Canada has an opportunity to pull to the front of the pack as a global leader in the hydrogen economy, while Canadian oil producers are achieving all-time production highs, according to the latest forecast from Deloitte Canada's Resource Evaluation and Advisory (REA) group.
Canadian oil producers are generating record cash flow despite declining global crude oil prices and a widening differential between the US oil market and the Middle East, European and African oil markets. Canada's natural gas producers are facing a more volatile situation, however, as production levels risk outpacing demand, resulting in deeply discounted prices and a significantly widening differential to US pricing.
"Canadian crude oil production remains at all-time highs, even though rising interest rates and continuing COVID-19 lockdowns in China are prompting concern about a possible recession and lower demand for oil," said Andrew Botterill, national Oil, Gas & Chemicals leader at Deloitte Canada. "Natural gas production in Canada is also rising as global prices remain extremely elevated, but Canadian producers aren't benefitting as much as others around the world, with some even announcing production shut-ins because of the lower prices they're receiving."
Botterill notes that European efforts to replace Russian-supplied natural gas and build up gas in storage before this winter increased demand for liquified natural gas (LNG). At the same time, an explosion at the Freeport LNG facility in the United States cut off about 20 per cent of the country's LNG exports. With the Freeport facility expected to only partially resume operations this month, global LNG prices have been rising consistently throughout the summer.
China remains the world's largest LNG importer, even as it aims to increase its annual domestic natural gas production to 8.1 trillion cubic feet (Tcf) by 2025, with plans to bring an additional 3.6 Tcf of LNG import capacity onstream by the end of 2024.
"Chinese energy consumption is rising by about four per cent a year, with more than four-fifths of that being hydrocarbon-based fuels, so it's not surprising that China is also investing heavily in renewable energy sources and decarbonization projects," said Botterill. "If China's investments lead to big shifts in its import behaviour, there will undoubtedly be a change in the global demand curve for energy."
The Deloitte forecast also includes a separate analysis of some of the steps Canada must take to become a global leader in the transition to a hydrogen economy and secure the resulting economic and environmental benefits. It says governments need to do more to de-risk hydrogen investments and unlock private-sector funds. Given the intrinsic link between water and the future of energy systems, developing a hydrogen-based economy will depend on better water management, availability, and infrastructure.
"There's really not a lot of time to make the necessary decisions so Canada can meet its decarbonization targets for 2030 and 2050," said Botterill. "Much of the current challenges relate to cost, so governments have to invest in ways to drive down the cost of technologies and create the market demand for hydrogen to support private-sector firms as they move to a net-zero future."