North America Region Energy Forum (NAREF) Highlights

Transcription

1 North America Region Energy Forum (NAREF) Highlights November 14, 2018, Calgary, Alberta Energy is recognized as a key component of the economies of North American countries and it offers impressive opportunities for the future. But clouding this opportunity agenda are significant issues demanding immediate attention. Energy experts, industry association executives, First Nations leaders, and academics addressed the issues, the opportunities and the possible solutions in Calgary during the fall of 2018 at the North America Region Energy Forum on November 14.. This report provides highlights from the panel sessions and the discussions which followed. Topping the issues list for Canada was the high-level of frustration arising from major delays in moving ahead with pipeline projects to add much-needed pipeline capacity for shipment to export markets in the United States and Asia. The recently-announced decision to review environmental The Energy Council of Canada is Canada s national energy association. It brings together senior energy executives from industry and government engaged in national, continental, and global energy activities and issues to share in strategic thinking, dialogue, collaboration and actions around energy matters in Canada and abroad. The trilateral North America Region Energy Forum is organized jointly each year by the Energy Council of Canada, the United States Energy Association, and the Mexican Secretariat of the World Energy Council. Each year s forum is a venue to share the latest information, ideas and best practices to strengthen energy connections and collaboration between the energy players in the three countries. aspects of the Keystone XL export pipeline and the ongoing consultations around the Trans-Mountain pipeline expansion were cited as primary examples. The Honourable Shannon Phillips, Alberta s Minister of the Environment underlined the impact of protracted delays on jobs, investment, and indeed on the future of energy development in the province and elsewhere in Canada. The solution seen by the province is for immediate action to move the TMX project ahead by the federal owner of the project. At risk is the significant financial support provided by the energy sector through taxation and royalties for public investments across the country. The Honourable Amarjeet Sohi, Minister of Natural Resources Canada, identified energy as a key growth area for Canada and as an area of opportunity for Canada and First Nations to work together in a sustainable and responsible way. He cited positive implications arising from the recently-concluded United States Mexico Canada trade agreement: enhanced competitiveness, restored investor confidence, strengthened environmental protection, and preservation of the dispute resolution mechanism. Minister Sohi outlined his various actions to work more closely with Canada s First Nations people. North American energy integration is already well-established and mutually-beneficial as evidenced by the robust bilateral energy trade between Canada and the United States and between the United States and Mexico, and by an extensive pipeline network and electricity transmission infrastructure.

2 2 At the political level, useful connections have been made through ministerial dialogue and through the many trilateral engagements around energy regulation, environmental issues, and sharing of energy data and information. Underlining the global economic significance of the North American trade region, is that although it is home to just 7% of the global population North America is the source of 20% of global GDP. National Perspectives Mexico s energy reform agenda has moved ahead aggressively, marked by significant increases in energy investment, successful rounds of bidding on exploration and production lands, expansion of pipeline infrastructure, and rapid growth in clean electricity generation. The incoming government, which will take office on December 1, is expected to preserve the energy reforms and move ahead with new refinery capacity and strengthening its national energy company - PEMEX. The United States sees the recently-announced United States Mexico Canada Agreement as a positive step forward for enhancing trade in general amongst the three countries, inextricability linking their economies. Alberta s representative in Washington sees renewed dynamism in energy dialogue amongst the North American family. Since the United States will remain Alberta s largest market for oil and gas, there is great interest in the outcome of ongoing issues around pipeline approvals, tariffs particularly on steel, and on the fate of the United States Mexico Canada Agreement (USMCA) following the change in the majority party in the US House of Representatives. Important issues facing the trilateral countries are many. Prolonged delays in securing final State approvals for the Keystone pipeline expansion are hampering development of additional pipeline capacity. The most prominent consequence is an abnormally large price discount for Canada s bitumen exports to the United States. The significant differences in environmental policy creates uncertainty for policy-makers and raises competitiveness concerns. Compounding the complexity around environmental policy are the many aggressive and successful climate initiatives put in place by sub-national governments at the state, provincial, and municipal levels. The risk of cyber attacks is a shared concern, both exacerbated and mitigated by the built-in redundancy based on strong IT interconnections.

3 3 Sectoral Perspectives Oil and Gas, Electricity Moving from a continental energy perspective to a sectoral perspective, issues, opportunities, and possible solutions were discussed for the oil and gas and electricity sectors. Starting with the oil and gas sector, North American oil and gas policy has traditionally centered on core concepts of energy security, self-sufficiency, cooperation, and interdependence. This policy agenda, coupled with the challenges posed by environmental issues and far greater public engagement, means that Canada, Mexico, and the United States need each other more than ever, not just to continue satisfying their own supply needs but also to begin satisfying more of the world s needs as well. Experts from the three countries discussed what we are doing individually and collectively to maintain and grow our continental strength. While Mexico s energy reforms have been successful in opening the Mexican energy market, increasing energy infrastructure, and bringing in new companies and investment, challenges remain. The decline in oil production which began prior to the 2012 reforms, has not yet been reversed. Popular support for the reforms has been hampered by a shortfall in public engagement on the subject. As a partial consequence, there was an adverse reaction to higher fluctuating gasoline prices. The rapid pace of implementing the changes created a demand for new human resource skills that has been difficult to meet. The incoming government has indicated that the reforms will not be cancelled, that gasoline and electricity prices will not be fixed, that existing infrastructure projects will not be disturbed, and that PEMEX will be strengthened. New participants in Mexico s energy sector are experiencing some uncertainty. For the oil and gas sector in the United States, the rapid acceleration in oil and gas production from shale reservoirs is a well-known success story, leading to a significant increase in exports of oil, refined products, and LNG. The industry sees the current regulatory environment as very favourable. The impact of US tariffs on steel is increasing costs for new energy infrastructure and the quotas limiting imports from certain countries could limit access to steel. Further, China has reduced oil imports from the United States which could have significant impact over time given the aggressive growth in China s oil demand. The oil and gas sector in Canada is expecting growth in production from the oil sands, from the current level of 3 million barrels of oil per day to 4 million by 2035, assuming that sufficient export pipeline capacity becomes available. Innovation is key to addressing environmental and cost issues in the oil sands. In fact, the development of the oil sands is now seen as an innovation play since innovation offers solution pathways to tackling the issues. The successful track record of the Canadian Oil Sands Innovation Alliance was cited as example of innovation in action, marked to date by investment of $1.4B in 950

4 4 projects. The emissions intensity of barrels produced from new oil sands mines promise to be as low or even lower than the North American or world average. Several see LNG as a positive emerging source of natural gas in export markets. Examples were presented on how the Haisla First Nations community supports the LNG project in Kitimat and how exported natural gas via LNG offers an attractive environmental solution by helping to eliminate coal-fired generation in Asian markets. Indeed, LNG Canada s important final investment decision promises the construction of the largest infrastructure project in Canadian history Each country has a positive story to tell. For the electricity sector, growing integration of North America s electricity systems allows for greater security, reliability, efficiency and knowledge transfers. In an increasingly carbonconstrained world, cooperation has the potential to allows us to address the international issue of global warming from a continental perspective. Leveraging each other s natural strengths and interconnecting them across borders can make the daunting task of optimizing the operation and reliability of electricity systems to achieve policy goals less lonely and difficult. Four important issues were cited by the Canadian Electricity Association as having a significant impact on the future of the electricity sector in North America. While energy trade amongst the three country generally, can be fraught with difficulty, Forum participants agreed that trade in electricity specifically, amongst the three countries, should be encouraged. The sector offers significant trilateral opportunity as such, zero tariffs on energy was strongly advocated. Electricity is already a strong element in the bilateral relationship between the United States and Canada, marked by the fact that 30 US States currently trade electricity with Canada. Both countries have a strong tradition of mutual assistance provided by electricity workers when widespread damage to the grid occurs. The importance of electricity to the three countries calls for a continental energy strategy which incorporates strategies and measures to address a wide range of issues such as detection and response to cyber attacks, shared infrastructure, and overall systems monitoring and control. Lastly, on the environmental agenda, there is a need to work more closely on promoting electricity as a climate change solution and in further reducing emissions from generation. Mexico sees the recent progress as a result of reform of its electricity sector as a key area of advantage. Remaining challenges are around the operational integration of renewables into a system based on centralized generation, managing supply and demand to deal with variable fluctuations in supply from solar and wind sources, developing supporting ancillary services, and developing strengthened national interconnections. Increased interconnections with the neighbouring reliability districts are needed.

5 5 An ongoing issue and opportunity for the reliability districts in the United States is the enhancement of interconnections between districts. Two goals were mentioned: enhancing the ability of the systems to provide assured supply and incorporating new renewable wind and solar energy sources characterized by fluctuating seasonal, daily and hourly supply. Technology solutions are playing an increasingly important role, for example Smart Grids and Micro-Grids. Responding to the significant shift in the electricity generation and transmission model in the US is an ongoing challenge, from traditional centralized generation based largely on coal and nuclear, to an increasing share from natural gas and renewables, and to new modes of distribution and enhanced interconnections. Three US considerations for crafting the electricity system of the future are: 1. Avoiding an overdependence on one fuel and build in redundancy in fuel sources; 2. Understanding the implications arising from introduction of new generation and grid technologies, and 3. Acting now to address vulnerability to cyber attacks. An international overview of what it will take to achieve decarbonization has been explored in the Deep Decarbonization Pathways Project. The study has three pillars: electrification of end-use applications, decarbonization of electricity generation, and enhanced energy efficiency. Hydropower was identified as a key reliable and steady source of electricity to balance the fluctuations in supply from renewable sources. This is opportunity is now being exploited effectively by Hydro-Québec, which exports 17% of its generation to markets in New England, New York, and New Brunswick and serves as the battery of the northeast, and also by the large provincial utilities in Manitoba and British Columbia. Key to strengthening the North American electricity system remains the harmonization of transmission standards and additional transmission infrastructure. Electricity demand in the future will increase due to a larger share of electric vehicles and the greater general electrification of the North American energy system. This will call for a more coherent approach to designing electricity systems of the future and development of harmonized regulations. Energy Regulation Energy regulatory bodies must consider many factors and balance the interests of a multitude of stakeholders, all with increasing expectations. The regulated industry is placing pressure on regulators to be agile and more responsive to changes in technology and market conditions. They also expect regulators to simplify cumbersome regulatory processes to reduce costs and spur innovation. At the same time, impacted stakeholders and the public, require regulators to demonstrate they are meeting societal and environmental outcomes while protecting safety, the environment and enforcing the rules. To the responsible regulator, being efficient means more than cutting costs or saving time. It means reducing duplication in the regulatory system, changing processes to improve how the work gets done, and ensuring that the regulator only intervenes to the level necessary to minimize risks to the public and

6 6 environment. Regulators discussed their current challenges and how regulatory systems are being enhanced to protect the public and the environment and that improve performance at minimum cost. An excellent example of cooperation between regulators in neighbouring jurisdictions is the Interstate Oil and Gas Compact Commission (IOGCC). Its 32 State members work together to promote the conservation and efficient recovery of domestic oil and natural gas resources while protecting health, safety and the environment. The Commission is a clearing house to consolidate industry s views on oil and gas regulatory matters and communicates with government. For example, a current issue is man-made seismicity arising from fracking operations. The Alberta Energy Regulator is the result of consolidation of three previous regulatory agencies of the Government of Alberta into one organization to achieve greater regulatory efficiency. Refining their approach to regulation by adapting to changing technologies is a current focus. One recommendation to this end is to integrate the regulator into the industry s development of new technologies as they are being investigated and tested. One component of Mexico s energy reform package is an update its energy regulations. The six goals are important for any regulatory reform agenda: ensure that regulations technology neutral, keep the impact on the overall energy system in mind, ensure neutrality for both state and private companies, be receptive to changes in technologies and market practices and review regulations periodically to keep in step, and, state clearly the outcomes that the regulation is designed to achieve. Operating in an empowered environment in which the public and interest groups are actively engaged calls for greater openness and broadened engagement. The three top challenges facing the British Columbia Utility Commission in its regulation of the province s electricity and natural gas sectors are maintaining capacity to keep pace with industry activity, growing the Commission s awareness of current and emerging issues, and addressing broader issues such as cyber security. Several significant points regarding good regulatory practices were made during the discussion. A useful venue for sharing experiences and lessons learned amongst the energy regulators in western Canada is the Western Regulators Forum. To deepen the understanding of best practices in regulation amongst regulators in North America and abroad, the International Centre for Regulatory Excellence has been established by the Alberta Energy Regulator. One practice that has proven to improve communication between the regulator and the public is to provide both the statistical information on energy activities and also, a narrative which highlights significant points in plain language. For example, there was uniform endorsement for imposing goals that the operator must meet, for activities such as site clean-up, rather than prescribing the specific approach that the operator is required to follow. This goal-oriented approach allows for the use of the latest technologies and techniques by the operator. It helps the regulator to allow and encourage technological advancement as opposed to accidentally stifling it with an overly prescriptive and staid approach. Other good practices for the modern regulator were mentioned: striving for regulatory excellence to meet the expectations of the public, the industry, and government; always operating in a transparent and open manner; be more public facing; and, keep up to date on the latest technologies and operational practices used by industry.

7 7 In Closing Seizing the many opportunities from further integration of the energy economies of Canada, the United States, and Mexico was a prominent theme of this year s North America Region Energy Forum. The panelists and attendees raised issues, shared lessons learned and best practices, and advocated for strengthening the trilateral energy relationship further in the future. The Energy Council of Canada, the United States Energy Association, and the World Energy Council Mexico greatly appreciate the participation by the moderators and speakers and by the attendees who contributed to the discussion. Graham Campbell, G R Campbell Energy Consulting Inc. Past President, Energy Council of Canada