If oil and gas are dead, so is much of Quebec's economy

Special to Financial Post Jean Michaud and Germain Belzile
May 14, 2020 9:40 AM EDT


By Jean Michaud and Germain Belzile


“Oil is dead,” declared the leader of Canada’s Green party recently, after hydrocarbon prices collapsed. Maybe. But it’s more likely that reports of its death are, as Mark Twain would have said, “exaggerated.” The eventual decarbonization of the Canadian economy may be desirable but in the medium term it will run into hard realities — in Quebec as everywhere else.

Right now, 56 per cent of the energy consumed in Quebec comes from fossil fuels. Electricity accounts for another 36 per cent, with biofuels at eight per cent. The transportation sector — primarily cars and trucks — is responsible for a large part of this.

Transportation is the first big obstacle to the energy transition. Hydro-Québec’s total “reliable” generation capacity (not including wind) is around 44,000 megawatts (MW), which roughly corresponds to its current needs, including some leeway for unexpected surges. Supposing the number of vehicles in circulation remains the same as it is today — although before the pandemic it was actually growing three times faster than population — Quebec would need around 37,350 MW just to recharge its converted electrical automotive fleet every day. That’s almost as much as the province’s peak demand in winter!

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Even if smart electric meters helped spread the recharging out over 12 hours, this would still generate an additional demand of over 3,000 MW each hour. And that’s without including trucks, which would double this figure. In sum, Hydro-Québec’s leeway would disappear.

Add to this the effect of electrifying the rest of the province’s economy. A study published in 2018 showed that doing so would require Hydro-Québec to increase its production capacity to around 70,000 MW. In theory, harnessing all of Quebec’s major rivers would make this possible. The province’s full hydroelectric potential is estimated to be a little over 80,000 MW. But the social and political obstacles to widespread new damming would likely be insurmountable, not to mention environmental considerations and the fact that certain rivers are protected.

Another big problem is that heating accounts for an enormous share of the potential demand for electricity, which can be nearly three times higher in December than in June. This fluctuation means a significant portion of our electricity production must be reserved for a fairly short usage period and left unused the rest of the year. The Chair in Energy Sector Management at HEC Montréal has estimated that fully 15 per cent of Hydro-Québec’s capacity is used five per cent of the time. Nor can the demand for electricity for heating be met by intermittent sources of energy like wind or solar.

Yet there is a solution that could maximize use of the province’s electrical potential without our having to dam all our rivers or give up on the idea of improving our greenhouse gas emissions record. Quebec has significant recoverable reserves of natural gas, estimated at between 250 billion and 1,150 billion cubic metres. At current rates of consumption, this gas could cover our consumption for at least the next 40 years. Moreover, the reserves are located close to consumers and access to them could be facilitated by the existing gas pipeline network, which could be expanded as needed.

If natural gas development were to prove profitable, there would be no good reason not to pursue it — not even in the context of the large-scale electrification of the Quebec economy and the fight against climate change. In fact, using Quebec’s natural gas to replace some of the electricity currently used for heating would free up electricity to replace oil, which is more polluting.

Given current market prices, the revival of the gas industry in Quebec will probably not happen in the short term. But it certainly represents a chance to create high-quality jobs here at home when the economic recovery does get going. Political leaders naturally are zeroed-in on COVID-19 at the moment but somewhere in our various bureaucracies officials should be thinking about how, after the crisis has passed, Quebecers can take full advantage of the economic and environmental opportunities offered by this supposedly “dead” fossil fuel.

Jean Michaud and Germain Belzile are associate researchers at the Montreal Economic Institute.