The Trudeau government is talking up prospects for a new gas export deal to Germany involving a project that has already been proposed and withdrawn, a gas field in the Alberta foothills that has drawn scrutiny from provincial regulators, a financing scheme that will likely need federal backing to succeed, a route that may need U.S. regulatory approval, and a timeline that will likely be cut short by Europe’s rapid decarbonization plans, The Energy Mix has learned.
The Goldboro liquefied natural gas (LNG) terminal in Nova Scotia was essentially a dead issue last summer, after Calgary-based Pieridae Energy Ltd. missed a June 30 deadline to decide whether the troubled project would go ahead. Explaining that “cost pressures and time constraints due to COVID-19 have made building the current version of the LNG Project impractical,” a July 2 Pieridae release said the company would “assess options and analyse strategic alternatives” for the project.
Pieridae did not say in as many words that it was abandoning Goldboro, after failing to tie down a C$925-million federal subsidy to make the project viable. But The Energy Mix reported at the time that phones at the company’s Halifax office had been disconnected and the office itself appeared to be abandoned on the day of the release.
Weeks later, Energy NL, the 460-member association representing the fossil service and supply sector in Newfoundland and Labrador, republished an industry news report suggesting Pieridae’s days were numbered, and that company might soon be sold or merged.
“The company’s stock, listed in Toronto, was trading at C$0.34 (US$0.27) at close of play on Friday [July 24], close to its all-time low and a world away from its mid-2011 peak of almost C$24,” stated the report from the Upstream e-newsletter. “Pieridae has been trying to make the two-train Goldboro LNG project in Nova Scotia fly since 2012, but earlier this month admitted defeat due to cost, schedule, and partnering issues, saying that it could not satisfy the conditions to take the final investment decision.”
Pieridae stock was trading at C$1.02 late Sunday as The Mix went to virtual press, down from a 52-week high of $1.06 three days earlier.
While Russia’s brutal war in Ukraine is triggering short-term interest in getting LNG to Europe from any available source, and Canada is the world’s sixth-largest gas producer, getting Western gas across the Atlantic via an East Coast export terminal isn’t as easy as its proponents might like it to sound.
“Entering the LNG export game requires deep pockets and a strong mindset for placing risky bets on terminals that typically take at least five years to construct—assuming builders already have their pipeline route plans firmed up,” the Globe and Mail reported earlier this month. “There is also greater blowback to contend with. Opposition to pipelines and terminals from environmentalists and key Indigenous leaders has mounted.”
“These companies realize that because of a lack of infrastructure, it’s very difficult to do these projects,” Omar Mawji, a Toronto-based analyst with the Institute for Energy Economics and Financial Analysis, told the Globe. “The honest truth is that if I’m a company and I want to build a pipeline, that is something I have to factor into my analysis.”
And Now a Word from the Cabinet
But the Goldboro project appeared to be back into contention in early May, when Natural Resources Minister Jonathan Wilkinson said the government was in discussions with two companies, Pieridae and Repsol S.A., “to see how it can speed up the projects and help boost supply to Europe,” Reuters reported.
“We are looking at Goldboro and Repsol’s projects and discussing these with the proponents and with German and European counterparts,” Wilkinson told the news agency. “We are looking at whether there are things we can do to expedite one or more of the projects in a manner that’s consistent with environmental considerations and a long-term transition to a lower-carbon future.”
The projects would “almost certainly” have to be powered by clean electricity rather than fossil gas to receive federal assent, and would eventually have to pivot to export green hydrogen, Wilkinson said. He added that the $14-billion Énergie Saguenay LNG, with its 37 million tonnes of emissions per year, would not be brought back to life after it was rejected by federal and provincial governments.
In an interview from Kyiv two days later, Prime Minister Justin Trudeau said Canada “wants to be a good energy partner to Europe but will not abandon its climate goals and planned transition to cleaner fuels,” Reuters writes.
“We’re looking to be good partners on energy with our European friends but we’re never slowing down in our fight against climate change,” the PM said. “Part of that is recognizing that the same infrastructure that can be used for LNG can also be used for hydrogen and ammonia that are possibly going to fuel the transition off of fossil fuels.”
Wilkinson said it will be up to any would-be LNG developer to show that it can deliver on Europe’s short-term needs without slowing down the shift off carbon.
“Canada is committed to exploring options to enhance the energy security of our allies, however, our expectation is that projects must fit within the context of our existing domestic and international climate commitments,” the Minister told The Mix in an email. “This means that LNG projects will have to meet best-in-class performance standards for emissions intensity, leveraging production techniques like electric drive technology for liquefaction processes, powering facilities with clean electricity, deploying carbon removal technologies where necessary, and future-proofing investments with low-carbon hydrogen enabled infrastructure to meet Europe’s request for additional sources of clean energy.”
He added that project proponents “should build ‘energy transition’ considerations into project design, such as plans to add hydrogen production and export capacity to meet growing hydrogen demand,” and “will need to demonstrate that exports from these facilities will be used to displace higher-emitting energy sources like coal [or] unabated natural gas, resulting in no net-new global emissions from their consumption.”
Gerhard Schlaudraff, deputy head of mission at the German embassy in Ottawa, said the process to get a new project approved “could go pretty quickly. If you consider that Germany is now planning to build LNG import terminals and wants to have them ready within a year, you can imagine that things are dealt with pretty quickly in Germany.”
But the government is also taking its cue from a landmark decision in April, 2021, in which Germany’s Constitutional Court declared that the country’s 2030 emission reduction targets were insufficient, lacking in detail, and therefore violated the fundamental rights of citizens—including the nine youth climate campaigners who originally launched the case. A week later, then-finance minister Olaf Scholz announced a 65% emissions reduction target for 2030 and a 2045 deadline for net-zero.
“If the typical offtake agreement in the LNG business is 20 years, and we want to be out of gas in 2045, there is not so much time for any of these projects to come online unless you find some other creative solution,” Schlaudraff told The Mix. “So time is of the essence, and projects that will take a long time to come online are not high on our priority list.”
Canadian Innovation and Industry Minister François-Philippe Champagne took a complementary tack last Thursday, during a 20-minute media availability from Germany with Economic Affairs and Climate Protection Minister Robert Habeck. Answering questions focused on energy security, Champagne focused his remarks on batteries, super-conductors, and the critical minerals needed to drive the transition off fossil fuels.
“People like to trade with people who share the same values and the same vision,” Champagne said, and in discussions with Germany, it’s “obvious that the vision of a green future is there.” He said he had invited Habeck to Canada for further discussions this summer “because time is of the essence and we need to be working together.”
More Than ‘Hugs and Prayers’
That timeline fits nicely with Pieridae’s latest plan to get a scaled-back version of its Goldboro terminal back on the rails. CEO Alfred Sorensen, who’d previously called the project “impractical” and vowed to take his company in “a new direction”, said the war in Ukraine changed everything.
“The government’s desire to be seen to be helpful in solving the situation with European gas and the conflict with Russia has kind of changed the entire dynamic,” Sorensen said in a phone interview May 12. The need to expand the existing TC Energy gas pipeline was the first of three issues to be addressed, he said, but “I think the government is showing some interest in solving that.”
Pieridae would also be looking for an Indigenous partner for the project, after seeing that “where Indigenous people are consulted on pipelines, they tend to go much better,” he said. The company would also seek a regulatory exception from the carbon cap-and-trade market in Nova Scotia and ask the province to apply the federal floor price on carbon instead.
“The project has been construction-ready for a long time,” Sorensen said. “So if we had some early decisions by governments on those three, we would probably be able to move within the next 90 days.”
In a separate interview days earlier, he said the company would also need “a new engineering, procurement, construction and commissioning partner” for the project, CBC reports.
As for the generous federal subsidy Pieridae was looking for last summer, Sorensen said the company is now pitching a project that is only one-third to one-quarter the size, at 400 million rather than 1.5 billion cubic feet of gas per day, and there would be no direct demand for government dollars.
“A little bit depends on how we go about solving all these issues,” he told The Mix. “I would say that, more than likely, direct support is probably not going to happen, but there may be indirect support that allows First Nations to participate” in the project.
But Sorensen told a different story days earlier, saying he would be looking for “hopefully more than prayers and hugs” in Ottawa’s backing for the deal.
“I think it is going to be a combination of regulatory and financial support,” he told CBC. “There’s no doubt about that.”
Apples and Oranges
Sorensen may have been right that it would take more than hugs and prayers to bring Goldboro back to life. The challenge shows up in the difference between the two companies, Pieridae and Repsol, that Wilkinson mentioned in his interview with Reuters earlier this month.
Madrid-based Repsol, a multinational fossil that headlines itself as “a company with financial strength,” reported net income of €1.392 billion for the first three months of the year, including €731 million for “high-profitability projects” in oil and gas exploration and production and €117 million in its commercial and renewable energy business. Pieridae reported [pdf] net losses of C$71.5 million in 2019, $100.7 million in 2020, and $39.8 million in 2021, despite surging oil and gas prices over the last year.
“We had a huge strengthening of commodity prices that allowed us to start delivering better results operationally, that could put us in a position to be more successful as a standalone entity,” Board Chair Myron Tétreault said in the company’s annual report.
Eoin Finn, a retired partner with KPMG, one of the Big Four global accounting firms, had a less optimistic view of Pieridae’s prospects.
“How does a company that’s lost money for the last three years, without two cents to rub together, come up with the idea that they’re going to spearhead an LNG facility in Goldboro with a pipeline that will only get them as far as the Ontario border?” Finn asked.
“You have to have 70% or more of your production over your [project] lifetime of 25 or so years guaranteed before a bank will look at you to build an LNG facility,” he added. “And while Germany is definitely in need of LNG other than what’s coming by pipeline from Russia, I doubt they would look at a greenfield project from someone who’s never built or operated an LNG facility in Canada,” requiring pipelines running half-way across the continent.
Finn and Michael Sawyer, executive director of the Citizens’ Oil and Gas Council, both questioned whether Pieridae has a firm contract to sell gas to Germany utility Uniper, and whether the Canadian supplier would be able to uphold Germany’s pre-invasion ban on any LNG projects that involved gas produced by hydraulic fracturing, or fracking. Sorensen said Pieridae is currently focusing on addressing pipeline transportation issues in Canada, in the hope that it can “go back to the Germans sometime in the next 90 days” to sort out details of an export agreement.
Meanwhile Uniper and its Finnish parent company, Fortum, have their own problems, the Institute for Energy Economics and Financial Analysis reported last week, after the war upended a business strategy built on continued European dependence on cheap Russian gas.
Aging Gas Fields Face Local Opposition
Another facet of the Pieridae story has revolved around the aging gas fields in the Alberta foothills southwest of Cochrane that the company has been trying to acquire from Shell Canada, with which it says it would be able to supply the Goldboro plant. Sawyer said local landowners are concerned that Shell is trying to offload the fields toward the end of their working life to clean up its own carbon footprint while avoiding the cost of environmental remediation.
Shell’s agenda “was to unload a lot of assets where there were enormous environmental liabilities that were near or approaching the end of their economic life, and the goal would be to sell those to other companies so Shell wouldn’t be stuck with the cleanup costs,” he said. After Alberta landowners pushed back and the AER turned down their first proposal, the two companies tried again—but then withdrew their application “because Pieridae did not have the financial and experiential background to actually stand up to public scrutiny.”
If Sawyer’s read on the Shell-Pieridae relationship is right, the practice isn’t uncommon. Parent company Royal Dutch Shell carried off the same manoeuvre in Nigeria last year, the New York Times reports.
“Around the world, many of the largest energy companies are expected to sell off more than US$100 billion of oil fields and other polluting assets in an effort to cut their emissions and make progress toward their corporate climate goals,” climate specialist Hiroko Tabuchi wrote last week. “However, they frequently sell to buyers that disclose little about their operations, have made few or no pledges to combat climate change, and are committed to ramping up fossil fuel production.”
“You can move your assets to another company, and move the emissions off your own books, but that doesn’t equal any positive impact on the planet if it’s done without any safeguards in place,” Andrew Baxter, head of the energy transition team at the U.S. Environmental Defense Fund, told the Times.
An EDF report last week “showed that, of 3,000 oil and gas deals made between 2017 and 2021, more than twice as many involved assets moving from operators with net-zero commitments to those that didn’t, than the reverse,” Tabuchi writes. “That is raising concerns that the assets will continue to pollute, perhaps even at a greater rate, but away from the public eye.”
Back in Alberta, “local landowners have legitimate concerns about safety and Pieridae’s ability to manage the resources in the same way Shell would have,” Sawyer told The Mix. “It’s the difference between a large multinational with very deep pockets and a rinky-dink little company that’s having difficulty staying afloat.”
But the Foothills assets were the key to Pieridae’s ability to offer non-fracked gas to Uniper in Germany, and to close the deal, Finn said the company had to borrow $206 million two years ago at the “eye-popping” interest rate of 15%.
“With Europe shutting down its need for gas in 15 years, there’s no way that Pieridae on a greenfield basis could build and operate a profitable plant,” he said. “I don’t see it. Nobody in the industry does. There’s no way you could walk in to a banker and get them to fund your LNG plant with at most a 15-year deal—[it would be] ‘bye, out the door’. They’d have to depend on renewables deals failing and hydrogen never having a life to begin with, and those are two very big ifs,” before even factoring in the 15% interest rate on Pieridae’s loan.
Russia’s War Speeds the Transition
As Vladimir Putin’s war in Ukraine grinds on, Europe’s need for energy security is urgent. Last week, Germany’s Habeck accused Russia of using fossil energy as a weapon, while affirming that it can survive the winter if Putin cuts off supplies. Alongside a big push on efficiency and renewables—at one point Habeck urged the population to “annoy Putin” by using less energy—Germany is expanding drilling in the North Sea and looking to open its own import terminals for LNG by 2024.
“Just so you appreciate the scale of the issue, Germany is now importing 150 billion cubic metres of gas from Russia yearly,” said the German embassy’s Gerhard Schlaudraff. “We want to get out of that quickly. But we don’t just want to substitute it with gas or LNG. We want to use less energy, be more energy-efficient, and secondly we want to speed the uptake of renewables, including imports of hydrogen…then thirdly, we have to look for sources of gas.”
While “everyone in the world is now unearthing LNG projects that have been shelved for one or another reason,” he said, “by no means do we want to slow down the energy transition. Absolutely not. And we don’t want to give a pretext to anyone to think that now is not the time for the transition.”
And while there’s some concern that an openness to fossil gas-derived “blue” hydrogen would make it harder for the EU to wean itself from Russian gas, Schlaudraff was categorical about the form of hydrogen Germany is looking for.
“When we say hydrogen, we mean ‘green’ hydrogen,” he said. “The Canadian side, for very good reason, prefers to talk about ‘clean’ hydrogen. The situation in Canada is different, and we appreciate that. But the German funding instruments for the hydrogen economy are all geared toward green hydrogen,” and “if you look at the opportunities for Canada to export hydrogen to Europe, it is simply green hydrogen made from water and electrolysis, because of the huge potential of renewables in Canada.”
The collision between the 15 to 20 years Sorensen says he would need for a viable project and Germany’s timeline to net-zero is “not a point of contention,” Schlaudraff added, “just a factor in the equation” for any investors who might be thinking of jumping onboard.
With Germany looking for fast solutions to its Russian gas problem, Pieridae’s Alfred Sorensen hoping to clear a path for his project in 90 days, and Innovation Minister Champagne inviting his German counterpart Robert Habeck for a summer visit to Canada, the elements may be lining up for a quick attempt to finalize Canadian LNG exports to Europe.
But Sawyer of the Citizens’ Oil and Gas Council says the logistics for the Goldboro project are even more complicated than Sorensen acknowledges—before factoring in the regulatory delays, legal challenges, and determined community opposition the project can expect at every step along the way.
“These things are going to get them bogged down,” he said, regardless of whether Pieridae tries to ship gas from western Canada or the Marcellus shale fields in the northeastern United States. Sorensen projected a two- to three-year construction timeline for a pipeline that would run less than 75 kilometres. But Sawyer said Alberta foothills landowners are already extremely nervous about environmental health impacts from pipeline operations, while a pipeline from the U.S. would require federal regulatory approval to reverse the flow of an existing line.
“It doesn’t matter which option they choose,” he said. “They’re going to face very significant opposition from the public who reside along those routes. And then, in all the new federal legislation, there is now a requirement to consider climate change implications of the decision. So it brings up the whole question of whether it would actually be possible to meet Canada’s commitments to reduce greenhouse gas emissions if Pieridae went ahead. And the answer is no, it would not be possible.”
Schlaudraff, meanwhile, said Germany needs to “become better at showing Canadians that the uptake of green energy is real and imminent. We have an expected need for green hydrogen in Germany of 100 terawatt-hours in 2030 and we will probably only be able to produce half of that ourselves,” so “Canada has a huge opportunity it should seize.”
It’s “not a coincidence that the first Atlantic flight ever was from Newfoundland,” he added. “It’s not a coincidence that the first trans-Atlantic cable ever started in Newfoundland. It’s a shorter distance from Newfoundland to Hamburg than from the Suez Canal if you should ship. Today, Europe is not a big energy client for Canada. But in the net-zero world, that can change.”