Impact of the Energy East Pipeline on the Oil and Gas Industry in Newfoundland and Labrador - Demonstration of a New Soft-Linking Model Framework
It is expected that, by 2030, Canada will produce a total of 6.4 million bbl/d, with over 90% of this increase coming from bitumen (CAPP, 2014b). However, to achieve the forecasted production levels, producers of Western Canadian oil must find a market that will yield a reasonable price for their product. Eastern Canada and USA regions are one of these potential markets. The objective of this study is to develop a soft-linking model framework and demonstrate its potential application with preliminary analysis on the domestic oil supply-demand dynamic in Canada under three economic growth scenarios and the impacts of the TransCanada Energy East pipeline on the oil supply-demand dynamic in Eastern provinces, Newfoundland and Labrador especially. The soft-linking framework combines three complementary modeling techniques: 1) the macroeconomic model NALEM (Newfoundland and Labrador Econometric Model), 2) a forecasting model of the oil production profile and, 3) the optimization LP energy model NATEM (North American TIMES Energy Model).
The results of the optimization Model suggest that the pipeline would be used at its maximum capacity (1100 k bbl/d) starting around 2030 for both international exports and domestic uses in Eastern refineries, representing up to 98% of the crude used in Newfoundland and Labrador. While the oil prices are reaching 128$/bbl by 2050 in this case, blocking the access to WCSB oil in Newfoundland and Labrador brings the offshore oil price up by 10$/bbl in 2035 and 4$/bbl in 2050. The results of the forecasting model show higher production levels between 5% and 14% on average for the 2013-2050 period using these oil prices compared with those of the National Energy Board. The results illustrate well the potential of the model framework to analyse such supply-demand dynamics; this is a first step toward a broader and deeper analysis.