By Mark Milke
and Lennie Kaplan
Canadian Energy Centre
In 1897 while in London in the midst of a worldwide speaking tour, American author Mark Twain became the subject of rumours back home that he was dead. To discover the truth, a reporter from the New York Journal wrote to Twain to ask if he was indeed dead or gravely ill.
Twain, with his usual wry wit, wrote back chronicling how he’d also heard the rumours of his illness: “I have even heard on good authority that I was dead.”
Twain explained that the gossip resulted from his cousin’s illness and mistakenly spread from there. “The report of my illness grew out of his illness. The report of my death was an exaggeration,” wrote Twain.
Something like that mistaken assertion about Twain now faces the oil and natural gas industry worldwide and in Canada: that oil and gas demand will never resume from the steep decline occurring as a result of COVID-19 and the near-worldwide lockdown’s effect on the economy.
Some anti-oil and gas advocates are sure of this and demand that Canada somehow transition away from oil and gas.
But that’s not possible, according to the informed opinion of Vaclav Smil, University of Manitoba professor emeritus of the Faculty of Environment.
The barriers to a transition that’s ordered by government policy were summarily addressed by Smil in his 2017 book Energy Transition: Global and National Perspectives. In it, he points out that, “As in the past, the unfolding global energy transitions will last for decades, not years, and modern civilization’s dependence on fossil fuels will not be shed by a sequence of government-dictated goals.”
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It’s important to note that Smil wants to see renewable energy sources succeed. He’s also concerned about carbon emissions and their effect upon global temperatures. But he prefers to deal in hard facts and actual data that result from understanding the physical properties of various forms of energy, the energy density “punch,” as one journalist characterized the issue.
The COVID-19 pandemic has severely impacted consumption of oil and gas in the short term. However, in previous recessions, oil consumption declined (though natural gas didn’t always follow the same pattern) before demand resumed and increased.
Since the 1970s, temporary declines in oil consumption were followed by a return to ever-higher consumption. In the last recession, daily oil consumption fell from 87.1 million barrels in 2007 to 85.8 million in 2009, a 1.5 per cent decline. After that, consumption rose by 10 times that decline, or 15 per cent, to reach 98.8 million barrels of oil consumed daily in 2017 (the latest year for which comparable annual data is available from the U.S. Energy Information Administration).
For natural gas, until the current crisis, world consumption has declined only once since 2000: during the 2008-09 recession, by just over three per cent. After that and by 2017, consumption rose by 25 per cent.
Past trends aren’t guaranteed to repeat. However, the U.S. Energy Information Administration forecasts that petroleum consumption worldwide will decline by 5.2 million barrels in 2020 from 2019, a 5.2 per cent reduction, before rising again in 2021 by 6.4 million barrels, a 6.7 per cent increase.
That forecast is an annual average, so it looks beyond just the massive double-digit drop in demand that has occurred in recent weeks. It assumes an end to the current shutdown and a partial economic recovery later this year and next.
The U.S. agency doesn’t provide a natural gas forecast. But before the crisis, the International Energy Agency (IEA) forecast a 40 per cent rise in world natural gas consumption by 2050.
Back to the Twain-like assertion that oil and gas is dying. Canadians have heard this for a decade, with the same voices predicting and demanding the sector’s demise.
They were incorrect. But the result of the activism and blocked developments (among other factors) meant that while some Canadians were debating if our oil and gas extraction should be ‘allowed’ to survive, American oil and gas producers created 95,000 new oil and gas extraction jobs between 2009 and 2018. In Canada, just 1,610 oil and gas jobs were created in the same period.
In crises, it’s hard to think beyond the severe economic destruction now underway. But unless COVID-19 and associated lockdowns continue for decades – not something advocated by any government, anywhere – the death of oil and gas is greatly exaggerated.
The only question is if Canada will play any part in the world’s oil and gas future when demand resumes.
Mark Milke is executive director of research and Lennie Kaplan is chief research analyst at the Canadian Energy Centre, an Alberta government corporation funded in part by taxes paid by industry on carbon emissions. They are authors of Comparing the U.S. and Canada on oil and gas jobs: 2009 to 2018.