Yuri Bilinsky, NP-UN.
After decades of reliance on Russian natural gas and on the background of the devastating war that Russia is waging on Ukraine, Germany is scrambling to diversify its energy supplies.
German Chancellor Olaf Scholz’s visit to Canada on August 22-24 was widely expected to provide some news about future sales of Canada’s liquified natural gas (LNG) to Germany, but the visit’s results fell short of these hopes.
Scholz’s trip to the Middle East on September 24-25 brought an energy security agreement with the UAE and a memorandum regarding long-term deliveries of LNG between the German energy company RWE and UAE state oil company ADNOC.
Reviving LNG projects on Canada’s East Coast would require willingness on the part of federal and provincial governments to allow pipelines and LNG plants where they were not allowed before, which looks unlikely now. But
Europe’s pressing need to diversify its energy supply and the strong long-term global forecast for LNG are shedding new light on the embattled Canadian LNG segment. The federal government is starting to talk about LNG after many years of neglect.
Will Canada develop its East Coast LNG projects, help overcome Europe’s dependence on Russian natural gas and thus do probably the single biggest thing it can do to support Ukraine?
Germany did hope to buy Canadian LNG in the future
When Prime Minister Justin Trudeau met with the Chancellor of Germany, Olaf Scholz, in Montréal on August 22, the widespread expectation was that the two leaders would provide some news about future sales of Canada’s liquified natural gas (LNG) to Germany. While meeting in June during the G7 summit, Olaf Scholz and Justin Trudeau discussed the issue on the background of Germany’s plans to become independent of Russian natural gas amid the war in Ukraine.
After the G7 Summit, German officials were hopeful the two countries would be able to announce an LNG deal by the time Scholz visits Canada in August. After the August visit, it started to look as if the visit was not about LNG at all.
But Olaf Scholz said directly in his interview with CBC on August 23: “We would really like Canada to export more LNG to Europe, yes”.
Germany’s plans for natural gas in focus, but not the only factor for Canada’s LNG projects
The prospects for the Canadian LNG to go directly to Germany raised by the German Chancellor were quite unusual for the Canadian natural gas industry as five potential projects, which could export Canadian LNG from the country’s East Coast to Europe, have all been buried. The most recent rejection (by the federal government), of the GNL Quebec’s LNG plant and export project in Saguenay, Que., occurred in February 2022, two weeks before the Russian onslaught on Ukraine.
The project was rejected largely on the grounds that it would increase CO2 emissions. A report by the Quebec’s Bureau d’audiences publiques sur l’environnement (BAPE) also listed the project’s insufficient economic benefits. It stated the ongoing global competition for LNG production and exportation was high and that by the time the project was up in running, it would likely be too late to be competitive in the market.
The explosive growth of natural gas spot prices in Europe, which jumped by over 200% in August on the back of the Russian blackmail and discontinuation of gas supplies, was not considered a sufficient factor to justify a revival of the Canadian East Coast LNG projects. A key obstacle was Germany’s plans to phase out the use of natural gas in its energy mix as the country set an ambitious goal to achieve net zero emissions by 2045. This was a major reason for several rounds of unsuccessful negotiations between Germany and Qatar regarding LNG – Qatar wanted a long-term deal.
In the past months, Germany has shown willingness to continue negotiating with the Middle Easter countries to reach an LNG deal. Before Scholz’s Gulf trip, Reuters reported that, according to its sources, the talks were now more constructive than a few months ago. The agency’s another source said the German and Middle Easter utilities were likely to agree on 15-year deals.
The stronger appetite for long-term LNG deals by the German side found its confirmation on September 6, when the German energy company Uniper Global Commodities signed a 16-year LNG agreement with Woodside Energy Trading Singapore. In a separate deal announced the same week, Woodside will buy 2.5 million tonnes per year of LNG over 20 years from the Commonwealth LNG export terminal under development in Cameron Parish, Louisiana.
And, finally, during Olaf Scholz’s Gulf trip, on September 24-25, the United Arab Emirates and Germany signed a new Energy Security and Industry Accelerator (ESIA) Agreement. As part of the agreement, the Abu Dhabi National Oil Company and a German energy company RWE signed a Memorandum of Understanding on multi-year LNG supplies where cargoes will be delivered to Germany starting from 2023.
Chancellor Scholz also travelled to Qatar, which has a provisional agreement to supply German companies with LNG. According to oilprice.com, Scholz left Qatar without the announcement of a final deal, which may suggest that differences of opinion on the terms of a deal remained.
At the same time, the timing of the German plans to phase out natural gas should not be the only factor for the Canadian LNG projects demand-wise, says Tim Egan, President and CEO, Canadian Gas Association. He told NP-UN:
“Even with the Germans’ commitment to get off hydrocarbons in 20 years, a Canadian LNG project could make a commitment for 20 years and then find other commitments beyond those 20 years. The fact that Germany is committed to getting off of gas in 20 years doesn’t mean the rest of the world is. There are many potential buyers of natural gas out there. It’s increasingly a global market, it’s only going to become more global”.
Within the next 20 years, there seems to be ample space for Canadian companies on the German market. As the German agency DW put it this week, “Germany is looking to replace Russian gas with a myriad of different gas suppliers”. Previously, over 55% of the country’s natural gas consumption came from Russia while Germany had been planning to open the Nord Stream 2 pipeline through the North Sea for even more direct access to Russian energy imports. Currently, very little gas is flowing from Russia to Germany through any of the three pipelines that connect the two countries as Russia is blackmailing Western Europe to try and reduce the region’s support for Ukraine. After the German reliance on Russian natural gas has caused so much anguish, the country is making sure that being dependent on just a few sources of energy will not happen again.
The fact that Germany will be getting a bulk of its LNG from the Middle Eastern and adjacent markets also presents an opportunity for Canada. The region is riddled with political and human rights problems which may affect the relations going forward and thus create opportunities for the Canadian LNG projects. During his trip to the Gulf, Scholz addressed issues involving human and civil rights in talks with Saudi Arabia’s Crown Prince Mohammed bin Salman. While Azerbaijan, which is also expected to ramp up its sales of natural gas to Europe, has been at different stages of war with neighbouring Armenia for decades.
Global LNG investment and production should be strong through to 2040
There is also growing demand for LNG in other European countries such as Poland. The country, which now relies on coal to meet up to 80% of its energy demand, is phasing out coal by 2049. In the meantime, natural gas is likely to serve as a transitory fuel for Poland.
France is also actively seeking opportunities in the LNG sphere. France’s TotalEnergies announced last week that it will invest $1.5 billion in Qatar’s North Field South gas project.
The current global energy crisis and, in particular, Europe’s frantic search to find new energy sources and replace Russian supplies are creating a boom in LNG investing worldwide. Rystad Energy expects that global investments in new LNG infrastructure will surge from $27 billion in 2022 to $32 billion in 2023 and $42 billion in 2024. After 2024, Rystad forecasts, the investment may drop, as governments transition away from fossil fuels and accelerate investments in low-carbon energy infrastructure.
Despite the forecast of a global transition to non-fossil fuels, Rystad Energy expects that global LNG production should remain very strong through the year 2040. Total LNG supply should more than double in the coming years, from 380 million tonnes per annum (Mtpa) in 2021 to 705 Mtpa in 2034. After it peaks in 2034, the global supply is expected to subside but remain at substantially elevated levels, just below 700 Mtpa.
The question is, will Canada be on time to catch this LNG bandwagon?
Even before the full-scale Russian invasion in Ukraine, the displacement of the Russian natural gas on the global scale made a lot of sense, in particular, climate-wise. Canadian natural gas is considered the cleanest in the world as the Canadian industry is using the best technologies and adhering to the strictest ecological standards. The main problem with the Russian natural gas is methane leakage while methane is 84 times worse than CO2 as a greenhouse gas.
Lack of infrastructure and pipelines on Canada’s East Coast
Another key reason for the lack of LNG export capacity on Canada’s East Coast is the fact that there is very little natural gas extracted in Canada east of Saskatchewan. To bring natural gas to liquefaction facilities on the East Coast would require building new pipelines. As in the case of the Énergie Saguenay project that involves building a 780-kilometre natural gas pipeline from northern Ontario to the region north of Quebec City. During the press conference with Olaf Scholz on August 22, Prime Minister Trudeau quoted the need to transport the gas over long distances before liquefaction as the reason for the lack of “a strong business case” for East Coast LNG projects.
Pipelines have been a weak spot of the Canadian economy. Over the past decade, multiple pipeline projects have been delayed (Keystone XL and Trans Mountain) or cancelled (Northern Gateway and Energy East). The main reasons for delays and cancellations were political and regulation-related. So, when Prime Minister Trudeau said at the press conference on April 22, “as we look at the possibility of LNG plants on the East Coast able to ship directly to Germany, we find ourselves a long way from the gas fields in western Canada. It’s doable. We have infrastructure around that, but we’re looking very much at how we can best help,” it sounded like a positive surprise to the industry.
However, in the same sentence, Trudeau said, “right now our best capacity is to continue to contribute to the global market to displace gas … that then Germany and Europe can locate from other sources,” likely referring to the natural gas that Canada sells to the U.S. and probably also to LNG projects on the West Coast that are at the different stages of development (LNG Canada (under construction) and Cedar LNG and Woodfibre LNG (undergoing the regulatory approvals)).
Political hurdles in the way of LNG projects
The industry representatives believe that a lot could be done by the federal and provincial governments to improve the regulatory environment and get the pipelines, LNG plants and terminals built. As Tim Egan of CGA said, “If there are strong political will and strong political signals, things can be done faster. The United States are commissioning new LNG projects very quickly. They’re developing expedited processes for smaller LNG projects. And I think the same should be happening in Canada.”
The German example is also quite revealing: the country started this year and is now building several LNG terminals and gas pipelines. Germany has changed legislation to make this happen in a matter of months and will receive its first LNG shipment at the beginning of the next year.
The leader of the Conservative Party Pierre Poilievre has promised, if he becomes prime minister, that he will repeal two Liberal government bills (C-69 and C-48), in a bid to encourage Canadian pipeline development. “I will replace these anti-energy laws with new laws that protect the environment, consult First Nations and provide them with pay cheques and give quick decisions on energy projects,” Poilievre said.
Bill C-69 enacted the Impact Assessment Act which oversees the assessment of the “environmental, health, social and economic effects of designated projects with a view to preventing certain adverse effects and fostering sustainability.”
Bill C-48 prohibits oil tankers carrying more than 12,500 metric tonnes of crude oil or persistent oil as cargo from “stopping, or unloading crude oil or persistent oil, at ports or marine installations located along British Columbia’s north coast from the northern tip of Vancouver Island to the Alaska border.”
A renowned Canadian energy journalist and member of the Canadian Petroleum Hall of Fame, Gordon Jaremko, believes that it would be “extremely difficult” for the current federal government to change Canada’s regulatory structure to the degree that it overcomes the economic obstacles that are hurting the prospects of East-Coast LNG projects. Jaremko said that this would involve changing much of the policy the government has been enabling for the last 4-5 years.
Jaremko said that, in the past, the like-minded federal (both Liberal and Conservative) and Alberta governments drove the growth in the Canadian oil and gas sector. The previous generations of Canadian Liberals, he said, believed that Canada needs to be self-sufficient in energy and encouraged development. Jaremko noted that the first generation of the current Trudeau government participated in the efforts to complete the extension of the Transmountain Pipeline, but that generation has been set aside by the current version of the Liberal party. Jaremko is skeptical that any change in this respect is possible under the current Minister of Environment and Climate Change of Canada, Steven Guilbeault, a former Greenpeace protest campaign manager who was a vigorous opponent of East Coast LNG.
Quebec and LNG: not all is lost?
Another obstacle for the East-Coast LNG is the position of the Quebec government which has been a staunch opponent of fossil fuels and pipeline development. This year, the Quebec Legislature has passed Bill 21, An Act mainly to end petroleum exploration and production and the public financing of those activities.
In a surprising development, Radio-Canada reported on August 31 that, behind the scenes, Quebec’s Economy Minister Pierre Fitzgibbon is keeping the door open for the Énergie Saguenay project. Reportedly, the CAQ government recently let Ottawa know that it was still open to carrying out the project, after the provincial election on October 3. The Coalition Avenir Quebec’s government thus realizes the changing context caused by the war in Ukraine and the gas shortage in Europe.
The report shed the light on what could have caused Prime Minister Trudeau’s words during the press conference on August 22 that LNG projects on the East Coast were “doable”. In preparation for the visit of the German Chancellor, at the invitation of representatives of the federal government, the approval processes of several energy projects were studied, Mathieu St-Amand, director of communications for Mr. Fitzgibbon, explained to Radio Canada.
Despite the Radio-Canada report, Quebec’s Premier François Legault has said that the Saguenay project is not happening: “Regarding gas, first we don’t produce gas in Quebec, so it would mean a pipeline. There’s no social acceptability and the BAPE said no. So the door is closed for gas.”
As often happens before the election, this may be just a political statement aimed at rallying the voter base. The LNG projects issue has become an election issue in Quebec. The leader of the Conservative Party of Quebec, Éric Duhaime is promising, contrary to CAQ’s position, that the Énergie Saguenay project will come to fruition if his party is elected. He said, “Those who want the LNG project will vote Conservative and those who are against it, should vote for the CAQ.”
For a long time, it seemed that the Quebecers support the opposition to oil and gas unanimously. But, according to CNW Telbec, new Mainstreet poll conducted from September 20 to 21 showed that almost 2/3 of Quebecers want to develop Quebec’s natural gas and want the anti-oil&gas Bill 21 repealed.
Are LNG projects losing hope?
According to Radio-Canada GNL Québec continues its efforts to advance the Saguenay project. Despite the public refusal expressed by the provincial government, the company is working hard to try to move the project forward, against the backdrop of the energy crisis in Europe.
Quebec and Canada can help European countries as a whole diversify their energy sources and replace the most polluting fuels, wrote a spokesperson for the company. The company declined to specify the nature of its contacts with the Quebec government in recent months.
Ukraine wants Canadian LNG
In June 2022, the Canadian energy developer Symbio Infrastructure, which is developing Énergie Saguenay through its subsidiary GNL Québec, signed an agreement with the Ukrainian state-owned gas distributor Naftogaz to sell LNG and hydrogen. The parties intend that the LNG and LH2 will be delivered to an import terminal in a mutually agreed European transit country.
Zenon Poticzny, President, Canada-Ukraine Chamber of Commerce, believes that this project, which could provide Ukraine with clean Canadian natural gas, is very important for Ukraine which is experiencing the same kind of gas deficit as the rest of Europe. In his comment for NP-UN, Poticzny noted that Canada is lagging behind many jurisdictions in the LNG export development. At the same time, he believes, Canada still has a good chance to start developing and selling its LNG and obtain its global market share.
So far, there is no information as to whether the agreement between Symbio Infrastructure and Naftogaz has received any attention from the federal or provincial government.
According to Reuters, higher export volumes, coupled with rising prices, will boost Russia’s earnings from energy exports, which that country is using to fund its bloody war in Ukraine, to USD 337.5 billion this year, a 38% rise from 2021. This compares to just over CAD 3 billion that Canada has provided to Ukraine in 2022 in the form of aid, assistance and loans.
In his comment for NP-UN, Shadow Minister for Foreign Affairs for the Official Opposition Michael Chong noted that providing Europe and other regions with energy and thus helping displace Russian oil and gas from the global markets is the biggest thing that Canada could do for Ukraine in the time of grave need.
And, finally, Canadian hydrogen will hardly be used as a fuel in Germany
On August 23, at the conclusion of Chancellor Scholz’s visit to Canada, the countries signed a joint declaration of intent to establish a Canada-Germany Hydrogen Alliance. This was done to “strengthen energy security and accelerate the clean energy transition”. The proposed Alliance would help establish a transatlantic Canada-Germany supply corridor, with the target of beginning export by 2025.
The joint paper by Germany’s EPICO KlimaInnovation and Canada’s Macdonald-Laurier Institute says: “The Joint Declaration marks a new milestone in efforts to establish hydrogen as a medium-term solution to Germany’s energy needs”.
The paper notes that Canada is “increasingly unlikely” to provide any LNG to Europe while there is political support on both sides to develop hydrogen exports. It adds that the current gas crisis in Germany requires an acceleration of the hydrogen ramp-up in conjunction with the need to substitute Russian natural gas supplies “in the short-term”.
However, many industry experts are voicing doubts that hydrogen, especially if imported from Canada to Germany, could be used as an energy source and become a solution to Germany’s energy needs even in “a medium term”.
Even this paper, which considers hydrogen, among other uses, an “energy product”, admits that ammonia (the product that would most likely be imported from Canada to Germany under the Joint Declaration) is mainly used in Germany to make fertilizers.
The paper says that ammonia “could also be used in the future, for example, to provide high-temperature process heat”. It continues: “To leverage the full potential of ammonia as a transport vector, the process of cracking the ammonia back into its constituents, hydrogen and nitrogen, will require greater focus”.
Paul Martin, a Toronto-based chemical engineer and process development expert, and a member of Hydrogen Science Coalition explained to NP-UN that in the process of making ammonia in Canada, transporting it to Germany and then extracting hydrogen from it, to be used as a source of energy, over 80% of the energy, which was fed at the front, will be lost. While, so far, there are no commercial technologies to use ammonia itself as a source of heat. Ammonia is a highly toxic substance and would be extremely dangerous to burn, reminded Martin.
To transport large quantities of liquified hydrogen from Canada to Germany would also present problems at the current level of technology. Both the high explosiveness of hydrogen and the extremely low temperatures involved in its liquefaction (-253C) make handling it safely a challenge.
Another issue, which arose from the Joint Declaration, is the source of hydrogen to be shipped to Germany. Most likely, Germany would only agree to import “green” ammonia (produced with the use of renewable energy only) from Canada, as opposed to “blue” ammonia made from natural gas. Therefore, projects that could make ammonia in the western provinces (even with partial carbon capture) and transport it to the East Coast through pipelines will hardly be viable.
Two projects in Atlantic Canada were announced during Chancellor Scholz’s visit in August 2022: a green hydrogen and ammonia production and export facility in Point Tupper, Nova Scotia and a wind farm of 164 turbines in Port au Port peninsula, near Stephenville in Newfoundland. At this stage, these projects do not have environmental assessments yet.
Canadian ammonia could help Germany compensate for the lack of Russian natural gas supplies in the fertilizer industry. Since Russia started reducing its gas supplies, several European fertilizer producers have cut their output as they are considered prime candidates for cuts to cushion any gas supply squeeze. It remains to be seen when the Canadian exports will begin given the stage of development of the planned projects. As a chemical engineer and process development expert, Paul Martin voiced his doubts that 2024 is a realistic target.