Blog: Our LNG to Europe? Maybe the long way around

The natural gas and LNG industry has been pushing hard to sell Ottawa on the idea that we start building one or more LNG plants on the East Coast, to export LNG to European buyers.

At one point, we hoped for a bright future for this. But the louder the messages from Ottawa, the less we hear to give us, or the industry, confidence that those exports could happen.

Indeed, it still looks as if the only realistic way Canadian gas is going to get to Europe is to ship it to the U.S., which buys it at a discount, processes it, and sells the LNG to Europe. It thus gets jobs and revenues that otherwise could come to Canada.

Prime Minister Trudeau poured cold, if not freezing, water on East Coast LNG this week, saying there has “never been a strong business case” for liquefied natural gas exports from Canada’s East Coast to Europe.

He did say talks continue with the LNG industry, and exports are “doable.” He did not respond to questions about how and when they might be “doable,” though, and continued: “But there needs to be a business case. It needs to make sense for Germany to be receiving LNG directly from the East Coast.”.

Trudeau said that if the case can be made, the federal government would be willing to ease regulatory hurdles to assist its European allies.

That led Timothy Egan, CEO of the Canadian Gas Association, to say: “I think the case is stronger than he’s giving it credit for. The thing I draw from his comments is that he speaks about a willingness to revisit the regulatory framework. And if you revisit the regulatory framework, those business cases become stronger fast.”

But the PM also said that Canada’s best chance of helping its European allies may be to continue supplying natural gas to global markets via the United States.

Still, while the feds thus downplayed East Coast LNG, German Chancellor Olaf Scholz, on his energy-oriented visit to Canada this week, said: “As Germany is moving away from Russian energy at warp speed, Canada is our partner of choice. For now, this means increasing our LNG imports. We hope that Canadian LNG will play a major role in this.”

And: “We would really like Canada to export more LNG to Europe, yes.”

As Russia cut back on natural-gas exports to European countries that slammed Russa for invading Ukraine, and as those countries sought to reduce their dependence on Russia, the Canadian industry had some early hopes for East Coast LNG exports to Europe.

Maybe the Spanish-owned Repsol LNG import plant in New Brunswick could be quickly converted to export LNG. Maybe plans for the Goldboro LNG plant by Pieridae Energy in Nova Scotia could be revived. Maybe the LNG Newfoundland and Labrador project, that would tap and process offshore natural gas (and have a First Nations partner) could get moving fast enough.

But the Canadian government has shown itself to be less than enthused about East Coast LNG.

Natural Resources Minister Jonathan Wilkinson said last week that providing clean hydrogen to Germany and the rest of Europe is a better opportunity for Canada than trying to build LNG terminals as the world moves away from fossil fuels.

And this week the two countries signed a non-binding “declaration of intent” to create a hydrogen alliance, with the first hydrogen perhaps being shipped from Canada in 2025.

Trudeau and Scholz  spoke of hydrogen from the proposed EverWind Fuels project in Stephenville NL, which would use wind-powered electricity to produce liquid ammonia from water and nitrogen from the air. That ammonia could be shipped to Germany and there be used as fuel to replace natural gas, or converted into hydrogen. The prime minister says there is a “market case” for it.

The two countries suggested a new hydrogen trade corridor could be running “well before 2030,” with first deliveries possible in 2025. But nobody said how much ammonia or hydrogen would be involved.

And Natural Resources Minister Wilkinson added: “If we don’t make 2025 and it’s 2026, by setting 2025 it’s still a pretty ambitious goal.”

Environment Minister Steven Guilbeault said he had conversations with German officials and, according to him, they want any new LNG facility to be converted to exporting hydrogen instead of gas long before 2050.

Wilkinson added that any East Coast LNG project would have to be able to transition to exporting hydrogen. Industry observers say that would not be simple, and would require technology that is not yet available.

One thing is for sure: The federal government poured billions of public money into the Trans Mountain oil pipeline, but when it comes to LNG from the East Coast, but there will be no federal financing for exporters.

“Our view is the private sector should be putting up the money for these projects, and it should be done on a commercial basis,” said Natural Resources Minister Wilkinson.

He also stressed that any East Coast LNG project would have to go through federal regulatory reviews to include a low-emission process “to ensure they meet this country’s climate goals.” And that means they would ‘almost certainly’ have to use clean electricity to process their LNG.

Then there’s the tricky question of how Western Canadian natural gas would be delivered to any potential East Coast LNG plant.

Environment Minister Guilbeault says the East Coast has current access to only enough gas to supply a single new LNG project.

At least in theory, new gas could move from Western Canada on TC Energy’s current mainline to Quebec, then cross the border to US lines in New England, then move back into Maritime Canada via the Maritimes and Northeast Pipeline. But there could be capacity problems.

So there has been some chatter from Albertans that the government-killed Energy East pipeline project, originally proposed to take oil from West to East, could be revived —  as a natural-gas pipeline.

But there has been no sign from industry that anyone is interested in such a revival. And Guilbeault says the idea of constructing new gas pipelines in Canada is not “very realistic”.

Wilkinson has made it clear that Ottawa is not going to help out: “We would expect that the proponent would be working with the pipeline provider to ensure that they actually have a business case. I mean, they don’t have a business case if they don’t have gas.”

And he added: “The economics of West Coast LNG are almost certainly likely to be better than East Coast LNG, just given how far the transmission requirements are.”

When Quebec started to raise political roadblocks for Energy East in 2017, Ottawa quickly got onside. What was then the National Energy Board suddenly set new federal standards for the line, and proponent Trans Canada (now TC Energy) shelved the project, at a cost of $1 billion.

When it comes to LNG, the Quebec government has made its position quite clear: no plants and no pipelines. Last year, it firmly rejected the $14-billion Énergie Saguenay LNG-for-export project, proposed by GNL-Québec for north of Quebec City, and a 750-km gas pipeline that would feed it.

Ottawa also rejected the GNL-Québec project, citing environmental reasons, as did Quebec. And more recently, despite Europe’s pressing need for LNG, Quebec announced: “The opinion given about GNL-Québec is final.”

It was all bad news for developers who had hoped to tap Quebec’s own natural-gas reserves in the southern part of the St. Lawrence Valley.  A Quebec law passed this year bans petroleum exploration and production in that province, and any public funding of them. Questerre Energy, for one, which has natural-gas reserves in Quebec and would support LNG exports, is challenging the law.

A report last week from the Canadian Public Policy Forum said: “Our resource wealth of natural gas, our technology, and good global citizenship provide ‘a unique opportunity for Canada to help other nations with their energy transitions while serving our national interests.”

But two days earlier the International Institute for Sustainable Development issued a report arguing that “Canada cannot ramp up supply before 2025, while Europe’s energy needs will largely be resolved by that time.”

If so, 2025 would a pipe dream for East Coast LNG. How on earth could Canada approve an LNG project and industry build it, by 2025? It can take Ottawa’s regulators more time than that just to review and approve a major project. And only then could construction actually start.

So the safest best for now is that the only realistic way Canadian gas is going to get to Europe is via the U.S. And that, as we say above, means the U.S. gets jobs and revenue that otherwise could come to Canada.

Which caused the editorial board of The Toronto Sun to write that this “costs the Canadian economy an estimated $9 billion annually.”

Sigh. . . .

(Posted here 24 August 2022)

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