Perspectives about energy and a low carbon world

Transcription

1 Perspectives about energy and a low carbon world SIMSA 3 rd Annual Supply Chain Forum, Delta Marriott Regina Keynote speaker Reynold Tetzlaff, PwC Calgary office practice leader October

2 Was Sheikh Yamani right? Two decades ago the Saudi Oil Minister Zaki Yamani warned OPEC that "The Stone Age didn't end for lack of stones, and the Oil Age will end long before the world runs out of oil." Recoverable supply: 2.5 trillion barrels Demand to 2050: trillion barrels It ended because we invented bronze tools, which were more productive. So is the oil era coming to an end? Most agree that is not the case PwC 2

3 World energy demand is set to double between 1995 and 2035 And the vast majority will still come from fossil fuels. Source: BP We are presently at 95 mbopd globally, headed for 100+mbopd. Renewables will provide a good portion of the increased growth, but the basic existing energy supply (95 mbpod today) will still be predominantly oil, gas and coal. They won t disappear based on current technology. PwC 3

4 Fossil fuels will continue to dominate energy demand In the 26 years from 2014 to 2040 non-fossil fuels (nuclear, bio-energy, hydro and other renewables) share are expected to increase by 9%, as demand increases by 30%. Fossil fuels will cover the baseload. Nuclear Hydro Other Renewables Bioenergy 5% 1% 10% 2% Oil 31% Gas 21% Hydro Nuclear 6% 11% Bioenergy 7% Other Renewables 3% Oil 27% 29% Gas 23% 24% Coal Source: IEA World Energy Outlook 2016; Strategy& analysis 2014 = 13.7bn toe 2040 = 17.9bn toe Fossil fuels (oil, gas, coal) will move from 81% to 74%, so ¾ will still be fossil fuels. Gas % increases by 2% but the demand base is larger therefore in absolute terms the increase is 43% and renewable increase is 9% of the total and in absolute terms it is 95% increase. Coal PwC 4

5 Asia is responsible for the bulk of the growth Over the next 25 years the world may need an extra 25 mbopd, that s more than today s US + Saudi Arabia production volumes. Source: IEA The growth in these regions is caused by population increases, a rising middle class and the fact that oil is subsidized by many governments, hence the decoupling from price. PwC 5

6 Decline rate of world s giant oil fields The globe s 900 giant oil fields, responsible for 40% of the reserves, are declining. Source: Uppsala University Increasing global demand, but declining reservoir rates suggest rising commodity prices in the long run, despite the move towards a less carbon intensive energy world. PwC 6

7 Still a place for fossil fuels in the low carbon world Det Norske Veritas (DNV) very recent study shows that gas, followed by oil, will be the two largest energy sources in 2050, the end of their forecast period. Their model indicates that oil and gas will account for 44% of the world s primary energy supply in 2050, compared to 53% today. By subtraction, that indicates renewables providing 56% in 2050, split mainly between hydro, solar and wind. DNV is regarded as neither pro-industry nor pro-renewables. PwC 7

8 Change in oil demand Previous forecasts for demand, now show India overtaking China. Source: IEA The combined demand growth from China and India of 10.1 mbod is equal to more than 90% of the world s demand increase from 2015 to 2040, source: CAPP PwC 8

9 China still has huge oil demand They have shown impressive growth to date and are currently 13% of global demand. Every day, 1 in every 4 oil vehicles bought around the world are bought in China, that s a huge 22 million purchased last year alone. On an individual consumption level, China is only at the beginning of its oil journey. For instance, the average American still consumes 6-8 times more oil than the average Chinese consumer. Source: ITC,BP If the Chinese ever consume oil like Americans, the world will need an additional 75 million b/d of oil or two more OPEC s worth of new oil supply. PwC 9

10 And India is another with demand growth As noted earlier, India overtook China in oil demand this year and will soon have to import much more. India s energy demand will more than double between now and Only 4% of India s population has cars vs 40% in some countries. The future path of coal use in India is crucial for global emissions, as electricity demand grows sevenfold. India has 18% of the global population but makes up 6% energy demand. Source: BP India is committed to introduce electric vehicles (EVs) as the middle class becomes more mobile. PwC 10

11 What about OPEC? Both Kuwait and Saudi Arabia have signaled the possibility of an extension, but will decide in March Source: Stratfor PwC 11

12 Evolution of electric car stock Global sales have gone from 1 million in 2015 to 2 million last year. The majority of sales have occurred in Europe, the US and China, roughly split one third among all three, or 2% of global light vehicle sales at the moment. Source: IEA The IEA estimates 10.5 million EV s by 2027, considered low by other surveys. Note: BEV = battery operated PHEV = plug in hybrid EV PwC 12

13 What are the estimates for EV market share? Last year 88 million cars were sold. Morgan Stanley expects global car sales to rise by 50% by 2050 to more than 130 million units a year. They estimate that EVs will account for at least 47% of that sales total. Source: Green Car Congress That still leaves over 1.2 billion internal combustion engines (ICEs) on the road, excluding hybrids. PwC 13

14 What will be the effect on oil demand as EVs grow? According to BP s energy outlook current oil production is 95 mbopd and cars account for 19 mbopd, about 1/5 th; there are nearly 1 billion cars on the road globally now; and by 2035 that is expected to be 1.8 billion, and non-oecd fleet will triple from 0.4 billion to 1.2 billion. Source: BP EVs will rise from 2 million to 100 million by 2035, that is 6% of global fleet; they will reduce global oil demand by 1.2 mbopd; however fuel efficiencies in ICEs will reduce the demand by 17 mbopd; and result = we still need 23 mopbd by PwC 14

15 Canada s present situation over GHGs Alberta was the first jurisdiction in North America to require mandatory reductions in GHG emissions. Canada has 0.5% of the world s population. It produces about 2% of global CO 2 emissions. Oil sands account for 9.8% of Canada s GHG emissions. So therefore 0.19% of global GHG emissions. Source: Environmental Climate Change Canada, World Resources Institute Canada s boreal forests can store an estimated 208 billion tonnes of carbon, almost 300 times more than our GHG emissions. PwC 15

16 North America electricity generation mix Renewables include hydro In Canada: Fossil fuels only account for 20%. We are already low carbon at 65% for power generation from renewable. Canada is the world's second-largest producer of hydroelectricity, after China. PwC 16

17 Data to dollars A recent survey by Microsoft of oil companies and those involved in the support industries, found that nearly 90% of respondents said that increasing their analytical, mobile and Internet of Things capabilities would increase the value of their business. Advanced analytic capability and applications best suited to big data in the upstream include: drilling and completion; geological and geophysical interpretation; reservoir management; well and field optimization; and pipeline maintenance. Source: Forbes, Gartner Recently 75 large oil companies were surveyed and 68% said they had invested more than $100 million each in data analytics during the last two years and planned to allocate 6%-10% of the capital budgets to digital technology. PwC 17

18 Conclusions It is not the sunset for oil and fossil fuels. Yes, it will decline somewhat, but not as much as coal s decline. We will see natural gas usage increase. Canada is already low carbon when compared to other countries. No other G7 country is so dependent on commodities and their volatile pricing in the world s 11 th largest economy. Technologies and their applications are keeping us competitive, but we could be faster at implementation of new technologies. Hats off to Saskatchewan - Fraser Institute s latest Global Petroleum Fiscal Systems Review of 96 countries and jurisdictions which covers 75% of global production, has Saskatchewan as best in Canada and 4 th best in world when it comes to reduced barriers to entry and operations. PwC 18

19 The federal and provincial carbon pricing face-off PwC

20 The carbon price question for Saskatchewan PwC 20

21 The carbon price question for Saskatchewan PwC 21

22 The carbon price question for Saskatchewan Source: saskatchewan.ca/business/environmental-protection-and-sustainability/climate-change-policy PwC 22

23 The carbon price question for Saskatchewan PwC 23

24 Federal government climate backstop What we know so far: The much anticipated Supreme Court of Canada challenge is on the books in the Saskatchewan legislature and is most likely moving forward in the coming weeks or months. OBA system at the federal level and in Alberta, will likely be delayed until equivalency agreements can be reached, so federal system at $10/GHG (initially) may only be a price/litre cost. Alberta and Ottawa working together to help model backstop on current Alberta framework, but federal Department of Finance has not released any draft legislation we only have the paper. PwC 24

25 Federal government climate backstop What we don t know (a lot): At $10/tonne of GHGs, federal system will not be immediately onerous, but at $50/tonne by 2022 (that s only 5 years away), it will be; how will it apply while court challenge is in play? It is possible that Ottawa could delay to mid-2018 for a variety of reasons, but it could be any day now too. Saskatchewan s chances of success and if SCC challenge fails, what it will do legislation on the books, but not passed. PwC 25

26 Alberta carbon levy rates vs. federal carbon pricing Fuel type AB carbon levy rates AB carbon levy rates Federal carbon tax Federal carbon tax Diesel/light fuel 5.35 /L 8.03 /L 2.74 /L /L Gasoline 4.49 /L 6.73 /L 2.33 /L /L Heavy fuel oil 6.35 /L 9.53 /L 3.19 /L /L Bunker fuel 6.36 /L 9.55 /L Not cited Not cited Marketable natural gas $1.011 /GJ $1.517 /GJ 1.96 /m /m3 Pentanes plus/condensate 3.82 /L 5.73 /L 1.78 /L 8.90 /L Gas liquids 3.33 /L 4.99 /L 1.67 /L 8.32 /L Propane 3.08 /L 4.62 /L 1.55 /L 7.74 /L Source: Federal Pan Canadian Technical Paper on the Federal Carbon Pricing Backstop PwC 26

27 Federal government s climate backstop Canada is taking a leadership approach to emissions. Federal government also using the OBA approach. Questions remain though, including critical role for the federal government to create certainty around the offset/credit market. PwC 27

28 Federal government climate backstop Two key components: 1. a carbon tax on fuel consumption based on volumes similar to BC and Alberta and provincial motor fuel taxes (included in price at the pump/rack); PLUS 2. output subsidies for large industrial facilities, plus an opt-in for smaller facilities, similar to Alberta SGER opt-in. PwC 28

29 Federal government climate backstop and OBA The economics of OBA s Putting a price on emissions give incentives to consider cleaner methods & different technologies. Lowers the emission intensity of an output, but tends to increase costs of production which is passed onto consumers, thus shrinking demand as prices increase, so some tweaking required. OBA essentially provides a subsidy allowing facilities to produce emissions for free. Amount of output to be produced within emissions limit is up to facility owner; driving innovation and better emissions intensity. PwC 29

30 SIMSA Annual Supply Chain Forum Thank you for having us join you and enjoy the rest of the conference. PwC 30