- The Energy Mix - https://www.theenergymix.com -

BREAKING: No Public Finance for East Coast LNG Projects, Wilkinson Says

This is a developing story.

There will be no federal financing for two companies vying to export Canadian liquefied natural gas (LNG) to Europe from terminals on the East Coast, Natural Resources Minister Jonathan Wilkinson said in a recent interview with the Globe and Mail.

Wilkinson said Ottawa “is aiding in discussions between Canadian [fossil] energy companies and prospective German buyers of LNG,” the Globe reported Monday morning. “But he added that the two energy proposals will have to stand on their own merits and go through Canadian regulatory reviews to ensure they meet this country’s climate goals.”

And while Ottawa is “certainly willing to assist in the conversations with our friends in Germany who are looking for these kinds of supplies to ensure that there are long-term arrangements,” Wilkinson told the Globe, those projects will have to get off the ground with private financing.

“Our view is the private sector should be putting up the money for these projects, and it should be done on a commercial basis,” he said. It will also be up to the two companies, Calgary-based Pieridae Energy or Madrid-based Repsol SA, to navigate the complexities of lining up pipeline capacity from Western Canada.

“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.”

For weeks, analysts and observers contacted by The Energy Mix have been warning that that business case will fall apart on the disconnect between a customer, Germany, that has committed to a 2045 net-zero target and fossil companies that will need a minimum 20-year project lifespan to attract private investors. The open question, until now, has been the federal government’s appetite to subsidize the project—as it did when it bought the Trans Mountain pipeline in 2018.

Now Wilkinson appears to have answered that question, just as Finance Minister Chrystia Freeland did with her February, 2022, assurance there would be “no additional public money” for Trans Mountain. Less than three months later, news broke that Ottawa had approved a C$10-billion loan guarantee for the banks backing the controversial pipeline—a move that could indeed become a lavish public bailout if and when Trans Mountain is declared a stranded asset.

In his latest interview, Wilkinson distinguished between the two projects.

“Trans Mountain wasn’t intended to be a subsidy,” he told the Globe. “Trans Mountain was because there was a lot of risk in the project and the proponent decided that they simply weren’t willing to take that kind of political risk.”

With the two East Coast LNG proposals, “we’re willing to try to help with the regulatory process,” he added. “We’re willing to help with the counterparty in Germany or elsewhere in Europe. But our view is that the private sector should put up the capital.”

Wilkinson’s office has not yet fully responded to a request for comment Monday morning on whether the promise of no federal financing would rule out a Trans Mountain-style loan guarantee, or adjacent funding to one of the two companies, Pieridae or Repsol, that would give them the cash flow to “fund” the project on their own. We’ll update this story when they reply.

EARLIER Monday morning, The Energy Mix reported that the Trudeau government’s enthusiasm for promoting liquefied natural gas (LNG) exports to Europe was running into new headwinds, with Germany still committed to a rapid fossil fuel phaseout, a growing chorus of experts questioning the practicalities behind the promise, and a new opinion poll showing majority public support for factoring climate impacts into the decision.

On the sidelines of last week’s G7 summit in Bavaria, Chancellor Olaf Scholz and Prime Minister Justin Trudeau talked about how to accelerate Canadian gas exports to help Germany replace Russian supplies that still account for one-third of its gas imports, down from half before Russia’s invasion of Ukraine, Bloomberg reports. “Lower Russian gas flows are leaving Germany in a dangerous situation,” Maeva Cousin, a euro-area economist at Bloomberg Economics, wrote in a note last Monday.

But with Scholz’s planned visit to Canada in August suggesting a possible fast timeline for an import/export deal, public opinion and practical details are complicating the picture.

“More Canadians oppose a new East Coast gas export facility due to climate concerns, and Canadians are divided on whether such a facility would be helpful or pointless to address Europe’s energy crisis,” Sierra Club Canada Foundation and the Council of Canadians reported last Thursday, citing a poll they’d commissioned from Abacus Data.

The poll found that:

• 51% of Canadians believe climate impacts should be a factor in deciding whether or not to approve a new gas export facility, while 25% do not.

• 39% said Canada should reject a new East Coast export terminal over climate concerns and work to wind down fossil fuels, compared to 28% who disagreed.

• 53% nationally and 60% in Atlantic Canada are frustrated that Ottawa has yet to keep its 2015 promise to phase out fossil fuel subsidies.

“Canadians aren’t being fooled by the gas industry’s attempts to profiteer and push its climate-damaging product,” said Sierra Club National Programs Director Gretchen Fitzgerald. “Instead of pushing for gas expansion, Canada should be ramping up renewable energy to protect consumers’ wallets, future-proof our economy, and protect our climate.”

“Poll after poll shows Canadians care deeply about our climate and a just transition, so why does the federal government continue to subsidize and champion the fossil fuel industry?” asked Council of Canadians Director of Organizing Angela Giles. “Experts are telling us that new Canadian LNG export facilities won’t help Europe’s short-term energy crisis,” and climate action “means rejecting new LNG projects that will lock us into 30-plus more years of fossil fuels that wreck our climate.”

Expert opinion is coalescing around Giles’ point that a new LNG terminal won’t help Germany or other European countries weather the immediate energy supply crisis they face.

“Opening a new LNG export facility in five years would be irrelevant to the current energy crisis in Europe,” said Brian O’Callaghan, lead researcher and project manager at the UK’s Oxford Economic Recovery Project, in a quote sheet accompanying the Sierra Club/Council of Canadians release. “Building a new LNG export facility in Canada sounds like an enormous stranded asset in the making. We need to wean ourselves off oil and gas, not entrench it.”

The continent’s need for LNG imports “is only temporary while Europe is working to reduce its gas demand by investing in heat pumps, renewables, and energy-saving solutions,” so that “Europe’s gas demand will sharply decline before [an export terminal] will even be operational,” said Dr. Claudia Kemfert, head of energy, transportation and environment at the German Institute for Economic Research in Berlin.

“Germany can cover its short-term LNG demand with floating terminals and thus avoid new fossil fuel dependencies that would contradict our goal of net-zero emissions by 2045,” she added, so “investing in new fixed LNG infrastructure would be a mistake for investors on both sides of the Atlantic.”

“As a consequence of the Russian energy crisis we are witnessing a global ‘gold rush for new fossil gas production, pipelines, and LNG facilities,” said climate scientist and NewClimate Institute co-founder Dr. Niklas Höhne. “While it is true that Germany immediately needs to wean itself off Russian energy, additional export capacities would come too late to meet its energy demand. European gas demand is expected to decline in the 2020s because the EU is working to ramp up renewables and energy efficiency. Any plans for Canada to build new LNG export facilities and related pipelines would take longer than the few years when Europe’s gas demand is expected to drop.”

In an interview with The Mix in May, Gerhard Schlaudraff, deputy head of mission at the German embassy in Ottawa, said his country was moving swiftly to get new LNG import capacity online. But the government was 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 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 in May.

While “everyone in the world is now unearthing LNG projects that have been shelved for one or another reason,” he added, “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.”

During last week’s G7 summit, with climate hawks concerned that the world’s wealthiest countries were prioritizing the response to Russia’s war over their climate commitments, the embassy said Germany’s long-term goals were unchanged.

“With a view to accelerating the phaseout of our dependency on Russian energy, we stress the important role increased deliveries of LNG can play, and acknowledge that investment in this sector is necessary in response to the current crisis,” a spokesperson told The Mix in an email.

“In these exceptional circumstances, publicly supported investment in the gas sector can be appropriate as a temporary response, subject to clearly defined national circumstances, and if implemented in a manner consistent with our climate objectives and without creating lock-in effects, for example by ensuring that projects are integrated into national strategies for the development of low-carbon and renewable hydrogen.”

In mid-May, the embassy’s Gerhard 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.”

In late May, Natural Resources Minister Jonathan Wilkinson said the Canaport LNG import terminal in St. John, New Brunswick could be converted to an export facility in as little as three years if its owner, Madrid-based Repsol SA, decided to take on the work. Last week, Environment and Climate Minister Steven Guilbeault name-checked Repsol as the quickest way to deliver Canadian gas to Europe, even though “we’re still talking about some years” before exports could begin.

But last week, geologist and sustainability consultant J. David Hughes told the Toronto Star that Canadian LNG exports won’t make sense for the continent. “Europe is in big trouble. There’s no doubt about that,” he said. “But you don’t do projects like this for the short term. They’re 40-year projects and they require a lot of money.”

Hughes said exports from the Repsol facility would also deprive Atlantic Canada of gas it currently depends on.

“The Maritimes is almost entirely reliant on natural gas imported from the U.S., as well as liquefied natural gas delivered to the LNG import terminal in Saint John,” he told the Star. “If the Saint John LNG was shut down and converted for export, the only source of gas would be to increase imports from the U.S. to meet the Maritimes’ needs.”