FOCUS: Canada lacks energy export infrastructure to help Europe

Stefan Baumgarten


TORONTO (ICIS)–Prime Minister Justin Trudeau this week affirmed Canada’s willingness to help Germany and other European countries amid the current energy squeeze.

However, as he discussed energy with Germany’s chancellor during a visit to Berlin, industry officials and commentators were quick to note that while Canada has the oil and gas resources Europe needs, in the short run this will not help Europe reduce its dependence on Russia.

A key stumbling block is Canada’s lack of energy export infrastructure – both for oil and gas.

“Canada has the resources but we can’t displace Russian energy in Europe, or elsewhere, because Canada lacks sufficient infrastructure – pipelines and liquefied natural gas (LNG) facilities – to move our resources to offshore markets,” said Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers (CAPP).

For years, Canada has stalled and cancelled numerous projects that could have connected its resources to its allies, who are now in need, he said.

He made the remarks in an article he contributed to Canada’s Troy Media.

As the most recent example in a series of cancelled projects, McMillan pointed to the proposed Energie Saguenay LNG export facility in Quebec.

The Quebec provincial government rejected the project last year, and the federal government formally rejected it in early February – just two weeks before Russian President Vladimir Putin launched his attack on Ukraine.

Energie Saguenay would have involved natural gas from western Canada, shipped in via pipeline to a hydro-powered LNG facility with marine access to Europe – “a great example of energy and environmental innovation,” McMillan said.

Canada currently has no operating LNG export facility.

One project, LNG Canada, is under construction on the west coast in British Columbia, but that LNG will go to markets in Asia.

There is an LNG import terminal on the east coast, at Saint John, New Brunswick, which could be revamped for export.

According to local press reports this week, Spanish energy major Repsol, which owns of the Saint John LNG receiving terminal, is considering such a revamp. A Repsol media official was not immediately available for additional comment on Friday.

There may be an option for Canada to export natural gas via US LNG facilities to Europe, but there are constraints to this because of a lack of pipeline capacity to transport that gas to the US, McMillan added.

As it stands, Germany turned to its ally Canada as an alternative for reliable supply of natural gas to reduce its dependence on Russian supplies. “But Canada failed to deliver,” McMillan said.

Of course, even if Canada was able to deliver LNG, Germany would currently not be able to receive it directly. The LNG would have to be imported through receiving terminals in Belgium or other neighbouring countries.

Germany has no LNG import terminals at all, as its strategy for gas was based on obtaining additional supplies from Russia through the Nord Stream 2 pipeline project.

But that was before Putin’s attack on Ukraine on 24 February.

Meanwhile, Germany has said it would seek to advance the construction of LNG import terminals. It also rejected certification for Nord Stream 2, which was completed last year and ready to start up.

For the time being, the reality is that Russia is unlikely to lose customers for its energy in Europe, McMillan said.

Germany, France and the UK would continue to import the same volume of oil and natural gas from Russia as before the invasion, as they have few other options, he said.

The real vulnerability to Europe was not a boycott of Russian natural gas to sanction Russia’s invasion of Ukraine, but rather that Russia could cut off natural gas to Europe as it retaliates against the EU sanctions, he said.

In oil, one project that could have made a difference was the proposed Energy East pipeline to transport 1.1m bbl/day of oil from western Canada to an export terminal at Saint John, from where it could have been exported to Europe.

The project, first announced in 2013, was cancelled in 2017, amid strong opposition from environmentalists and communities in Quebec province.

There is only little room for Canadian oil to be exported through the US, or for Canada to supply more oil to the US, which could free up some US oil for export to Europe.

As is the case in gas, oil pipeline capacities from Canada to the US remain constrained – especially so after US President Joe Biden revoked the presidential permit for the Keystone XL oil pipeline project from Canada to the US as one of his first acts on assuming office in January 2021.

The 830,000 bbl/day pipeline, which was seen as critical for Alberta’s oil industry, was due to start up in 2023. It could have provided direct access for Canadian oil to US Gulf Coast refining markets.

McMillian said that while Canada’s natural gas and oil industry can play a role in global energy, it is up to the federal government under Trudeau to work with the industry to create the conditions for Canada to play this role, including by taking action to address Canada’s “critical” energy infrastructure challenges.

Canada and others must learn from the Ukraine crisis, he added.

“The industry – and Canadians – need a clear commitment from the federal government to grow Canadian oil and natural gas development and exports. The world and its energy security depend on Canada carving a new way forward,” he said.

Since first coming to power after elections in 2015, Trudeau’s Liberal-led government has prioritised cutting emissions, rather than encouraging further oil and gas production.

This is in sharp contrast with the previous Conservative government under former Prime Minister Stephen Harper, which promoted Canada’s energy sector.

However, while the Trudeau government keeps being criticised in oil-rich Alberta for this environmental focus, it did help the oil industry when in 2018 it bought the Trans Mountain oil pipeline project, which runs from Alberta to an export terminal near Vancouver.

In related news, Germany’s chemical industry trade group VCI warned on Friday that ending deliveries of Russian oil and gas would have “massive impacts” on the country’s chemical industry and its overall industrial production.

Russia meets about 55% of Germany’s gas requirements and 34% of its crude oil needs. In particular for gas there are no short-term alternatives, VCI said.

Germany’s chemical industry uses natural gas as a raw material to produce basic petrochemicals, and to generate electricity and steam. In addition, it needs oil-derived naphtha.

Please visit the ICIS Ukraine topic page

Focus article by Stefan Baumgarten


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