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STUDY NO. 195 MAY 2021 CANADIAN NATURAL GAS MARKET SUPPLY AND DEMAND PATHWAYS OF CHANGE 3512 - 33 Street NW, #150, Calgary, AB T2L 2A6 350 Sparks Street, #805, Ottawa, ON K1R 7S8 403.282.1231 | www.ceri.ca | info@ceri.ca @ceri_canada Canadian Energy Research Institute Canadian Natural Gas Market Supply and Demand Pathways of Change Authors: Hamid Rahmanifard, Toufigh Bararpour and Mounika Majeti With contributions from: Madie Zamzadeh and Nurul Hussein Recommended Citation (Author-date style): Rahmanifard, Hamid, Toufigh Bararpour and Mounika Majeta. 2021. “Canadian Natural Gas Market Supply and Demand Pathways of Change.” Study No. 195. Calgary, AB: Canadian Energy Research Institute. https://ceri.ca/assets/files/Study_195_Full_Report.pdf. Recommended Citation (Numbered style): H. Rahmanifard, T. Bararpour and M. Majeti, “Canadian Natural Gas Market Supply and Demand Pathways of Change,” Canadian Energy Research Institute, Calgary, AB, Study No. 195, 2021. URL: https://ceri.ca/assets/files/Study_195_Full_Report.pdf. Copyright © Canadian Energy Research Institute, 2021 Sections of this study may be reproduced in magazines and newspapers with acknowledgment to the Canadian Energy Research Institute May 2021 Printed in Canada Acknowledgements: The authors of this report would like to extend their thanks and sincere gratitude to all CERI staff that provided insightful comments and essential data inputs required for the completion of this report, as well as those involved in the production, reviewing and editing of the material, including but not limited to Allan Fogwill, Dinara Millington, Ian Gates, David Layzell, Experience Ikechukwu Nduagu and Mohd Adnan Khan. Responsibility for any errors, interpretations, or omissions lies solely with CERI. ABOUT THE CANADIAN ENERGY RESEARCH INSTITUTE Founded in 1975, the Canadian Energy Research Institute (CERI) is an independent, registered charitable organization specializing in the analysis of energy economics and related environmental policy issues in the energy production, transportation, and consumption sectors. Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, Government, academia, and the public. For more information about CERI, visit www.ceri.ca. CANADIAN ENERGY RESEARCH INSTITUTE 150, 3512 – 33 Street NW, Calgary, Alberta T2L 2A6 Email: info@ceri.ca Phone: 403-282-1231 Canadian Natural Gas Market Supply and Demand Pathways of Change i Table of Contents List of Figures ................................................................................................................................................ ii List of Tables ................................................................................................................................................ iii Acronyms and Abbreviations ....................................................................................................................... iv Chapter 1 Executive Summary ..................................................................................................................... vi Chapter 2 : Introduction ............................................................................................................................... 1 1.1 Retirement of Coal-Fired Power Plants .............................................................................................. 5 1.2 Petrochemical Facilities ...................................................................................................................... 6 1.3 LNG Plants ........................................................................................................................................... 8 1.4 Decarbonization of Canadian Energy Systems Using Hydrogen ....................................................... 10 1.4.1 Hydrogen Production ................................................................................................................ 11 1.4.2 Hydrogen Transportation and Distribution ............................................................................... 12 1.4.3 Potential Markets for Canadian Hydrogen................................................................................ 14 1.5 Report Structure ............................................................................................................................... 14 Chapter 3 : Additional Natural Gas Demand Estimation ............................................................................ 15 2.1 Retirement of Coal-Fired Power Plants ............................................................................................ 16 2.2 Petrochemical Plants ........................................................................................................................ 16 2.3 LNG Plants ......................................................................................................................................... 17 2.4 Decarbonization of Canadian Energy System Using Hydrogen ........................................................ 17 2.5 Additional Natural Gas Demand at National Level ........................................................................... 21 Chapter 4 : Economic Analysis .................................................................................................................... 24 3.1 Economic Impacts of Natural Gas Production .................................................................................. 24 3.2 Levelized Cost Estimation for Hydrogen Production ........................................................................ 30 3.1.1 Hydrogen Production Cost Analysis .......................................................................................... 32 3.1.2 Sensitivity Analysis .................................................................................................................... 33 Chapter 5 : Conclusions .............................................................................................................................. 36 Bibliography ................................................................................................................................................ 37 May 2021 ii Canadian Energy Research Institute List of Figures Figure E.1 Additional Natural Gas Demand in Canada................................................................................ vii Figure E.2 Hydrogen production cost contributions for four case studies; SMR (Current), SMR (Future), PEM (Current) and PEM (Future). ............................................ viii Figure 1.1 The US dry shale gas production (2006-2020). ............................................................................ 2 Figure 1.2 Canada's natural gas exports and marketable production. ......................................................... 3 Figure 1.3 Canada’s natural gas export and import volumes to the US. ...................................................... 4 Figure 1.4 Coal production (left) and coal consumption for electricity generation (right) by province (2019). ......................................................................................... 6 Figure 1.5 Natural gas demand estimation for new LNG plants in Canada. ............................................... 10 Figure 1.6 A hydrogen supply and demand system. ................................................................................... 11 Figure 2.1 Conceptual illustration of the Evolving scenario. ...................................................................... 15 Figure 2.2 Additional natural gas demand for the retirement of coal power plants. ................................ 16 Figure 2.3 Additional natural gas demand for new LNG plants. ................................................................. 17 Figure 2.4 Additional natural gas demand for hydrogen production. ........................................................ 19 Figure 2.5 Avoided CO2 emission by replacing traditional fuels with hydrogen. ........................................ 20 Figure 2.6 Additional natural gas demand in Canada. ................................................................................ 23 Figure 3.1 Additional natural gas demand for IO analysis, 2021-2030. ...................................................... 26 Figure 3.2 AECO-C natural gas price forecast. ............................................................................................ 27 Figure 3.3: Annual GDP impacts of additional natural gas demand, 2021-2030. ....................................... 28 Figure 3.4: Annual net tax impacts of additional natural gas demand, 2021-2030. .................................. 29 Figure 3.5: The impacts of additional natural gas demand on employment (Jobs) and labour income, 2021-2030. ................................................................ 30 Figure 3.6 Hydrogen production cost contributions for four case studies; SMR (Current), SMR (Future), PEM (Current) and PEM (Future). ............................................. 32 Figure 3.7 The results of sensitivity analysis for Current (a) and Future (b) centralized SMR cases. ......... 34 Figure 3.8 The sensitivity analysis results for Current (a) and Future (b) distributed PEM cases. ............. 35 May 2021 Canadian Natural Gas Market Supply and Demand Pathways of Change iii List of Tables Table 1.1 Provincial petrochemical plant capacities and feedstock. ............................................................ 6 Table 1.2 New petrochemical

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