering can’t match the reality that Canadians, and people everywhere, will be using that oil and gas on an increasing basis and so those natural resources will eventually be extracted and moved to markets and consumers.
This may not happen on a timeline that suits the Clark government’s political agenda. The premier would prefer LNG to happen sooner or later.
But it will happen at some point, which is the inevitable conclusion one draws from the NEB’s analysis. It’s just that LNG and the oil sands will follow an economic timeline, and one dictated by consumer use and not by a politician’s needs.
Keith Baldrey is chief political reporter for Global BC. He can be reached via email at Keith.Baldrey@globalnews.ca.
