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Canada’s energy security could be at risk as the world shifts away from fossil fuels

Canada’s energy security could be at risk as the world shifts away from fossil fuels

A flare burns natural gas at an oil well with a drilling rig in the background.

2020 saw oil and gas prices fall by 50%. Before the World Health Organization declared COVID-19 a pandemic in March, Russia and Saudi Arabia, two of the world’s largest oil producers, set off a market-share war that sent prices lower and lower.

The demand for COVID-19 dropped sharply after it spread around the globe. Businesses closed down and travel restrictions were enforced by governments. In April 2020, the. price of West Texas Intermediate oil fell below zero, hitting -US$37 per barrel.

A drop in oil prices and a slowdown in global economic growth have had negative effects on other industries, financial stability, and non-oil-producing countries. These shocks are not uncommon in any industry or economy. This is why OPEC+ was created.OPEC members and 10 other oil-producing nations) to hold an emergency meeting to stabilize oil pricesBy reducing crude oil production

This rapid and unexpected shift away fossil fuels was a result of rapid change. While the divestment movement celebrated the decrease in fossil fuel use — and the reduction in carbon emissions — these events also showed the transition to green energy still needs work.

Although Canada must move away from using fossil fuels to produce energy, a transition that comes too fast could harm Canada’s economy. While policy-makers must find a balance between energy safety (reliable, affordable access) and economic growth, research into energy security is limited.

As an economist specializing in international finance and energy economics, I’m interested in Canada’s vulnerability to global energy markets and measures that promote Canadian energy security to ease the transition from fossil fuels to renewables.

A rapid energy transition

Three oil shocks have struck the global oil and gas industry since 2008. Despite the fact that the industry has recovered from the shocks in 2008 and 2014, it is still not the same. unlikely to be the case now.

The 2020 crisis amplified investors’ concerns about increasing environmental and political issues, and decreasing and unstable returns associated with oil and gas. New investments in the sector were placed on holdThe global energy market is recovering and the energy transition is taking place.




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“Stranded assets risk” is one of those risks that could accelerate the energy transition. Stranded assets are the infrastructure and resources — such as drilling rigs, pipelines and oil in the ground — that are tied to fossil fuel production and aren’t near the end of their useful lives, but are no longer producing economic returns.

Major oil producers have written off approximately $1.5 billion in 2020. US$69 billion worth of their assetsThis has resulted in a 33% decrease in the upstream exploration and productionInvestments

A flare burns natural gas at an oil well with a drilling rig in the background.
More than 100 countries pledged methane reductions of at least 30% by 2030 at the COP26 cliamte summit held in Glasgow, Scotland.
(AP Photo/Matthew Brown).

The 2020 crisis revealed that an accelerated transition had the potential to severely harm Canada’s economy. A report by the Office of the Parliamentary Budget Officer in March 2020As we anticipated, the combination of the COVID-19-crisis and low oil prices would not be favorable. Actual data show record-low GDP growth of -13 per cent in June 2020, 13.7 per cent increase in unemployment in May 2020 a rise in the federal debt-to-GDP ratio to 53.98 per cent in 2020It is expected that it will reach 72.17 percent in 2021.

The 2020 drop in oil production was not like previous oil shocks. steeper and faster, but the economic toll has not yet been fully evaluated. Still, the Bank of Canada warned that: “More frequent or severe extreme weather events and/or a late and abrupt transition to a low-carbon economy …” could be detrimental to Canada’s economy and financial stability.

Energy security

To strike a balance between economic growth and energy security, policy makers must assess the economic, environmental and social goals. Canada is rich with resources, but its energy security is at risk due to a lack of supply and demand.

Domestic regulations — like restrictions on foreign direct investment and trade facilitation, administrative burden on personally owned enterprises and the time required to obtain permits — discourage investments in the energy sector, including oil and gas, wind and nuclear energy.

Engineers and journalists look an industrial site with containing pipelines and gas storage containers
Saudi Arabia announced that it would have net-zero emission by 2060 in October 2021. Hawiyah Natural Gas Liquids Recovery Plant is a pilot project in carbon capture technology.
(AP Photo/Amr Nabil).

Canada is also vulnerable due to the global oil market dynamics, such decisions made by Saudi Arabia and Russia, the United States, and Qatar. Canada is also vulnerable because of isolation policies like the U.S. decision not to allow pipeline construction to continue.

Canada does not have strategic petroleum reserves — an emergency supply of oil and gas — to decrease adverse economic effects of unexpected energy supply disruptions. It depends on imports because cannot transport enough oil and gas from the west to the eastIt is also subject to pipeline politics that restrict access to international markets.

These issues should not be ignored in the short-term, but solutions must be found. This will hinder the ultimate goal of facilitating a smooth transition to long-term energy.

A recent RBC report found cutting oil production could undermine Canada’s ability to invest in and develop green-energy technologies, including electricity storage, nuclear energy and green hydrogen, but added that the carbon intensity of oil production had to drop quickly if we were to benefit economically.

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Gas is a reliable and affordable energy source that may play a crucial role in the energy transitionIn the short term. While supporters promote gas as a renewable energy source, opponents claim that it hinders the transition to cleaner energy sources. To accelerate economic recovery after the 2020 crisis, governments may offer incentives to invest in the gas industry, which would boost the industry’s resilience in the long term.

On the one side, the federal government has committed to reducing fossil fuel investments and supporting decarbonization. It promotes energy diversification and natural gas investments. blue and grey hydrogenProjects that will make it more difficult to eliminate gas from our energy mix.

Although natural gas might not be the best solution for energy transition, it is a viable option. remain an important energy source in the next few years.

The way forward

Although the transition away from fossil fuels is vital for Canada, Canada’s economy is not ready for an abrupt shift away from the oil and gas sector. The energy and COVID-19 crises revealed Canada’s vulnerability to the decisions of major oil and gas producers.




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It’s important to build a model that examines Canada’s energy security and transition in a global context. This model must examine the role of gas in bridging both short-term and longer-term energy security.

Politicization of the energy transition will directly hurt the industry and indirectly affect Canadians’ lives, defeating the purpose of implementing an economically viable energy transition process.

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