Prime Minister Justin Trudeau cast doubt on the business case for exporting natural gas directly from the East Coast or Quebec to Europe – an assessment he delivered as he welcomed Germany’s Chancellor, who is in Canada seeking alternatives to Russian energy.
He and German leader Olaf Scholz signalled their priority instead is producing cleaner energy such as hydrogen, a technology that does not yet exist on a large scale in Canada.
Mr. Scholz separately announced that two major German auto giants, Volkswagen and Mercedes, are signing agreements with the Canadian government to co-operate on supply chains for electric vehicles.
Mr. Trudeau, who is poised to ink an accord with Mr. Scholz Tuesday on exporting hydrogen to Germany in the future, was asked during a press conference in Montreal why he’s not devoting more attention to sending natural gas to Europe.
Canada is the fifth-largest producer of natural gas in the world.
Germany is engulfed in an energy crisis after Russia dramatically cut deliveries of natural gas to the European power in response to hefty sanctions imposed on Moscow by Berlin and other Western countries for Russian President Vladimir Putin’s military assault on Ukraine. Germany is restarting coal plants and travelling far afield – even to Qatar – seeking natural gas to make up for shortfalls from Russia.
Mr. Trudeau said possible Central Canadian or East Coast locations for plants to convert natural gas to liquified natural gas for shipment are all far from the Alberta oil patch.
“LNG conversion plants are usually placed close to the sources of [natural gas]. And as we look at the possibility of LNG plants on the East Coast, able to ship directly to Germany, we find ourselves a long way from the gas fields in Western Canada.”
Mr. Scholz’s three-day trip to Canada is part of the German government’s efforts to become less dependent on Russian gas and mineral supplies by deepening energy and raw materials partnerships with other countries.
But the German Chancellor’s trip does not include a visit to Calgary, the headquarters of Canada’s energy industry. Instead he’s visiting Montreal, Toronto and a remote location in western Newfoundland where proponents hope to produce hydrogen years in the future.
“There are a number of potential projects, including one in Saint John, and some others, that are on the books, for which there has never been a strong business case because of the distance from the gas fields,” Mr. Trudeau said of East Coast LNG prospects.
He said proponents are now evaluating whether the changed circumstances in Europe – where Germany is facing energy rationing because of the restricted Russian energy flows – “makes it a worthwhile business case” to make investments in East Coast facilities.
Mr. Trudeau said if a business case were found for LNG exports from the East Coast, the Canada government would help ease the regulatory burden facing project proponents.
“From the government’s standpoint, easing the processes because of the difficulty that Germany is facing, to make sure we can move through regulatory hurdles more quickly, is something we are willing to do,” the Prime Minister said.
“But there needs to be a business case. It needs to make sense for Germany to be receiving LNG directly from the East Coast. Those are discussions that are ongoing right now between our ministers, between various companies to see if indeed it makes sense.”
The fastest route for Canadian natural gas to Europe is through existing pipelines through the United States that take the commodity to the LNG facilities on the U.S. Gulf Coast. “Right now our best capacity is to continue to contribute to the global market to displace gas that Europe and Germany can then locate from other sources,” Mr. Trudeau said.
The Prime Minister was asked by a German reporter whether he was ready to deliver natural gas to Germany. Mr. Trudeau did not directly answer the question. “Canada is a major oil and gas producer in the world but because of our commitment to fight climate change, we are working very, very hard to decarbonize and develop other sources of energy that we can rely and we can share with the world.”
Timothy Egan, president and chief executive officer of the Canadian Gas Association, which represents the natural gas delivery industry, said the biggest obstacle to building LNG facilities on the East Coast is regulatory uncertainty. He said investors can’t be sure when or if the federal government will approve necessary pipeline infrastructure to deliver natural gas to an export facility.
“Is there a business case? There’s an incredible business case if the regulatory framework is clear,” Mr. Egan said. “Are the environmental approval processes going to be fast enough and clear enough? How is it that this can happen so quickly in the United States and it can’t happen as quickly in Canada.”
Separately, Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said the VW and Mercedes agreements that are being signed with Canada reflect the benefits of a deal struck in the U.S. Congress on tax incentives for electric vehicles. To qualify for the maximum tax credits in the recently-passed climate legislation, an electric car’s battery will need to contain North American components and the percentage threshold will increase over time to 100 per cent in 2028.
Mr. Volpe said this makes Canada’s nascent electric-vehicle component industry more attractive for automotive industry investors.
Mr. Trudeau said Canada and Germany would talk about business opportunities in automotive sector and the critical minerals industry during Mr. Scholz’s visit.
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