THE GEOPOLITICAL AND ENVIRONMENTAL CASE FOR CANADIAN LNG

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Energy security is an integral component of national security. Some lucky countries, like Canada, can rely on locally sourced supplies, which are often cheaper and cleaner than energy imported from abroad. Unlike us, however, most of our allies in Asia and Europe are not energy independent — far from it.

 

Canada is unique, as most of our electricity already comes from renewable energy sources. Completing the transition is both a worthy objective, and an achievable one. Yet for most of the world, including our allies, the idea of abandoning fossil fuels any time soon is little more than a pipe dream.

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Some countries suffer from supply constraints, others from a lack of infrastructure. More are influenced by the economic fact that fossil fuels like coal are both affordable and abundant. Even Canada, co-founder of the Powering Past Coal Alliance, nearly doubled its coal exports between 2015, when the Liberals were elected, and 2023.

 

This highlights the need for transition fuels that strike a balance between coal’s accessibility and affordability, and the sustainability of renewables. Nuclear power is one option. Liquefied natural gas (LNG) is another. While not renewable or sustainable, LNG has the lowest environmental impact of all fossil fuels. Unlike coal, it doesn’t emit soot or dust. LNG also produces far less carbon dioxide than coal.

 

Canada is home to 10 per cent of the world’s proven oil reserves and at least one per cent of the global gas supply. Yet our allies in Asia and Europe are still stuck buying fossil fuels from dictatorships.

 

Japan, for instance, couldn’t meet its own energy needs even if it wanted to. Tokyo imports a whopping 95 per cent of its oil from the Middle East. Japan is also the world’s second-largest importer of LNG after China. Despite sanctions related to Moscow’s illegal and unjustified invasion of Ukraine, Russia still accounts for nine per cent of Tokyo’s natural gas imports.

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South Korea, another liberal democracy, relies on energy imports to meet 98 per cent of its fossil fuel consumption. These generate roughly two-thirds of the country’s electricity. Like Japan, South Korea still imports naphtha (23 per cent), coal (17 per cent), petroleum (six per cent) and natural gas (five per cent) from Russia.

 

During his visit to Canada in September 2022, South Korean President Yoon Suk Yeol said that his country was “keenly interested” in acquiring Canadian LNG. Fumio Kishida, the prime minister of Japan, echoed the same sentiment when he visited in January 2023. Luckily, LNG Canada’s export facility in Kitimat, B.C. — the first of several on the West Coast — is expected to begin operations in 2025.

 

Europe’s energy dependence also has room for improvement. In 2022, the European Union imported 62.5 per cent of its energy from abroad. Apart from Iceland and Norway, which are members of NATO but not the EU, only Sweden generates more than 50 per cent of its energy from renewable sources. Unfortunately, much of the continent still depends on fossil fuels imported from whoever is willing to supply them.

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As Europe experiences withdrawal symptoms from its addiction to cheap Russian fossil fuels, other authoritarian regimes are filling the vacuum left by Moscow. Algeria, for example, is now the second-biggest exporter of pipeline gas to Europe after Norway.

 

Rest assured that this remains a transactional relationship. Algeria’s ties with Europe, and the West’s major non-NATO ally Morocco, are fraught with tensions. Meanwhile, Algiers is on excellent terms with Tehran and Moscow.

 

Azerbaijan is also filling the void left by Russia. In 2021, it exported roughly eight-billion cubic metres of gas to Europe through the Southern Gas Corridor that connects gas fields in the Caspian Sea to Italy, through Georgia, Turkey and Greece. That figure ballooned to 12-billion cubic metres in 2023, and is expected to nearly double by 2027.

 

Despite differences between pipeline gas and LNG, there are few compelling reasons why Ottawa isn’t competing with Algeria and Azerbaijan — let alone Qatar and Russia — to export energy to our allies in Europe.

 

In August 2022, German Chancellor Olaf Scholz stated that Canada was Germany’s “partner of choice,” as it looked to wean itself off Russian gas. Prime Minister Justin Trudeau told him that there wasn’t a strong business case for exporting Canadian LNG to Europe, so Berlin struck a 15-year deal with Qatar instead.

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To call this a missed opportunity for Canada is an understatement. Yet Trudeau was not completely wrong, either. The lack of pipelines connecting gas fields to the East Coast is a challenge. The absence of export terminals in Eastern Canada is another.

 

Only one project, based in Newfoundland, has been proposed. If and when the Placentia Bay LNG facility applies for an export license, it will be hampered by Canada’s regulatory process, which operates at a snail-like pace, taking an average of 19 months longer than in the United States.

 

Yet none of these obstacles are insurmountable. Our allies in Europe and Asia are clearly intrigued by Canadian LNG. Like the leaders of Germany, South Korea and Japan before him, Greek Prime Minister Kyriakos Mitsotakis also stated that Athens was interested in purchasing Canadian LNG during his visit to Canada last month. That shouldn’t come as a surprise, as global demand for the commodity is estimated to grow by 50 per cent by 2040.

 

Investing in this type of project would print money for Canada and create high-paying jobs for Canadians, while helping our allies transition from coal and oil to LNG. If done properly, the supply we produce could be bought and paid for long before the project is completed. On March 31, however, Natural Resources Minister Jonathan Wilkinson stated that the federal government was “not interested” in investing in future LNG projects.

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This is both counter-intuitive and, dare I say, inconsistent with the federal government’s track record. The Liberals have no problem granting subsidies and tax credits, including to foreign companies. Consider, for instance, the $28.2 billion that taxpayers are shelling out to subsidize two electric vehicle battery plants that Stellantis and Volkswagen are building in Ontario.

 

It will take roughly 20 years for Canadians to break even on those investments. The decision to commit $7.3 billion to Swedish battery startup Northvolt — a more speculative and controversial investment — might make even less business sense.

 

I concede that putting all our eggs in the battery basket is a high-risk play that might pay off in a major way. As it stands, however, $7.3 billion divided by the 3,000 jobs Northvolt intends to create in Quebec equals roughly $2.4 million in subsidies per job. That investment has a long way to go before it generates revenues, let alone profits. Only time will tell whether Canadians could’ve gotten a better bang for their buck elsewhere.

 

Two years ago, Deputy Prime Minister Chrystia Freeland famously emphasized the importance of “friend-shoring.” This means doubling down on our relationships with liberal democracies. She is right. Canadian taxpayers have already committed billions to secure their spot in the North American battery supply chain. Now let’s make Canada geopolitically relevant by helping our allies break the bonds that bind them to dictatorships.

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Originally published by National Post on April 12, 2024.