For the first time, Canada's national energy regulator has looked at how oil and gas production will change in a net-zero world, where countries hit their climate goals — and it shows a future without much demand for Canadian fossil fuels.

In its widely read annual report on the country's energy future, the Canada Energy Regulator (CER) modelled scenarios where the world and Canada successfully head toward net-zero carbon emissions by 2050, which is seen as key to limiting global warming to 1.5 C above pre-industrial levels — the goal of the international Paris Agreement.

The regulator found that in such scenarios, oil and gas production in Canada would start declining as early as 2026, because of falling oil prices and demand, as the rest of the world turns toward cleaner energy sources.

"We can't ignore what's happening internationally, and betting on failure internationally is an economically risky thing to do for Canada," said Dale Beugin, executive vice-president at the Canadian Climate Institute, a climate policy think-tank in Ottawa.

Global prices drive Canadian oil exports

The projections come at a particularly lucrative time for the industry; the five largest companies that operate in Canada's oilsands made about $35 billion in profits in 2022.

But the models should be a warning for many oil and gas companies, climate experts say, calling into question the future of fossil fuel use and production in Canada. 

On the other hand, the analysis spells out a dramatically expanded role for cleaner energy in Canada's future, from sources like hydro, wind, nuclear and hydrogen.

"The rate of international decarbonization — the rate at which the rest of the world takes seriously climate change and reduces its emissions, maybe very quickly — has really big implications for demand for the exports of Canadian oil and gas," Beugin said.

"And the biggest threat to the oil and gas sector in Canada isn't domestic climate policy. It is actually market conditions over the longer term."

Exactly when oil and gas production peaks depends on how far other countries go in their efforts to slash greenhouse gas emissions, according to the CER. It modelled two net-zero emissions scenarios: one where global emissions head to net-zero by 2050, and one where the world doesn't act as fast, but Canada still heads to net-zero for its own emissions by 2050.

Canada's oil production starts declining by 2026 in the global scenario and by 2029 for the Canada-only scenario, with similar results for gas.

Beugin stressed that these were projections based on different scenarios, and not predictions of what was going to happen.

But the projections could still influence decisions on expanding oil production and investing in carbon capture technologies, which would capture the industry's carbon emissions and keep them out of the atmosphere.