Canada is one of the world’s largest natural gas producers (5th) and exporters (4th) with over 200 years of reserves at current production levels. The Canadian Gas Association states it consists primarily of methane, with lesser amounts of ethane, propane, butane, pentanes and heavier hydrocarbons. As a major producer, consumer and exporter, natural gas has been integral to the economy as a source of capital investments, trade flows, and good jobs. Will this continue?
CONSUMPTION – The IEA’s recent ‘Canada 2022 – Energy Policy Review‘ reports total 2020 energy supply use as: 287.6 million tonnes oil equivalent (Mtoe) (natural gas 39.1%, oil 32.7%, hydro 11.5%, coal 3.7%, bioenergy and waste 4.6%, wind 1.1%, and solar 0.1%), a 10.3%+ since 2010. Natural gas demand is typically measured in petajoules (PJ). 287.6 Mtoe x 41.868 petajoules (PJ) = 12,041.237 PJ x 39.1% natural gas = 4,708.120 PJ (1 PJ = 1,000,000 GJ).
Natural gas demand growth has been driven primarily by pricing fluctuations and generating steam in some Canadian oil sands processes and other industrial operations. Natural gas-powered electricity generation expects to double between 2019 and 2040, driven by coal-fired generation displacement. See below pricing (black line) and past, present and future projections.
Canada’s Energy Regulator – Energy Future 2019 Supplement: Natural Gas Production
Is there any correlation between use of natural gas and level of greenhouse gas emissions (GGEs)? Yes, the correlation is that combustion of natural gas produces GGEs. Canada reported 672 Mt CO₂ eq were produced for the year 2020 of which oil and gas represented 179 Mt CO₂ eq or 26%, and 730 Mt CO₂ eq were produced over 2019 of which oil and gas represented 191 Mt CO₂ eq or 27%. See Environment and Climate Change Canada (2022) chart under Emissions.
PRODUCTION: The IEA also reports total 2020 energy production as: 515.1 Mtoe (oil 50.5%, natural gas 30.1%, hydro 6.4%, coal 4.8%, nuclear 5.0%, bioenergy and waste 2.6%), a +29.3% since 2010. Natural gas demand is typically measured in petajoules. 515.1 Mtoe x 41.868 petajoules (PJ) = 21.566.207 PJ x 30.1% natural gas = 6,491.428 PJ. 1 PJ = 1,000,000 GJ.
Given reserves and production capacity, Canada produces more than needed, exporting 44% of its domestic energy production in 2020. Production has remained relatively stable, increasing incrementally despite declining gas prices since 2014. While the number of wells drilled has declined, well productivity has increased due to improvements in horizontal drilling and hydraulic fracturing. Canada’s Energy Regulator forecasts natural gas production to rise until 2050. Canada is pulling out of a decline from low prices in 2020 by improving cost structures to remain competitive, overcoming Covid-19 impacts, and addressing a lack of LNG export outlets expected for 2025. Russia’s Ukraine invasion may also table projection changes. Stats Canada shows production during January 2022 concentrated in Alberta (66.3%) and B.C. (32.4%).
The IEA reports Canada’s natural gas trade is dominated by net exports to the USA. In 2020, Canada exported 71 billion cubic meters (bcm) to the USA, and imported 23 bcm, almost entirely from the USA. Overseas imports from Canaport N.B. LNG import terminal came from a few other countries, including Trinidad and Tobago, Angola, Qatar, and Norway.
Canada’s 2020 net exports of 48 bcm x 35.17 MJ/m3 = 1,688.16 PJ represents approximately 5% of USA natural gas demand (869 bcm or 30,562.73 PJ). Energy per volume may vary based on source. Overall gas trade has decreased in recent decades with the USA as their production increases. This development, combined with limited pipelines, has led Canadians to seek alternative markets through the construction of pipelines and LNG exporting.
EMISSIONS – GGEs have been relatively unchanged since 2005. Increased emissions from oil and gas have largely continued to be offset by decreases in other sectors; subsequent emissions growth continually attributable to an expansion of oil sands extraction. 2020 was the first significant drop in emissions from 730 Mt CO₂ eq (2019) to 672 Mt CO₂ eq as policies start to demonstrate changes, of which 523.2 Mt CO₂ eq was fuel combustion related. CO₂ eq emissions by fuel source in 2020 were: oil 49.2%, natural gas 41.2%, coal 9.4%, waste 0.2%.
The IEA notes increased USA shale gas production has reduced NA prices and kept Canadian natural gas prices low. Canada is not heavily reliant on natural gas for electricity supply, 11% in 2020. Demand is very seasonal, with peak consumption in colder winter months and provinces/ territories have varying emission factors based on yearly supply and hydrocarbon composition.
The Center for Climate and Energy Solutions states natural gas combustion emits about half the CO₂ of coal and 30% less than oil, with far fewer pollutants, per unit delivered. Moreso, in the immediate future according to NRCan, domestic demand forecasts an energy transition: hydrogen from natural gas combined with carbon capture and storage (CCS); some coal-powered electricity replacement with natural gas and CCS; displacing diesel with LNG and other lower emitting fuels in northern and remote communities; and renewable natural gas in the transportation sector; will achieve significant emissions reductions. Over the month of January 2022, lower production of crude oil (-4.5%) and coal (-26.0%) were offset by higher production of natural gas (+7.0%). Hopefully this sets a long-term trend for the future.
Oil and gas sector greenhouse gas emissions, Canada, 1990 to 2020
Source: Environment and Climate Change Canada (2022). National Inventory Report 1990-2020: Greenhouse Gas Sources and Sinks in Canada
NATURAL GAS PREVALENCE IN ECONOMY – Natural gas is extensively used in the residential (lighting, heating/cooling), industry (lighting, heating/cooling/steam, feedstock in production of petrochemicals and fertilizers) transportation (retail pump sales, road transport, urban transit, airlines, pipelines, railways and marine), agriculture (irrigation systems, backup, greenhouse heating, fertilizers, equipment use, deliveries), commercial and institutional (heating/cooling, lighting, auxiliary motors) and power generation electricity application sectors.
POLICIES RELATED TO NATURAL GAS – The Canadian Energy Regulator Act (2019) oversees the safety of offshore projects; ensures exploration and production (i.e. pipelines) is carried out safely and securely and protects people, property and the environment (see Canada’s Oil and Gas Operations Act and the Canada Petroleum Resources Act); regulates trade in energy products; and ensures related regulatory hearings and decision-making processes are fair, inclusive, transparent and efficient. Federal market regulations involve pipeline transportation of natural gas, and work beyond provincial/territorial boundaries, codified in the Canadian Energy Regulator Act (2019). Provincial energy regulators oversee final end user natural gas prices. Under Canada’s Constitution, provinces own onshore energy resources within their borders.
Effectiveness of these policies related to overall climate policy is counterbalanced. Several recent measures include a strengthened climate plan, financial outlays and NDC updates to reduce emissions by 40-45% below 2005 levels by 2030. A central policy tool being carbon pricing to provide price signals to shift consumption to cleaner fuels. The Net-Zero Emissions Accountability Act (June 2021) requires binding five-year interim GGE targets until 2050 and the Minister of Environment and Climate Change Canada (MECCC) to table in parliament and publish a plan and progress reports to meet or course correct those targets. In March 2022, the MECCC launched Clean Electricity Standard consultations towards a net-zero electricity grid by 2035. In April 2022, the MECCC announced all future oil and gas projects to be net zero by 2050. This compliments their announcement at COP26 of a hard cap on gas and oil emissions.
Reducing oil and gas sector methane emissions by at least 75% below 2012 levels by 2030 (Oct 2021) may not help a federal target of 90% carbon-free electricity by 2030 but supports the unabated phase out of coal-fired power plants by 2030 (both announced Dec 2018). Clean Fuel standards expected to be in force by December 2022 will lead to a decrease of about 13% (below 2016 levels) in carbon intensity of liquid fossil fuels used by 2030.
RATING ACTION – Based on the above policies in relation to Canada’s climate goals, and recognizing the Ukraine war is driving a global chaotic transition with markets discriminating in favor of more carbon-competitive products and conservation, Canada needs to be responsive.
The Canadian Centre for Policy Alternatives reminds us natural gas is a finite, non-renewable resource, and there are no analyses to prove estimates of purported existing Canadian resources as economically viable. Growing oil and gas production remains incompatible with achieving strong emissions reduction targets. Canada must continue to address these issues. As our MECCC stated recently following Russia’s Ukraine invasion, the immediate way to improve global energy security is to reduce dependence on oil and gas and deploy renewables and cleantech.
This Post was submitted by Climate Scorecard Canada Country Manager Diane Szoller