Back to Main

ARCHIVED - Energy Supply and Demand in a Pandemic: Effects of COVID-19

This page has been archived on the Web

Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.

The COVID-19 coronavirus was first identified in December 2019 and by March 2020, the virus had spread around the world, including Canada. To protect the health of their citizens, governments tried to limit the virus’s spread, including by encouraging social distancing, imposing travel restrictions, and closing businesses to reduce the gathering of crowds.

The impact on Canada has been significant. As shown in Figure C.1, Canada’s gross domestic product (GDP) shrunk in March and April 2020 by 19% to a level not seen since 2010. For the whole of 2020, Canada’s economy could shrink the most since the Great Depression of the late 1920s and 1930s.

Actions to reduce the spread of COVID-19, and the associated economic impacts, have had a significant impact on the Canadian energy system. The following section discusses the short-term market impacts of COVID-19 followed by the long-term uncertainties for the Canadian energy system resulting from the pandemic.

Figure C.1: Monthly Canadian GDP Figure C1
Description

This figure shows monthly Canadian gross domestic product in trillion $2012 C$, from 2005 to 2020. GDP generally grows steadily over this period, with a significant decrease in 2008 and 2009 associated with the global financial crisis, and a sharp drop in 2020 due to the COVID-19 pandemic.

Short-term Energy Market Impacts

Restrictions and actions related to COVID-19 significantly reduced activities like air travel and commuting. This reduced demand for RPPs like gasoline, diesel, and jet fuel. As a result, global demand for crude oil dropped by almost 30 MMb/d by May 2020 (approximately 30% of total demand). Reduced demand for RPPs, and hence crude oil, combined with Russia and Saudi Arabia increasing the world’s oil supply, caused oil prices to decline rapidly starting in February 2020.

As shown in Figure C.2, prices have since increased but remain below levels seen at the beginning of 2020. West Texas Intermediate (WTI), a global benchmark of sweet, light crude oil, priced in Cushing, Oklahoma, even traded at negative daily prices in late April 2020. Total global oil production was cut by nearly 14 MMb/d by June 2020. Western Canadian producers cut production by almost 1 MMb/d by mid-May 2020, and the United States (U.S.) cut over 2 MMb/d by mid-June 2020. The Organization of Petroleum Exporting Countries (OPEC) and Russia were largely responsible for the remaining reductions. Cuts have since eased and some production has come back online with rising prices.

In Canada, consumer prices for gasoline and diesel reached their lowest level since 2008. By March, demand for crude oil had fallen by over 35% from the start of 2020. In response, the Come-by-Chance refinery in Newfoundland and Labrador was temporarily shut down and other Canadian refineries reduced output. Canadian oil and gas producers, pipeline companies, and service companies cut their 2020 capital budgets by over $10 billion. The number of active drilling rigs in Canada fell to levels not seen for over 50 years. In Newfoundland and Labrador’s offshore, work on the West White Rose project and maintenance on the Terra Nova project were suspended.

Figure C.2: Global Benchmark Crude Oil Prices, Weekly Average Figure C2 Global Benchmark Crude Oil Prices, Weekly Average
Description

This figure compares international benchmark crude oil prices, Brent and WTI, measured weekly in US$ per barrel, from 2015 to 2020. Both prices are volatile throughout this period, and show a large drop in April and May 2020 associated with the COVID-19 pandemic. In the months since prices have increased, but remain below early 2020 levels.

Prior to March 2020, Canada’s major oil pipeline systems had been running at, or near, capacity for a number of years. This forced some crude oil exports onto rail, which peaked at over 400 Mb/d in February 2020. In the following months, crude-by-rail exports fell to levels not seen since February 2017 while pipelines began to run below full capacity. Since then, as some production has come back online, flows on pipelines have increased. As demand approaches pre-COVID levels, most market observers expect that pipelines will be full and crude by rail will once again be required to allow increasing Canadian crude oil production to reach markets.

The impact of the pandemic on natural gas use and production, particularly in Canada, was less acute than for crude oil. Natural gas prices in much of North America have been relatively low in 2020. However, western Canadian prices have actually been higher in 2020 compared to the past several years. Natural gas prices in western Canada rose significantly in the fall of 2019, prior to the COVID-19 pandemic. These high prices sustained Canadian natural gas production through the first half of 2020 at levels similar to 2019. Consumption of natural gas in Canada fell in early 2020, but not as significantly as RPP consumption.

The impacts on electricity demand and supply trends have also been significant, and vary by province. Recent research3 suggests that electricity demand fell 5% in Alberta, B.C., and New Brunswick in the early months of the pandemic, while Ontario’s electricity demand fell around 10%.4 Generation in Ontario remained relatively stable, and lower demand led to increased net exports. In Alberta, lower demand caused a significant reduction in natural gas-fired power generation.

The pandemic has impacted electricity developments under construction as well. Nalcor suspended construction of the Muskrat Falls dam in Newfoundland and Labrador in March 2020. The project will now not be online until mid-2021 at the earliest. Suncor suspended the construction of the Forty Mile Wind Project in Alberta in May 2020, which at 400 MW, will be the largest wind farm in Canada.

Back to Top

Uncertainties for Long-term Energy Projections

We developed the scenarios, assumptions, and projections in EF2020 in the midst of these events over the course of 2020. The COVID-19 pandemic has clearly added an additional layer of uncertainty to any future projection or scenario. In the near term, key questions include the path of future infection rates, the timing and effectiveness of treatments and vaccines, and the evolution of policy measures in response to the pandemic. In the longer term, there are many questions on how this experience will shape future social, work, and travel trends.

Energy Futures is a long-term energy outlook. While COVID-19 introduces additional uncertainty to the projections in this report, EF2020 assumes that the acute effects of the pandemic slowly dissipate over the next two to three years.

The longer term implications of COVID-19 are one of many key uncertainties for future energy trends, and Canada’s energy system. EF2020 considers two scenarios, described in detail in the following section. In the Reference Scenario, while lingering impacts of the macroeconomic shock of 2020 remain, the energy system essentially returns to pre-pandemic normal by mid-decade. In the Evolving Scenario, the near-to-mid-term recovery is interwoven with the ongoing energy transition. Reduced travel, influenced by continued working at home, as well as increased effectiveness and reliance on digital communication, continues to put downward pressure on oil demand and prices during the recovery period. These trends eventually intersect with the key drivers of the Evolving Scenario: continued advancements in low carbon energy technologies and expansion in climate policy.

Back to Top
  • [3] Leach, A., N. Rivers, and B. Schaffer. “Canadian electricity markets during the COVID-19 pandemic: An initial assessment.” Canadian Public Policy (2020). See the CER Market Snapshot series for more information on Ontario and Alberta electricity trends.
  • [4] These provinces are focused on because of the availability of real-time data.

Notice: On 2 December 2020, a note for additional clarity was added to Figures ES.8 and R.12 in this PDF.

Date modified: