What has Canada got to offer Germany?

Public Policy Forum urges Canada to seize LNG, hydrogen export opportunity

The LNG Canada plant in Kitimat, under construction, is the only large LNG plant in Canada moving ahead. The U.S. has eight LNG export terminals and three more under construction. | LNG Canada

When German Chancellor Olaf Scholz arrives in Canada Sunday to discuss energy security with Prime Minister Justin Trudeau, liquefied natural gas (LNG) and hydrogen are expected to be high on  the agenda.

Canada has neither to offer Germany right now. But it may be able to offer some medium-term help by mid-decade. Demand for LNG from North America is expected to be very strong still, since Europe seems to have no choice now but to permanently wean itself off of Russian gas..

By then, the first major LNG plant – LNG Canada – should be in operation, though the LNG it produces will likely all be secured by Asian buyers, not European.

There may even be some green or blue hydrogen being produced by then.

The Public Policy Forum (PPF) is hoping both Scholz and Canadian citizens and policymakers will pay attention to a new report it produced that argues Canada could, and should, seize the opportunity to secure its place as the preferred provider of some of the cleanest natural gas on the planet.

“Canada is well positioned in terms of location, reliability, and its low-carbon gas to become a major supplier of LNG as global demand continues to rise,” said PPF president Edward Greenspon, co-author of the report A Leadership Blueprint for Canada’s High-ESG Gas.

“Gas offers us an opening to make the sort of disproportionate contribution to our allies and the global good that Canadians have always craved.”

And since hydrogen can be produced from natural gas, a hydrogen export industry could develop alongside an LNG industry.

“Canada enjoys some built-in strengths,” said Kim Henderson, co-author of the report. “Now we need to leapfrog our competitors with an action-oriented plan that moves us at pace and puts us ahead on the hydrogen curve.”

The report was the result of a summit held in March that gathered input from the Canadian oil and gas industry, First Nations leaders, Premier John Horgan, Natural Resources Minister Jonathan Wilkinson, the International Energy Agency, the Pembina Institute, and sustainable energy economist Mark Jaccard, among others.

Canada has an abundance of natural gas, and its export could result in some major GHG reductions in places like Europe and Asia, if it displaced coal power or even natural gas produced elsewhere.

But provincial and federal governments have been reluctant to fully exploit its export potential because of the challenge that would pose to their own climate action plans to reduce emissions.

That’s the conundrum Canada faces: producing and exporting LNG could decrease emissions elsewhere, but raise them in Canada.

“While developing Canadian gas would put upward pressure on our own national climate targets, it could also contribute to lowering global emissions,” the report notes.

“Do Canadians vacate the field for the sake of their own internal scorecard, even if it means leaving the market to low-ESG performing competitors and condemning the world to even higher emissions?”

An energy crisis in Europe – worsened by the war in Ukraine – has forced European policymakers to rethink their energy policies, with an eye to greater energy security – natural gas being an important component.

And it has prompted a worrisome “comeback” of coal. In 2021, the trend of reduced use of coal to produce power suddenly reversed, with an 18% increase in coal use for power.

“Among other things, the winter of 2022 will be remembered for stacking an energy crisis onto the climate crisis,” the PPF report states.

Facing serious energy shortages, European countries are now scrambling to find alternatives to Russian natural gas, including resuming natural gas exploration in the North Sea, building new LNG import facilities, restarting closed coal plants, rethinking plans to shutter nuclear power plants, and considering energy rationing.

Canada could have been in a position to help, had it not allowed itself to be beaten to the punch by the U.S. in the race to develop an LNG export industry and secure market share.

In just six years, the PPF report notes, the U.S. went from exporting zero LNG to being the world’s largest exporter. The U.S. began producing LNG in 2016, and now has eight LNG export terminals in operation, and three under construction.

Canada has one major LNG export terminal under construction, one smaller one soon to start construction, and a boneyard filled with cancelled LNG projects.

While Asia was viewed as the biggest potential market for Canadian LNG exports, Europe has suddenly opened up a potential new market, especially for any LNG export terminals built on the east coast of Canada.

One clear advantage Canada has is that its natural gas and LNG would be some of the cleanest in the world in terms of its emissions intensity.

“Canadians might be surprised to learn that our natural gas is among the cleanest in the world in terms of carbon content,” the report notes.

In LNG proposals in Washington, regulators there have insisted that the natural gas come from B.C. because of its low emissions intensity.

A study last year by St. Francis Xavier University that examined methane emissions from oil and gas production found methane emissions from gas wells in Montney formation of B.C. were “amongst the lowest in North America.”

B.C. natural gas has relatively low methane emissions due to regulations and best practices, like green completions and restrictions on flaring. And a number of natural gas processing plants have been electrified in B.C., using B.C.’s clean hydro power, with more plants planned to be electrified.

So Canadian natural gas would not only produce significantly lower emissions when displacing coal, it would could also produce lower emissions than natural gas sourced from other parts of the world.

Environmental groups like the Institute for Energy Economics and Financial Analysis (IEEFA) argue that investing in LNG projects – which cost tens of billions of dollars to build -- could lead to billions in stranded assets, as the world eventually weans itself from fossil fuels.

“Most global energy scenarios forecast a significant reduction in fossil fuel use by 2050,” the PPF report acknowledges. “The exception is natural gas, where demand is expected to increase until about 2040 before it begins a gradual decline.

“While some worry that the expansion of gas could result in stranded assets, the International Energy Agency forecast in its 2021 World Energy Outlook that global gas demand in 2050 will be approximately 30 per cent higher than it was in 2020.””

“The time to act is now, as Canada’s energy is in demand – not just natural gas, but hydrogen, which can be produced with natural gas, and is considered key to addressing the climate crisis. Germany, Japan and other countries are already speaking to Canada about our plans for hydrogen."