11/28/2013 08:24 EST | Updated 01/28/2014 05:59 EST

NEB Predicts Rosy Future for Canadian Energy

The National Energy Board (NEB), Canada's chief energy regulator, has come out with a new report projecting energy development in Canada out to 2035. The potential for growth (and economic benefits to Canadians) is massive, but the NEB shares our concerns that the potential for bottlenecks and infrastructure short-falls imperil this projected growth.

Projections about energy are notoriously inaccurate but for better or worse, they tend to establish the basis for setting energy policy. And the NEB is suitably humble about the power of forecasting, observing that energy markets are radically different today from what they were only 10 years ago. Nonetheless, the new forecast will set terms for discussion. So let's take a look at what the NEB "reference case" (that's basically their mid-range assessment) has to say.

Oil -- The NEB foresees a significant expansion of oil production in Canada running out to 2035, projecting an increase of 75 per cent over 2012 production. In its forecast, Canadian production of oil reaches 5.8 million barrels per day. This is somewhat higher than an estimate by the Canadian Energy Research Institute (CERI) of 4.9 million barrels per day, but somewhat lower than the 2013 forecast of the Canadian Association of Petroleum Producers, which estimates Canada hitting 6.7 million barrels per day by 2030.

By 2035, the NEB predicts, 86 per cent of Canada's oil production will come from the oil sands, compared to 57 per cent in 2012. And more of that oil will move by rail: the NEB doesn't give specific predictions of increased rail transport but observes that data from Statistics Canada showed that rail-car loadings with fuel oil and crude oil increased from 3,000 to 8,000 over the course of 2012 alone.

Natural Gas -- The NEB reference case seems quite bullish on Canadian natural gas production, predicting that well-drilling will increase to 3,200 per year, nearly triple the 2012 drilling rate of 1,100 wells. Conventional gas production, which was half of Canada's production in 2009 drops to only six per cent of production by 2035, with 90 per cent of gas production coming from shale and "tight" gas deposits. Natural gas production also grows sharply, increasing to 494 million cubic meters per day in 2035, from 2012's level of 396.3 million cubic meters per day, an increase of about 25 per cent.

Net electricity exports are predicted to remain right around current levels through 2030, and decline afterwards, dropping to 30 terawatt-hours in 2035 from 47 terawatt-hours in 2012. On the consumption side, the NEB forecasts that Canadian energy demand will rise by 28 per cent over the forecast period while energy efficiency will increase significantly with a 20 per cent decrease in energy consumption per unit of economic output. And non-hydro renewables are expected to double their contribution to electricity production (to 13 per cent from six per cent of generation) over the forecast period.

Speaking of electricity, the NEB outlook for coal isn't too bright, something that will please environmental and anti-coal activists alike, but the decline in coal consumption isn't terribly rapid either. The NEB sees demand for "thermal coal," (that's coal used to generate heat and power) to decline 2.6 per cent per year over the period, eliminating the burning of 16 megatonnes of coal. Factoring in other uses of coal, power plant closures, efficiency improvements and so on Canada's overall consumption of coal is predicted to decline to about 27.7 megatonnes per year by 2035 from the 50 megatonne range we hit in 2010.

One key assumptions in the NEB outlook is that "All energy production will find markets and infrastructure will be built as needed." A second key assumption is that markets will continue to demand Canadian oil, though as the NEB explains, growth of U.S. production stands as a threat to that assumption. Some would argue that these assumptions are overly, even wildly optimistic. Certainly, seeing the politicization of the pipeline-construction process that has played out over the past several years, and watching U.S. production dry up U.S. demand for imported oil doesn't impart a huge sense of optimism that these assumptions will hold.

One can hope that NEB's blue-sky assumptions prove out -- at least, one can hope so if one wishes for future Canadian economic prosperity. CERI estimates that the total GDP impact of oil sands investment and operations over the next 25 years is more than $2 trillion (yes, trillion, with a "t") for Canada, and could support more than 900,000 jobs in 2035. But if all these estimates are to come true, it won't be without many bruising fights between pro-development and anti-pipeline groups in both the U.S. and Canada.