From the Fraser Institute

By Jock Finlayson

At a time of persistent cost of living pressures and mounting worldwide geopolitical tension, it’s not surprising that energy issues are in the spotlight in Canada and beyond.

Earlier this year, the Trudeau government decided to freeze its carbon tax for home heating fuels in Atlantic Canada in the face of ferocious opposition to further tax hikes from premiers, local communities and MPs in the region. Smart politicians understand that Canadians today are attuned as never before to energy prices, including fuel prices at the pump.

With policymakers in Canada and elsewhere also preoccupied with climate change, we are exposed to sharply conflicting narratives about the future of energy. In one corner are those who spy a rapid and epic shift away from the fossil fuels that still supply 80 per cent of the world’s energy. In the other corner are skeptics who doubt that the dominant place of fossil fuels in the energy system will soon disappear.

As the debate continues, the U.S. Energy Information Administration (EIA) is an important source of well-grounded information. It provides regular updates on trends in energy supply and demand, both in the United States and globally. EIA forecasts deserve attention given the agency’s solid track record of predicting energy market developments.

On crude oil prices, the EIA now believes the main U.S. benchmark price will hover between US$85 and $90 per barrel over 2024-25. That’s good news for Canada, as crude oil ranks as our number one export. In its May 2024 market update, the EIA observes that “the startup of the Trans Mountain pipeline expansion… will alleviate existing distribution bottlenecks and allow for a gradual increase in oil production.”  While one would never know it from scanning federal government news releases, Canadian oil production and export volumes are set to climb over the rest of the decade. And Canada’s energy-based export earnings will also receive a sizable boost once shipments of liquified natural gas (LNG) commence from LNG projects nearing completion in British Columbia.

Meanwhile, the EIA sees global oil consumption increasing further, after dipping briefly during the pandemic, reaching 105 million barrels per day by 2026.

Globally, there’s little evidence that consumers are turning away from petroleum and other liquid fuels, contrary to the claims of some Canadian politicians and environmental groups. Amid endless chatter about energy transitions and governments allocating gargantuan sums to an expanding hodgepodge of programs to reduce greenhouse gas (GHG) emissions, the world collectively still depends on oil and other carbon-based fuels for the vast majority of its energy.

None of this is surprising. The “dense” energy provided by fossil fuels is greatly valued by consumers and remains difficult to replace with other primary energy sources. Fossil fuels have played a central role in economic development since the dawn of industrialization. That will not change anytime soon.

Which is why the EIA doesn’t expect much progress in reducing GHG emissions in the coming one or two decades. In its recent comprehensive forecast, it projects that “global energy-related… emissions will increase through 2050” under almost all of the policy scenarios it models.

How can that be, with all of the political attention being given to climate change in many countries? Because rising populations and incomes, particularly in China, India and other emerging economies, “will offset the effects of declining energy and carbon intensity on emissions.” And also because outside of the electricity sector, there simply aren’t enough reliable cost-effective non-fossil fuel energy sources to satisfy the world’s still growing need for energy.