Market Snapshot: Canadian Energy Demand is Rebounding to Pre-COVID Levels

Release date: 2023-02-01

Canadian domestic energy demand declined the most in 2020^Footnote 1 due to impacts of the COVID-19 pandemic, including the largest annual decline in economic activity in Canada’s recent history.^Footnote 2 As Canadians move forward, data for the first ten months of 2022 indicates that economic activity levels^Footnote 3 may have surpassed their 2019 pre-COVID peaks at the end of 2022, while energy demand levels^Footnote 4 were also approaching their previous peak levels. Although the economy appears to continue declining in energy and emissions intensity, i.e., using less energy per unit of economic output and producing fewer emissions per unit of energy used, there are notable differences in trends across fuel sources.

Figure 1: Recent trends in economic growth and energy demand in Canada

A continued trend in decreased energy and emissions intensity

In the decade and a half prior to the COVID-19 pandemic (2005-2019), both the amount of energy used per unit of economic output (or energy intensity) and the amount of energy-related greenhouse gas (GHG) emissions per unit of energy used (or emissions intensity) in Canada declined at a pace of about 1% annually. Both energy and emissions intensity declined sharply in 2020 due to the impact of the pandemic, by about 3% each.

During the pandemic, energy use declined more in relative (or percentage) terms than the economy because the economic decline was concentrated on energy-intensive activities and industries, like transportation of goods and people, oil and gas production, and the manufacturing sector. Meanwhile, energy-related emissions dropped more rapidly than energy use, because the decline in energy use was concentrated on carbon-intensive sources of energy, like refined petroleum products.^Definition*

Figure 2: Trends in Canadian energy and emissions intensity

For 2021 and 2022, as the economic recovery took place, these trends of declining energy and emissions intensity were likely to continue. However, the declining pace should be more moderate than in 2020.

As Figure 1 indicates, relative to 2019 pre-COVID levels, the economy was expected to expand by 4% in 2022, while energy demand rebounds to levels just below 2019. A slower rebound in energy demand than that for economic growth means that energy intensity in 2022 was over 5% lower relative to 2019 levels. Meanwhile, the rebound in fossil fuels use (led by natural gas) from their 2020 lows indicates that energy-related GHG emissions have likely rebounded from their 2020 levels – the lowest in almost 25 years. However, these emissions were unlikely to reach their 2019 pre-COVID levels in 2022,^Footnote 5 as the fuel mix in Canada is increasingly less carbon intensive.^Footnote 6 That is, as we use less coal^Footnote 7 and refined petroleum products and more natural gas and renewables.

Trends vary by fuel

The impact of the COVID-19 pandemic on Canada’s energy demand varied by fuel. Refined petroleum products saw the largest demand decline in both absolute (amount) and relative (percentage) terms, accounting for over two-thirds of the demand decline between 2019 and 2020. Natural gas saw the second largest decline in absolute and relative terms, accounting for about one-quarter of the decline in energy demand levels in 2020, but it has now accounted for a significant share of the recovery in energy demand levels in 2021 and 2022. Demand for electricity between 2019 and 2022 remained steady.

Figure 3: Annual changes in energy demand by fuel type

Natural gas demand has increased

Natural gas use is estimated to be 6% above its pre-pandemic levels in 2022, leading the energy demand rebound. While most of the fuel demand increase is from the industrial sector, seasonal heating requirements in the first ten months of 2022, as illustrated by heating degree days (HDDs)^Definition* (pink line in natural gas indicators), have also been higher than previous years, boosting natural gas demand in both the residential and commercial sectors.

At the industrial level,^Footnote 8 a significant portion of natural gas is used for oil and gas production and transportation via pipelines as well as across a handful of manufacturing industries like chemicals, primary metals, pulp and paper, and refining. Real output levels in the first ten months of 2022 across most manufacturing industries remained below their pre-COIVD levels.^Footnote 9 On the other hand, oil and gas production levels have surpassed 2019 production levels.^Footnote 10

Total electricity demand and generation stayed constant, but renewables are up while fossil fuels are down

Canadian electricity demand and generation levels have remained relatively stable since 2019. Electricity generation from renewable energy sources, including wind, solar, and hydro, is estimated to be at greater levels in 2022 than 2019, although to different extents. On the other hand, generation from both nuclear and fossil fuel resources was estimated to remain well below pre-COVID levels in 2022.

For fossil fuels, the trend is the result of higher natural gas but lower coal use. The decline in nuclear generation is a result of refurbishments at various units at the Bruce and Darlington power generation stations in Ontario.^Footnote 11

Refined petroleum product use has decreased

Use of refined petroleum products, which accounted for most of the decline in Canadian energy use in 2020, was estimated to remain at 10% below 2019 levels in 2022. While demand for diesel was expected to be at or just below 2019 levels in 2022, demand for motor gasoline, jet-fuel, petroleum coke^Definition* and other refined petroleum products (mostly non-energy products such as petrochemical feedstocks,^Definition* lubricants,^Definition* and waxes^Definition*) is expected to remain well below their pre-pandemic levels in 2022.

Consumer behaviour has changed

Although changes in use for each refined petroleum product are driven by unique factors, the slow recovery to pre-pandemic levels for transportation fuels (i.e., gasoline, diesel, and jet-fuel) may be in part explained by rising adoption of electric vehicles,^Footnote 12 the fact that some forms of air travel remain below their pre-COVID levels (particularly international travel),^Footnote 13 and the prevalence of working from home,^Footnote 14 among others.

Figure 4: Canadian fuel demand trends by selected indicators

Date modified:

2023-11-24