In an insightful article last week, Dan Yergin asked – “Is today’s energy crisis as serious as similar previous ones – particularly the 1970s oil shocks?”
Yergin answered emphatically… “Yes and it is potentially worse.”
“Today’s energy crisis did not begin with Russia’s invasion of Ukraine, but rather last year when energy demand surged as the world emerged from the COVID-19 pandemic. That is when China ran short of coal and prices shot up. The global market for liquefied natural gas (LNG) then tightened, with prices skyrocketing, and oil prices rose as well.”
Yergin concludes: “Today’s crisis is transforming a previously global market into one that is fragmented and more vulnerable to disruption, crimping economic growth.”
As countries and the oil and gas sector focus on decarbonization with Net zero timelines, electrification is promoted as a key solution. However, several factors, including a worldwide shortage of metals critical to electric infrastructure put those plans at risk.
Yergin pointed out that the technologies that are key to the energy transition require greater quantities of copper than hydrocarbons do. He predicts an insufficient supply of copper will disrupt efforts to achieve net zero by 2050 and it will certainly negatively impact electrification plans. There are also other challenges involving the very nature of electrical power grids, not the least of which is climate and the negative effects of extreme weather on power outages.
Canada’s electricity grids are susceptible to disruption according to Francis Bradley, president and CEO of the Canadian Electricity Association, the industry group that represents power generation, transmission and distribution companies.
In a recent interview, when referring to preparing Canada’s power grids for extreme weather Bradley stated:
“It’s a work in progress… to be able to make an assessment of how prepared we are for extreme weather due to climate change, it’s something that’s going to be constantly moving and constantly evolving.”
Extreme weather threats vary according to location- extreme drought and fire risk in transmission corridors, wind storms damaging powerlines & structures, heavy ice downing lines as well as thawing permafrost in the north.
Mike Deising, spokesperson for the Alberta Electric System Operator (AESO), reassures that the Alberta system is “designed for weather extremes — be that -50 C temperatures in the winter, or 35 C summers.”
“In Alberta, every year we see significant cold weather events, and our transmission and generation facilities are designed for these,” Deising says and reassures that when Alberta saw sustained -30 C temperatures in the winter and experienced record electricity demand, there were no reliability issues.
“Our net-zero report is a first in Canada and is designed to provide independent analysis to help inform policy makers and the private sector as we transition to lower carbon power systems.” Deising adds. “Our report concluded that there will be an additional $44-52 billion in cost for the generation and transmission systems in Alberta, with approximately 90 per cent of those cost coming from new generation facilities or modifying current facilities. Based on our analysis, Alberta’s grid will not achieve the complete removal of emissions from the power system by 2035. We can get close with offsets and the use of carbon capture and storage but to having a true zero emission grid in 13 years is not feasible from a reliability standpoint.”
With increased electrification of industrial, transportation, and building sectors and as a variety of new sources emerge, there will be new demand patterns as well as increased demand. Grids will need to draw increasingly more energy from a greater variety of sources that change availability according to changing conditions. The increased complexity will create increased opportunities for disruption.
The International Institute for Sustainable Development (IISD) sees Canada’s electrical grids as vulnerable- at least to extreme weather. According to their report released on July 11, one-third of Canada’s electrical infrastructure is in bad condition and susceptible to extreme weather. The estimated cost to repair? Up to $1 trillion according to the IISD.
Darren Swanson, an IISD associate reported to the Financial Post, “It just highlights the fact that there will be investment needed and that climate change is wreaking havoc on the infrastructure itself, so the timing is quite urgent in terms of building resiliency.”
If the IISD’s quote of the cost to repair/upgrade Canada’s energy infrastructure seems daunting, consider that the forecast may actually be a low estimate.
“As far as costs and timelines, RBC estimated it would cost $2 trillion to meet the net zero commitment in the next thirty years but all of the others are quite quiet on how much it will cost,” according to Greg Owen, Vice President, Business Development at GLJ Ltd.
“There is a shocking lack of conversation about how much this is going to cost to decarbonize the existing generation capacity as well as how much it is going to cost to double or triple it. In their report, AESO said to transition the Alberta grid we would need to spend between $44-52 billion in capital and operating cost and it would increase the power price for Albertans by 40%. Their report came out last month and it’s pretty realistic.”
Owen says both provincial and federal governments are betting heavily on CCS to retain existing natural gas generation so that Canada won’t have to change all of its existing infrastructures as well as add the additional new capacity. He says that is why the Liberal government made a recent carbon investment tax credit announcement.
Similar estimates for the cost of Net zero electrification south of the border are being reviewed and revised.
For example, in his critique of an American report by Thomas Tanton “Cost of Electrification: A State-by-State Analysis and Results”, Ken Gregory, writing for Friends of Science had eye-opening numbers for the cost of Net zero electrification of the U.S.A. by 2050.
Gregory’s study identified errors in the Tanton report and re-calculated the total capital cost of electrification using 2020 data, and estimated them at US$433 trillion- much higher than the US$29 trillion that Tanton claimed was possible using only solar and wind to replace other power sources.
Gregory calculates that allowing fossil fuels with carbon capture and storage to provide 50% of the electricity demand is more feasible – dramatically reducing the total costs from US$433 trillion to ~US$24 trillion, which is a reduction of 94.6%.
There has been a fair amount of discussion on the impact of the increasing adoption of electric vehicles on infrastructure. For charging, most older Canadian homes, being wired for 100 amps, are not wired for faster chargers- called Level 2 chargers. They would need to upgrade to 200 amp service and upgrades to three or four houses on the same block would overload existing grids.
In addition, increased EV adoption would require an increased demand for charging at public stations. The cost of increasing the number of charging stations grows dramatically after the first two stations are installed. The third station costs twice as much as either of the first two due to the high cost of all the safety measures that need to be added In addition, increasing the number of stations will tax the grid even more.
As consumers and industry rush to switch to electricity to decarbonize, Canada is predicted to need three times the amount of electricity produced nationwide by 2050, according to a report from SNC-Lavalin. However, the timelines for projects are protracted according to Francis Bradley who says “It can take a decade to go through the processes of consultations and planning and then building and getting online, particularly when you’re talking about big electricity projects.”
Various levels of government have responded with funding and incentives to fast-track low-carbon projects. Jonathan Wilkinson, Federal Minister of Natural Resources in a video conference last week, said the Federal government’s primary goal is to accelerate the energy transition from fossil fuels in each region of Canada according to regional strengths or opportunities.
Glen Murray, who served as Ontario’s minister of infrastructure and transportation from early 2013 to mid-2014 has an interesting take on government policy focus.
“We are moving away from a centralized distribution model to distributed systems where individual buildings and homes and communities will supply their own electricity needs,” said Murray. “Yet both the federal and provincial governments are assuming that we are going to continue to have large, centralized generation of power, but that is simply not going to be the case.”
“Government policy is not focused on driving that (decentralization) because they are held hostage by their own hydro utilities and the big gas companies.”
Government regulatory systems and funding, while promising to accelerate new technologies are creating an uneven playing field for new technologies to compete.
Considerations of government policy and the effect on the oil and gas industry returns us to Daniel Yergin’s discussion of the current energy crisis we touched on at the outset of this article. One solution to the crisis he proposed was that a few countries could still boost production.
“Canada – the world’s fourth-largest oil producer, after the US, Saudi Arabia, and Russia – could provide extra barrels in collaboration with its major market, the US,” Yergin wrote.
But this solution is in question after the Federal government cut and cap announcement last week.
Increased Canadian production is not likely if Ottawa proceeds with its proposed cut and cap measures to reduce emissions for the oil and gas sector. Consultations opened last week on the Federal plan to cap and reduce emissions by 42 per cent by 2030. Production cuts would certainly be the result of this plan even as the world’s energy demands not only continues but also increases. Policy decisions are expected in early 2023.
As Yergin concludes in his article – for the current energy crisis (and for Canada’s oil and gas sector )…
”The next six months will be critical.”
Maureen McCall is an energy professional who writes on issues affecting the energy industry.