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The Need for ISEEE
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Importance of Energy and the Challenges Energy Demand Will Continue to Grow
The distribution of lights around the globe as viewed from space highlights the enormous world demand for energy and the link between energy demand and economic prosperity.
There is expected to be significant growth in renewable energy, but for the foreseeable future oil, gas and coal will continue to be the dominant energy sources. Alternative energy that can be integrated with conventional energy and the associated highly developed infrastructure stands the best chance of success.
The development, production, domestic use and export of conventional energy resources contribute significantly to Alberta’s prosperity and to the national economy.
The oil and gas sector, with capital spending of about $25 billion in 2002, represented the largest private sector investor in the Canadian economy. Sales of oil, gas and by-products amounted to $57 billion in 2002, and this sector made direct contributions to government revenues of over $18 billion. And with net exports of $26 billion, the sector alone accounted for almost half of Canada’s positive trade balance.
Taking into account direct and indirect linkages (involving the purchases of inputs and the sales and upgrading of outputs) the energy sector comprises approximately half of total Alberta output, income, employment and government revenues. Alberta’s output currently accounts for approximately 13 per cent of Canada’s Gross Domestic Product.
By any measure, energy is a large and vital component of the provincial and Declining Conventional Reserves / Increasing Environmental Constraints
While the demand for energy will continue to grow, declining conventional oil and gas reserves and ever-increasing environmental constraints present huge challenges for Alberta and the nation.
Declining conventional natural gas production in the Western Canadian Sedimentary Basin will negatively affect provincial revenues and energy export sales, the availability of hydrogen for oil sands upgrading, the supply and cost of feedstocks for the large petrochemical industry, and the cost of electricity production and home heating.
But there are major challenges related to the large hydrogen requirements for upgrading (now primarily met from natural gas), the absence of capacity at refineries to accept substantial volumes of oil sands product, various environmental issues, and the fact that most of the resource cannot be recovered or efficiently upgraded without further development of in situ-type (versus mining) operations.
Canada, which has ratified the international Kyoto accord on climate change, faces a daunting challenge to meet its national target to reduce an estimated 240 million tonnes of greenhouse gases by 2008-2012. Even if a more manageable program of emissions reductions is implemented, the challenges will be considerable, particularly if the country wants to avoid potentially large negative impacts on the economy.
Economic studies show that, in most countries, an abundance of natural resources has most often not translated into long-term economic prosperity.
In some cases the effects of resource development on the exchange rate, wage and price levels and the perceived urgency of industrial development and diversification make it more difficult to develop other sectors. More generally, there is a common tendency to mismanage the resources, especially those with common property aspects. The result is that the large potential benefits are destroyed by excessive rates of production and other inefficiencies.
There is also a propensity, particularly if the resources generate significant "rents" or revenues for governments, to consume rather than invest the resource rents. The society succumbs to the attraction of short-term gain. It uses the resource rents to finance the consumption of goods and services rather than investing some portion in R&D to improve recovery, efficiency and upgrading to extend, replace, expand and increase the value of the resource.
Alberta has been an exception to these tendencies. Through the visionary direction of the Energy Resources Conservation Board (now the Energy and Utilities Board), the province has an enviable track record of conservation and sound management of its energy resources. In the past, a significant proportion of the rents have been invested rather than being used to finance government services.
But trends since the mid-1980s are worrisome. The value of the Alberta Heritage Trust Fund, as one indicator of the value of accumulated investments of energy rents, has generally declined in real terms. The investment in energy R&D by government and by industry also has sharply declined over this period. |
“The need for ISEEE has never been greater nor the timing more appropriate. All parties within industry, government and the environmental sector understand that there are major challenges on the horizon for the international energy community.”
Harvey Weingarten, President, University of Calgary “A key challenge for the province will be to avoid adoption of the erroneous view that energy or other resource rents can be sustained without some significant and on-going reinvestment and, more generally, to avoid the tendency in resource-based economies to consume rather than invest resource rents.”
Dr. Robert Mansell, |
