This article was written by Clarrie Feinstein and was published in the Toronto Star on June 28, 2023.

Canada’s oil and gas sector faces significant headwinds with global demand in fossil fuels projected to drop significantly as world leaders set their sights on a carbon neutral economy by 2050, according to a new report.

The International Institute for Sustainable Development (IISD) report, released Tuesday, emphasized that workers and communities reliant on the oil and gas sector are at risk of losing jobs and economic prosperity as Canada continues to overinvest in fossil fuel production, which “may be of little value in the future.”

“We know a disruption is coming to the oil and gas industry and it’s important Canada prepares,” said Nichole Dusyk, senior policy adviser with IISD and report co-author. “It’s difficult for Canada to take a hard look at an industry that has been an economic driver, especially when there’s strong resistance from oil dependent provinces, but collectively we need to move beyond the politics of it and invest in policies that are better for Canadians.”

Canada isn’t a global oil supplier but plays a significant role in oil supply for the U.S.

In 2021, Canada exported 80 per cent of its domestic oil production and more than 94 per cent of those exports are shipped to the U.S, the report said.

That poses a problem, the report argues, as the U.S. Inflation Reduction Act (IRA) will accelerate the shift to a clean energy economy, with profound effects on Canada’s oil and gas industry.

“We’re very dependent on the U.S. market, but the oilsands are a high cost production,” said Hadrian Mertins-Kirkwood, senior researcher at the Canadian Centre for Policy Alternatives. “Canada sits on a large amount of oil but oil extraction is expensive. We can’t compete with the lower prices from parts of South America and the Middle East.”

Also, only a handful of the provinces are reliant on oil production, such as Alberta, Saskatchewan, and Newfoundland and Labrador, he said. While oil production is three to six per cent of Canada’s GDP, he added, the entire economy isn’t dependent on oil.

Near-term decreased demand for oil will be driven primarily by the electrification of passenger vehicles, which currently account for 27 per cent of global demand, the report said.

Data suggests that falling demand for oil to heat buildings and generate electricity will lead to a peak in global oil demand by the end of this decade. Plastics will support oil demand short term, but it won’t be enough to stop the sharp decline in overall demand post-2030.

The outlook for gas is murky, the report said, as a rush of new liquified natural gas (LNG) developments is hitting the market to replace pipeline gas from Russia.

“The anticipated result is a glut of LNG, starting in 2025, that will drive down prices and make it difficult for Canadian exports to compete even if low prices keep demand high,” the report said.

In addition, the largest share of global gas demand — 39 per cent — goes to electricity generation, which will face increased competition from wind and solar energy, Dusyk said.

Going forward, federal government must prepare to phase down the oil and gas industry, Dusyk said.

“A big issue is the decarbonization of oil and gas because it receives large subsidies from the government,” she said. “That ends up unnaturally prolonging the life of the industry.”

Solar energy has been largely unexplored in Canada, but the cost of solar panels and other solar technologies have come down exponentially over the last decade, said Umberto Berardi, Canada Research chair in building science at Toronto Metropolitan University.

Another investment is in hydropower, which draws energy from falling or flowing water and converts it into energy, producing no air pollutants and minimal greenhouse gas emissions.

Quebec has invested significantly in it, Berardi said, but other regions such as Northern Ontario and Alberta haven’t and it’s a “missed opportunity.”

“Canada needs transition plans in place to move from oil and gas into renewable energy,” said CCPA’s Mertins-Kirkwood.