Canada’s LNG infrastructure cannot be expanded in time
The EU is seeking gas supplies to meet immediate demand, but is also planning a structural transformation of its energy system that has the potential to phase out Russian gas over the next 3-5 years. Nonetheless, in Canada, high prices and short-term supply shortages have sparked interest in reviving or accelerating LNG proposals in the Atlantic provinces. Three projects are in particular under discussion:
LNG Newfoundland and Labrador has proposed a $5.5 billion project in Newfoundland and Labrador that would liquefy gas from offshore oil production to produce approximately 2.6 million tonnes of gas per year. Due to recent events, LNG Newfoundland and Labrador has suggested accelerating the project so that exports begin in 2028 instead of 2030. (Tuttle, 2022).
The Goldboro project proposed by Calgary, Nova Scotia-based Pieridae was initially dropped for financial reasons (including a rejected appeal for a $1 billion grant) in the summer of 2021 (Gorman, 2022). Recently, the company revised the project by proposing a floating terminal that would be able to produce around 2.5 million tonnes of LNG per year from around 2025 (around 3.5 bcm). The proposal has some support from local municipalities, but the province said a significantly revised project would need to seek regulatory approval before construction can begin. (Gorman, 2022). Pieridae indicated that the project would not be operational until 2027 (Wilick, 2022).
Saint John LNG Terminal
Repsol has restarted a project to build an export terminal at its existing import facility in New Brunswick. This project was initially abandoned in 2016 when the developers could not attract investors and concluded that the expansion was not economically viable. (Duarte & Penty, nd; Energy Intel, nd).
Of the three, the Repsol project is the favorite for early completion as there is an existing facility in place (Scherer, 2022). However, completion estimates still vary from 3 to 5 years (Duarte and Penty, undated; Jang and Graney, 2022), and LNG facilities have a bad history of delays. It is important to note that the Goldboro and Repsol projects would require additional pipeline capacity to supply gas for export and would need to source gas from the United States or via additional pipeline volumes via Quebec. (Kieran et al., 2022). Expanding fossil fuel infrastructure in Quebec would likely encounter public opposition, which could add time and expense to the project. In addition, the orientation of existing supply towards export raises the question of whether export contracts will conflict with the supply of gas to meet domestic demand.
Canada has little experience in building LNG export facilities. However, most LNG facilities in the United States took more than 4 years to be completed after the final investment decision. (World Energy Monitor, 2022).
Only two projects were completed within three years and both were expansions of existing facilities. This does not include the time required to obtain regulatory approvals (World Energy Monitor, 2022). Therefore, it is not realistic that new Canadian LNG export projects could be brought to market in time to meet Europe’s immediate gas needs.
Canadian LNG is not the solution to EU’s desire to get rid of Russian gas
The EU is moving quickly to reduce its dependence on Russian fossil fuels, especially gas. However, this is a structural transformation that will reduce overall gas demand. The EU’s response to the crisis will lead to a reinforcement of these trends which have been present in Member States for some years now, including significant scaling up and support for clean energy and ambitious climate targets for work.
At the same time, high prices and a renewed concern for energy security suggest that in the medium term, demand will be weaker than expected, not only in Europe but globally (IEA, 2022b).
New Canadian export facilities will take at least 3 years to complete, and possibly much longer. This means that as any new Canadian infrastructure comes online, European demand will decline. A faster-than-expected transition away from gas in the EU risks tying up assets that are built explicitly to supply that market. There is also a risk that global gas markets will continue to be volatile and unpredictable, with current high prices and the imperative to reduce greenhouse gas emissions also driving an accelerated transition away from gas on non-European markets.
Naturally, Canada is considering how best to meet Europe’s energy needs. Building new LNG infrastructure is not the solution. There is a fundamental mismatch between Europe’s immediate need to diversify gas supply and the 3-5 year timeline to increase LNG exports from Canada. Canada cannot build new LNG infrastructure in time to help Germany and other allies, and attempts to do so risk tying up emissions-intensive infrastructure at a time when the transition to clean energy is accelerating.