By Jock Finlayson, ICBA Chief Economist
By any measure, Alberta is an energy powerhouse. In 2023, it produced 85% of Canada’s oil and accounted for three fifths of the country’s output of natural gas. The vast majority of Canada’s oil reserves are located in Alberta, along with a majority of natural gas reserves. Alberta is the beating heart of the country’s non-electricity energy economy.
But fossil fuel production is not the whole story. Alberta is adding significant amounts of renewable power to its electricity grid, as the government’s policy to phase-out coal-fired power reaches fruition ahead of schedule. In addition, the province has scope to develop new energy resources such as hydrogen and geo-thermal, as well as innovative climate-mitigation technologies like carbon capture and storage.
The Alberta Energy Regulator’s 2023 annual report summarizes key facts about the province’s dynamic energy landscape. Of particular interest are the following:
- On a volume basis, oil (crude oil, bitumen, and upgraded bitumen) and natural gas production both continued to rise in 2023, on the heels of increases over the preceding half decade (see Figure 1 below). Specifically, total Alberta crude oil production rose by 5% in 2023, while marketable natural gas production increased by 2%.
- However, the value of oil and gas production fell in 2023, as the surging prices recorded in 2022 following Russia’s invasion of Ukraine retreated.
- Capital spending in the Alberta energy industry stood at $29.5 billion last year, making it the leading driver of private sector investment in the province. Oil and gas-related capital spending is by far the biggest component of the investment picture.
- Completion of the Trans Mountain pipeline expansion project has opened new export avenues for the province’s oil industry and should boost Alberta’s oil production and exports going forward.
Figure 1
What of the Future?
In a world striving to reduce the use of fossil fuels to slow the pace of climate change, Alberta’s hydrocarbon-heavy energy sector faces an uncertain future. Most analysts believe that, at some point, the world will start to consume less oil and, later, less natural gas, in absolute terms. But that “peak” consumption point hasn’t arrived yet, nor does it appear to be imminent at the global level for oil, refined petroleum products, or natural gas. That said, demand for certain refined petroleum products is trending down in some advanced economy jurisdictions, particularly in Europe, and “peak” oil demand may occur in the U.S. and Canada some time in the next few years.
However, looking at the worldwide picture, Goldman Sachs’ most recent global energy forecast predicts that “oil usage will increase through 2034,” owing to robust demand in emerging markets and steadily increasing production of petrochemicals. And it is widely agreed that global demand for natural gas (including LNG) will continue to grow for many years, given that 1) natural gas is the least carbon-intensive fossil fuel and 2) more natural gas is being traded internationally in the form of LNG.
Against this backdrop, there are reasons to be optimistic about the prospects for Alberta’s energy sector in the next decade. According to the Alberta Energy Regulator’s “base case” forecast, overall energy output will expand over the ten years to 2033. Both upgraded and non-upgraded bitumen volumes are projected to grow modestly; natural gas production will also rise, in part due to greater demand for Alberta’s upstream gas from LNG operators in British Columbia.
The Alberta Energy Regulator’s production and demand forecast translates into a positive trajectory for capital spending across the province’s energy sector – which, in turn, should be good news for the locally-based construction industry. Looking ahead, the AER sees annual investment increasing from almost $30 billion in 2023 to about $40 billion by 2033, in nominal dollars. Most of this takes place in the oil and gas industry, but “emerging” energy resources and projects aimed at climate mitigation are expected to represent a bigger share of energy sector capital spending in the next decade.
This story is reflected in the Alberta government’s latest Major Projects Inventory report. As of August 2024, the province counts almost $159 billion of current/planned capital projects across the economy. Of this, fully $60 billion is in the oil, natural gas and pipeline industries, or involves petrochemical projects being advanced to take advantage of the province’s rich base of energy resources.
Like many other oil and gas producing jurisdictions, Alberta will be challenged by the bumpy journey to a lower-carbon future. But the world is set to remain heavily dependent on fossil fuels for the next decade – and likely much longer. This suggests Alberta’s energy sector will continue to underpin the province’s economy for many years to come.
