Thank you, Mr. Chair, for inviting us here today. Both Ms. Milutinovic and I are honoured to appear before the committee today to discuss the future of Canada's oil and gas sector.
We've provided the clerk with a few slides, and I'll make some brief comments on them.
The National Energy Board is an independent quasi-judicial regulator that was established in 1959. The board reports to Parliament through the Minister of Natural Resources. Our main responsibilities are established in the National Energy Board Act. These include regulating the following: construction, operation, and abandonment of interprovincial and international pipelines that transport oil, natural gas, and other commodities as well as the associated pipeline tolls and tariffs; construction and operation of international power lines and any designated interprovincial power lines; and export of crude oil, natural gas, natural gas liquids, refined petroleum products and electricity. The board also monitors aspects of energy supply, demand, production, development, and trade. My slides will go through highlights of our recent projections of Canada's energy supply and demand.
The NEB's publication “Canada's Energy Future 2016” is a key reference point. It's the only publicly available long-term Canadian energy outlook covering every energy commodity for all provinces and territories. This study continues a very long tradition of energy outlook reporting by the NEB. We've been publishing this study regularly since 1967.
The analysis we do in the report is not a prediction of the future. It is a projection of what might occur based on a set of assumptions. We make three key assumptions in the report, which are important to set out right up front. First, any energy produced in Canada will find a market either in Canada or through export. Second, infrastructure will be available to move energy products to markets once they are produced. Third, only government policies that are either set out in law or near to being set out in law at the time the analysis is done are actually included in the publication.
With regard to total energy production, as you can imagine, Canada's energy future will be determined by the interaction of many forces. Prices, economic growth, policies and regulations, market access, and the development and use of new technologies will all play a significant role.
While recently there has been much debate around Canada's oil and gas reserves, one thing I think we can all agree on is that we have a lot of them. We have more than 170 billion barrels of proven oil reserves. That's third in the world, behind only Saudi Arabia and Venezuela. Most of those, of course, are in the northern Alberta oil sands. Every day, Canadian refineries process about 1.7 million barrels of oil.
On the natural gas side, Canada's total remaining marketable gas resource is 1,087 trillion cubic feet. That's enough natural gas to meet the country's needs for more than 300 years, based on current consumption levels.
There is an amazing amount of oil and gas resource in Canada, and the production and sale of it represents a significant part of the national economy. In all our cases, we see energy production growing significantly up to the end of our projection in 2040.
Our reference case projects that Canadian oil production will grow by 56% over 2014 levels to 6.1 million barrels per day by the year 2040; natural gas production will grow 22% to 17.9 billion cubic feet per day, with liquefied natural gas exports being a key driver of that growth. Electricity production will hold fairly steady, but coal-generating capacity will decline and natural gas-fired generating capacity will increase significantly.
These projections come with the significant challenge, of course, of producing that energy in an environmentally responsible manner.
On the third slide, we show levels of future oil and gas prices. The numbers in the study were finalized last August, and developments since that time, including some significant ones in carbon pricing, are not included in this analysis. We're currently working on an update, which will be ready for Canadians this fall.
In our reference case, Canadian energy demand will continue to increase by 0.7% each year through to 2040. We project significant growth in all major forms of renewable energy including hydro, solar, wind, and biomass. By 2040, we project that non-hydro renewable electricity generation capacity will account for 16% of Canada's total. That is on top of hydro, which will account for 51% of Canada's electricity generation capacity. Greenhouse gas intensity will diminish due to a higher demand for lower-intensity fuels such as natural gas as opposed to oil or coal.
I'd like to highlight three primary findings from the study that are particularly relevant to today's discussion.
The first finding is that levels of future oil and gas production are highly dependent on future prices, which are subject to considerable uncertainty. To examine this uncertainty, the board explored a high price case as well as a low price case to compare them to the baseline.
In our reference case, oil prices rise from just over $50 per barrel to $80 in 2020, and a bit over $100 in 2040. The high and low price cases are about $25 U.S. above and below that through the projection period.
For natural gas, the reference case Henry Hub price rises from just under $3 per million BTUs in 2015 to $3.85 in 2020, and $4.55 in 2040. The high and the low cases are about $1 above and below this level.
On slide 4 we show the total oil and gas production. As I said earlier, the reference case projects that total oil production will release 6.1 million barrels per day by 2040, which is 56% higher than 2014 levels.
Oil sands production will more than double by 2040 from 2.3 million barrels to 4.8 million. I'd like to point out at this stage that in the copy we provided to the committee there's a mistake on the line where we show that oil sands production would grow by 24%. That's incorrect, as it will more than double the 2.3 million barrels—and the 4.8 barrels is correct.
In our high price case, production is about 800,000 barrels per day higher in 2040, and in the low price case production is flat after 2020 at 4.8 million barrels a day.
Natural gas production in 2040 ranges from approximately where we are today, at 15 billion cubic feet per day, to 23.5 billion cubic a day in the high price case.
The second finding is that liquefied natural gas export is an important driver of Canadian natural gas production growth. The reference case assumes that LNG exports increase to 2.5 billion cubic feet a day by 2023. This is an assumption, as there's considerable uncertainty regarding the volume and timing of LNG exports from Canada.
We examined two cases around this uncertainty: a high LNG case and a no LNG case. In the high LNG case, we assume that LNG exports will grow to reach 6 billion cubic feet a day by 2030. In the no LNG case, we assume that no LNG exports will occur by 2040. In the high LNG case, total natural gas production reaches 22 billion cubic feet a day by 2040 compared to the reference case number of about 17.9 billion cubic feet a day. In the no LNG case, the total production is only 15 billion cubic feet per day in 2040.
On slide 6, we look at our third major finding of what would happen if none of the major proposed oil export pipelines were built. That would mean no Keystone XL. no Northern Gateway, no Trans Mountain expansion, and no Energy East. We refer to this as the constrained case. In this case, which is built on the reference case oil prices, Canadian crude oil production continues to grow, but delayed projects and reduced investment over the projection period reduce total Canadian crude oil production in 2040 by about 500,000 barrels, or about 8% compared to the reference case. In this case, much more crude will be moved by rail at about 1.2 million barrels a day in 2040.
That concludes my opening remarks.
We would be happy to answer any questions the committee has.
