Oil consumption outlook fuels further pipeline debate

Despite a current short-term glut, the long-term global demand for natural gas will increase 50% over the next 25 years, at the expense of coal, as demand for energy grows by 30% in developing economies, according to the International Energy Agency (IEA).

For B.C., which sits on an ocean of gas it wants to export, that’s some of the good news contained in IEA’s recently released 2016 World Energy Outlook.

There’s even better news for the renewable energy sector and electric vehicle makers. By 2040, 37% of the world’s power is expected to come from renewable energy (compared with 23% today) and electric vehicles are expected to grow from 1.3 million today to 30 million in 2025, and 150 million by 2040.

As a result, the increase in global greenhouse gas emissions (GHGs) from the energy sector is projected to average out to 0.5% annually by 2040, compared with the current annual growth rate of 2.4%.

“Growth in energy-related CO2 emissions stalled completely in 2015,” the report states.

The bad news is that the IEA’s projections are based on the commitments made by the 190 signatories of the Paris Agreement, the second-largest of which – the U.S. – may renege on its commitments.

The U.S. accounts for 16% of the world’s GHGs, according to the Environmental Protection Agency. China accounts for 28%. Canada accounts for just 1.6%.

President-elect Donald Trump has vowed to “unleash” America’s coal, oil and natural gas reserves; scrap the Clean Energy Plan; and pull out of the Paris Agreement. So the IEA’s projections may prove to be completely off the mark.

Despite IEA’s predictions for renewable energy and electric cars, a fossil-fuel-free world is still a very long way off. There are few alternatives to oil in the freight, aviation and petrochemicals sectors, the IEA states. Natural gas and oil will therefore continue to be the “bedrock” of the globe’s energy system.

While the demand for oil from Organization for Economic Co-operation and Development countries is expected to fall by 12 million barrels per day (bpd) by 2040, demand will increase in developing countries, with India alone accounting for an estimated six million bpd in demand growth. The world now consumes 92 million bpd of oil, with consumption expected to grow to 103 million bpd by 2040. In other words, there is still a need for oil pipelines to get Alberta oil to world markets.

Trump has vowed to approve the Keystone XL pipeline, which was vetoed last year by President Barack Obama.

“This campaign rhetoric does not always translate into presidential action,” cautioned Afolabi Ogunnaike, senior analyst, Americas, refining and oil markets, for Wood Mackenzie. “And even if [it were approved], the path to the Keystone XL would not be a straight, simple path.”

If the US$7 billion project were to be resurrected, it’s unlikely to have any bearing on the Trans Mountain pipeline expansion, which Ottawa is expected to approve by mid-December.

Two different companies are behind those two pipelines, and they would serve different markets, with Keystone XL supplying Alberta oil to Gulf Coast refineries in the U.S., and Trans Mountain serving Asian markets and California.

Since Keystone XL was vetoed, a couple of things have changed for the company behind it, TransCanada Corp. (TSX:TRP). For one, the Calgary company switched its focus to the Energy East pipeline project.  It also has since committed to a US$13 billion acquisition of Columbia Pipeline Group Inc. (NYSE:CPGX). Just last week, it sold $3.5 billion in shares to pay off a portion of the US$6.9 billion in debt it assumed as part of the acquisition.

Asked if the company plans to resurrect Keystone XL based on Trump’s support, a TransCanada spokesperson wrote, “We have always remained committed to the Keystone XL project.” The company still has a claim against the U.S. government under the North American Free Trade Agreement over Obama’s vetoing of the project.

Ogunnaike said there is sufficient demand for Alberta oil for two pipelines, but probably not three. TransCanada might have to weigh the options and decide to go forward with either Keystone XL or Energy East.

“They’re ready to do one or the other, but probably not both,” he said. “Neither of them has a smooth path forward.”

Another question yet to be answered is just how much more it would cost to build Keystone XL. Trump has said he would approve the pipeline, with conditions.

“I want it built, but I want a piece of the profits,” Trump has said.

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