Energy Foundations

1
Energy Foundations

• The Energy and Environment Sustainability Table
• October 27, 2005

2
Table of Contents

• Foundations
• Overview
• Demand
• Supply
• Resources
• Energy and the Economy
• Greenhouse Gases

• Foundations
• Canada in the World
• A Sustainable Energy Future

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Canadas Energy Balance
Exports 8,503 PJ
Imports 3,144 PJ
Energy System Use 1,986 PJ
Final Demand Use Residential 1,458 PJ
Comm. Inst. 1,181 PJ Industrial
3,246 PJ Transportation 2,361
PJ Agricultural 211
PJ ------------------------------------ Source Pet
ro Products 3,061 PJ Natural Gas 2,189
PJ Electricity 1,887 PJ Wood Products 574
PJ Other 746 PJ
Primary Supply 19,849 Petajoules (PJ)
Producer Use, Transportation and Transformation
to Secondary Energy 11,346 PJ
8,457 PJ
Production 16,705 PJ
Natural Gas 7,025 PJ Oil 5,680 PJ Electricity
1,457 PJ Coal 1,326 PJ Other 1,217 PJ
Source Statistics Canada (StatsCan), Natural
Resources Canada (NRCan), EDG estimates
903 PJ
Non-Energy Use
4
The Energy System Energy Sources to Energy
Services
Transmission and Distribution Infrastructure

• Each energy service has unique attributes
• Motive fuel portable, high power density
• Home electricity stable frequency and voltage,
  high reliability
• Space heating responsive, high efficiency

5
Energy Demand - Summary

• The principal driver of the energy system (like
  any economic system) is demand
• Consumers demand energy services which can be
  delivered using a variety of resources and
  technologies
• Energy demand (overall and across a wide range of
  services) has grown declining energy intensity
  has not (yet) offset population and economic
  growth
• Energy efficiency is increasing across the board
  although much faster in some end use sectors than
  others

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Long-term Demand Growth

• Canadas energy demand increased 1.5 per year,
  average from 1990 to 2003
• 6951 PJ to 8457 PJ
• Never declined in two consecutive years in the
  timeframe
• Growth comes from the energy industrys key role
  in Canadas economy as well as demand for energy
  services

Source Statistics Canada (StatsCan), Natural
Resources Canada (NRCan)
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Growing Population and Economy Growing Energy
Demand

• Energy (E)/GDP
• Energy intensity of the economy
• Down 1.3 annually from 1990 to 2003
• Offset by
• Economic activity per person (GDP/Pop)
• Plus population growth

Source NRCan, EDG
8
Energy Demand Increased in Every Sector, 1990 to
2003
Source NRCan
Data for intensity estimates capture efficiency,
structural, service and weather effects on
intensity
9
Energy Supply - Summary

• The portfolio of energy sources used to meet
  energy demand is becoming increasingly diverse
• Domestic supply growing faster than domestic
  demand has enabled significant export growth
• Primary supply (and supply growth) still heavily
  dominated by oil and natural gas
• Canada enjoys growing supplies across almost all
  primary energy commodities including emerging
  sources
• Production and delivery systems tightly
  integrated on a continental basis

10
Increasing Energy Supply Diversification

• Canadas energy supply through three major cycles
  up to the 1960s
• Wood
• Coal
• Petroleum
• Each cycles fuel was less dominant than the
  previous cycles fuel
• The current cycle is one of increasing
  diversification
• No energy source more than 40 of total supply

Source NRCan, StatsCan
11
Supply Growth Faster Than Demand The Export
Success Story

• Two largest energy supply sources oil and
  natural gas have increased significantly since
  the early 1990s
• Energy supply increased 2.6 per year, about 1
  faster than demand
• 3 for crude oil and natural gas and natural gas
  liquids (NGLs)
• Increased energy exports

Source StatsCan, excludes wood waste and pulping
liquor
12
Growing Supply for Domestic Use

• 2003 primary energy supply, net of trade
• 41 petroleum
• 4 NGLs
• 31 natural gas
• 12 coal
• 13 primary electricity
• Includes energy used for producing and
  transforming energy
• Excludes wood waste and pulping liquor
• Each source has a unique production and
  transformation system

Source StatsCan
13
Energy Resources - Summary

• Canada has substantial resources of all major
  current and emerging primary commodities
• Canada can enjoy the economic benefits of energy
  resource development for many decades but the
  type and scale of the challenges has
  significantly increased
• New technology will be a key factor in
  economically developing Canadas remote,
  unconventional and emerging resources

14
The Energy Industry is a Major Contributor to the
Economy

• Energy industry economic role in 2004
• 60 billion of real GDP (1997)
• 68 billion of nominal exports
• 24 billion of nominal imports
• 45 billion of nominal capital expenditures,
  estimated
• 375 billion of TSX market capitalization,
  estimated
• Also a major employer and contributor to
  government
• 180,000 direct employees (excludes gas stations)
• Estimated total employment impact of over 500,000
• Over 18 billion in payments to government
  (excluding taxes paid by employees)

Source StatsCan, Toronto Stock Exchange (TSX)
15
The GHG Emissions Chain Energy, Economy and
Population

• GHG emissions growth is driven by energy demand
• Demand is driven by economic and population
  growth
• The energy industry contributes to economic
  growth through domestic supply and exports
• Canadas GHG emissions increased 1.5 per year
  from 1990 to 2002
• Total increase of 20, 731 million tonnes in 2002
• 81 of emissions from energy
• Kaya Identity
• GHG/Energy (E) emissions intensity of the
  energy mix
• E/GDP energy intensity of the economy
• GDP/Population (Pop) economic activity per
  person

Source Environment Canada (EC), NRCan
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Table of Contents

• Canada in the World
• International Overview
• U.S./Canada Relationship

• Foundations
• Canada in the World
• A Sustainable Energy Future

17
A Major Player in International Energy Markets

• Canada is a major producer and net exporter of
  key energy commodities
• Vast energy resources support Canadas long-term
  energy importance
• Geographic size and resource diversity create
  regional trading patterns
• Western Canada primarily exports energy Eastern
  Canada imports energy from around the world
• Electricity can be exported and imported in each
  region

Source NRCan, British Petroleum (BP), Central
Intelligence Agency (CIA), EDG
18
Commitment to Multilateral Cooperation

• North America (Canada included) is a big importer
  of oil from around the world and soon to be a
  big natural gas importer (in the form of
  Liquified Natural Gas)
• Multilateral international cooperation is an
  essential compliment to bilateral cooperation.
• Canada and US are founding members of the
  International Energy Agency advocate for market
  based energy policies and international
  cooperation on matters such as security and
  technology.
• Negotiating provisions under the General
  Agreement on Trade in Services (GATS) that will
  cover trade in energy services.
• North American Energy Working Group coordinates
  energy sector activities including energy
  security.

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Canada/US Energy Trade Overview

• Canada produces more energy per capita than any
  other G7 country.
• Energy sector exports and imports have grown by
  11.9 9.8 per year respectively since 1991.
• Canada exported over 65 billion worth of energy
  to the US last year
• US 50 billion.

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A Secure U.S./Canada Trading Relationship

• North American Free Trade Agreement (NAFTA)
  provides assurances of both supply security and
  market access
• Canada/US energy trade unburdened by tariffs,
  minimum or maximum export prices or export taxes.
• Restrictions allowed on quantities of exports or
  imports only in very limited cases and subject to
  requirement to respect proportional supply.

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A Secure U.S./Canada Investment Relationship

• NAFTA removed all significant barriers for
  investors and provided a framework of basic
  protections.
• NAFTA investors and their investments are treated
  no less favorably than domestic and non-NAFTA
  investors.
• NAFTA, with limited exceptions, prevents the
  imposition of specified performance requirements
  in connection with investments in member
  countries (e.g. domestic content/sourcing)

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Building on Success

• Canada and the U.S. must reinforce the supporting
  institutional framework.
• We must maintain our commitment to the shared
  economic benefits of our integrated energy
  systems.
• We must prevent new barriers to trade and
  cooperation from forming, inadvertently or
  otherwise.
• We must maintain and enhance our commitments to
  the international trade and cooperation framework

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Table of Contents

• A Sustainable Energy Future
• Overview
• Attributes
• Challenges
• Taking it Forward

• Foundations
• Canada in the World
• A Sustainable Energy Future

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Three Basic Propositions About Canadas Energy
Future

• A sustainable energy system will need to balance
  multiple attributes
• The trend toward greater diversity in the energy
  supply mix and increasing energy efficiency will
  continue
• Despite increasing energy efficiency, overall
  energy demand will continue to grow for some time
  to come

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A Sustainable Energy System Will Have Multiple
Attributes

• Capable
• Capacity to deliver diverse energy services,
  scalable applications, ease of siting
• Reliable
• Transportable, storable and on-demand delivery
  when and where needed
• Safe
• Acceptable safety along all aspects of the energy
  system
• Affordable
• Making a positive contribution to consumer
  welfare and the economy
• Efficient
• Maximizing productivity of resources and capital
  in production, transformation, and end use
• Acceptable
• Acceptability, by society, of the systems
  footprint, with local to global considerations
• Secure

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Capability, Reliability and Safety Basic
Requirements of Any Energy System

• Capability
• To satisfy specific needs such as space heating,
  water heating, drive power, lighting and
  electronic power
• Different energy sources have different
  capabilities and advantages
• Reliability
• Short-term energy deliverability
• Energy service quality meets consumers needs
• Safety
• Safety in production, delivery and end-use

Example The electricity and natural gas
transmission and delivery infrastructure moves
energy from the source to consumers homes with
over 99.9 reliability
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Affordability and Competitiveness

• Energy expenditures are a significant component
  of industrial and household expenditures
• Energy sector investment is a significant
  component of Canadas economy, and provides
  financial means to meet sustainability objectives
• A sustainable energy system must contribute
  positively to economic competitiveness and
  enhance consumer welfare but energy markets
  need to reflect full information and full costs

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Energy Efficiency

• A sustainable energy system would maximize
  efficiency in the use of energy and the capital
  required to provide energy services
• Efficiency applies across a number of operational
  aspects
• Production, transportation, conversion and
  end-use
• Markets balance energy efficiency within
  financial means
• Balances efficiency and investment across
  multiple energy sources
• Increasing efficiency often requires increasing
  investment
• Market price signals are necessary, but not
  sufficient
• There is a role for policy

Mainly energy efficiency
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Community Acceptability A Societys Standards

• The energy system, at each stage, needs to be
  acceptable to the communities it operates within
  and across
• A sustainable energy system meets comprehensive
  acceptability standards
• Contribution to local economies
• Physical footprint
• Health aspects
• Local, regional and global emissions

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Environmental Acceptability Managing the
Environmental Footprint

• All energy forms have an environmental footprint
  at each stage of the energy system
• Different energy sources and services have
  different types and magnitudes of environmental
  footprint

Transmission and Distribution Infrastructure
Hydrogen
Fuel Cells
Environmental Footprint (Land, Air, Water,
Wildlife)
31
Supply Security Resources and Infrastructure

• Long-term resource security
• Considers geopolitics of imported energy
• Considers timeframe of technological change and
  capital stock turnover
• 30-50 years for most systems
• Ensuring security of the physical infrastructure
  necessary to convert energy sources into energy
  services

• Why Canadians should think about energy security
• Can no longer take security for granted
• Recognize the importance of energy to Canadas
  geopolitical role
• Need to develop a perspective on security based
  on North American and international cooperation

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Challenges to the Sustainability of Our Energy
System

• Canada faces several large and growing challenges
  to the energy system most of the attributes of
  a sustainable energy system are facing challenges
• If these challenges are not addressed, we are
  potentially in for some significant shocks as we
  find ourselves unable to adequately ensure that
  sustainability attributes are met

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Sustainability Challenges

• Capability and Reliability
• The speed at which we can develop energy
  resources and the associated infrastructure
  continues to lag behind demand growth
• Regulatory uncertainty and overlap and
  unresolved problems of community acceptability
  delay and/or prevent the necessary investments
  and must be addressed to ensure our energy needs
  can be met
• Affordability
• Costs continue to escalate across all energy
  forms due to market pressures, growing reliance
  on remote and unconventional resources and the
  need to meet environmental challenges
• Reality of rising costs needs to be managed and
  reflected in prices policy should facilitate,
  not prevent, adaptation by both industry and
  consumers
• A competitive investment climate is needed to
  attract investments into developing Canadas
  energy resources and enhancing the systems
  sustainability

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Sustainability Challenges

• Efficiency
• Canada is one of the worlds most energy
  intensive nations (per person and per of GDP)
  which is not saying we are the most inefficient
  but it means that attributes of the energy system
  have a larger impact on us
• Canadian consumer preferences are energy
  intensive (e.g., large houses, large vehicles)
  a growing concern as energy becomes a higher
  value commodity
• Acceptability
• Despite significant improvements in many areas,
  the environmental impact of the energy sector
  continues to grow (e.g., urban air quality, water
  quality, greenhouse gases, waste management,
  land use issues) and is imposing real costs on
  society these issues must be addressed
• Unresolved conundrum between societal benefits
  and local costs NIMBY perspectives hinder the
  search for energy solutions and illustrate the
  need for both political leadership and maximum
  efforts to address local concerns

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Sustainability Challenges

• Security
• While resources exist to meet world demand for
  many decades, access remains a challenge
• Technology needed to allow resource development
  with ever smaller environmental footprint
• Infrastructure and institutional framework for
  access to world energy resources

36
There is No Silver Bullet Energy Solution

• No single technology solution can address all
  sustainability attributes
• It is also unlikely that all sustainability
  attributes can be addressed equally tradeoffs
  will be required
• Balance between market and non-market solutions
  to tradeoffs
• The policy framework will need to enable
  flexibility not prescribe the future to adapt
  to
• Regional differences in the energy system
• A changing energy supply mix
• Changing energy supply and demand technologies
• Changing societal preference on how to balance
  the attributes

• How was todays energy system developed?
• Evolved over time, not designed at one point in
  time
• Changing mix of market and non-market solutions
• Shaped by available technology and resources
• Shaped by societys changing perspectives on the
  attributes, such as environmental aspects

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Balancing Sustainable Attributes

• No single energy source will be the best at every
  attribute for every energy service
• Each energy source has a unique role, depending
  upon its own characteristics as well as regional
  supply and demand characteristics
• Different energy sources have different
  attributes a balance must be found - for
  example
• Petro-products capability from high energy
  density and portability
• Natural gas reliability from delivery network
  for on-demand services
• Wind generation acceptability from zero
  emissions
• Coal security from large Canadian and U.S.
  resources
• Consider attributes in the context of the whole
  energy system, not just the isolated supply chain
  of one energy source
• We should minimize the environmental footprint
  while maximizing other attributes but what
  takes precedence when trade-offs are required?

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Defining the Balance A Challenging But Critical
Task

• For example, consumers expectations about the
  energy systems capability, reliability and
  safety are not likely to decline
• Consumers expect 99.9 reliable and on-demand
  home heating and electricity
• Is 98 reliability OK if it improves
  affordability?
• For example, consumers do not want higher energy
  costs
• Are low energy costs more important than
  significant environmental objectives?
• For example, increased energy efficiency usually
  requires increased financial investment
• Should higher appliance and home efficiency
  standards be established if those standards
  increase the costs of appliances and homes?
• For example, are environmental objectives more
  important than community acceptability?
• Should actions that address key environmental
  concerns proceed in light of community
  opposition?
• For example, how is security of supply best
  achieved?
• Managing a diversifying mix of energy sources
• Access to existing energy sources that will be
  extensively used into the foreseeable future

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The Challenge for Policy-Makers

• Policy-makers need to define the balance of
  attributes (the objectives) in a sustainable
  energy system this is a values question
• Prices, markets and policies are tools that can
  be used to help us achieve the desired balance of
  sustainability attributes
• Prices and markets will do much of the job but
  policy has a big role to play
• Policy-Makers Challenge 1 How to balance the
  various sustainability attributes?
• Policy-Makers Challenge 2 What is the best
  policy mix to develop optimal solutions?
• Market and non-market solutions
• Flexibility to handle changing conditions
• These are the core questions that need to
  underpin an energy framework for Canada