Let’s get on with LNG exports
Vladimir Putin’s stalled attack on Ukraine has demonstrated that, in terms of its conventional military, Russia is no longer a superpower. But it remains an energy superpower and, like OPEC in 1973, it has weaponized its oil and gas exports to try to undermine European and NATO support for Ukraine.
Europe is learning the hard way that it has been far too reliant on Russian energy. Before the invasion Russia supplied 45 per cent of European natural gas. With that supply now cut off, Europe needs to rebuild its energy security for the coming winter and the decades to follow.
The European Commission has proposed a fourpart plan to reduce reliance on Russian fossil fuels and accelerate the green transition: First, energy efficiency measures by households. Second, re-engineering Europe’s energy-intensive industrial processes to reduce coal, oil, and natural gas use. Third, speeding up and scaling up renewables. Fourth, finding new and diversified suppliers of natural gas. To that end, Germany has just completed its first LNG terminal and signed long-term LNG contracts with Qatar, while LNG shipments are ramping up from the U.S. Gulf Coast as American producers frantically add production and export capacity.
But where is Canada in all this? As the world’s fifth largest natural gas producer we certainly have the capacity to help our European allies counter Russia’s most effective weapons system — energy. But the government dissembles about LNG exports to Europe, caught up in the conundrum of how to both expand natural gas production for foreign policy reasons and at the same time shrink it to satisfy domestic climate-change goals.
Energy security and climate change are both global issues. About climate change, however, we tend to think locally. We set emissions targets country by country, ignoring global interconnections and consequences. For energy exporters like Canada, national GHG targets have the unintended consequence of limiting our ability to reduce global GHGS. They also obviously penalize our natural gas sector, which is a major contributor to our exports, government revenues, incomes and employment.
Canadian natural gas could help many countries get off coal, which emits almost 50 per cent more CO2 per energy unit. India generates about 70 per cent of its electricity with coal. Even Europe still relies on it for about 20 per cent of its electricity generation. Shifting from coal to Canadian natural gas would yield big gains in reducing overall CO2 emissions globally, but it would run afoul of Canada’s domestic climate change targets and the CO2 emission caps in the energy sector designed to help achieve these targets.
How do we start thinking and acting globally about energy use? We can push for a system of global energy substitution credits, where exported gas that is substituted for coal in other countries receives a credit against the national emissions target of the exporting country. The system would be verifiable, economically efficient and totally consistent with climate change being a global, rather than national problem. It would also improve geopolitical security as many of the developing countries that could switch to Canadian gas would otherwise buy from Russia.
Canada could lead by proposing the creation of an alliance of energy exporters, including the U.S. and Australia, to make these energy substitution credits part of COP methodology. Or we could jump-start things and simply go it alone, establishing our own methodology and inviting others join. Such leadership would be good for both climate change and energy security. And, of course, beyond these benefits to the planet, it would mean more investment, more production of gas, more exports, more high-paying jobs and more potential for partnerships with Indigenous people.
To get there, however, we need to build LNG export terminals and pipelines. The U.S. clearly sees the economic benefit from and geopolitical need for expanding natural gas production and LNG exports. It has eight LNG export terminals, with five more under construction and another 20 approved or proposed. Canada has none, although one is under construction in Kitimat, B.C.
Given our lack of capacity, we cannot begin to meet Europe’s energy crunch anytime soon. But Ottawa and the provinces should work together to develop a regulatory environment that is clear, consistent, supportive, and predictable, so we can get on with the business of building pipelines and LNG export terminals both on our west coast to service Asia and on our east coast, which is days closer to Europe than U.S. Gulf ports are.
Though well underway the transition to clean energy will take decades. In the meantime, exporting natural gas will reduce overall global CO2 emissions, increase our allies’ and friends’ energy security and, if we reinvest some of the proceeds in clean energy and technology, hasten the global transition. Win-win-win.
Kevin Lynch was clerk of the Privy Council and vice-chair of BMO Financial Group. Paul Deegan was a public affairs executive at BMO Financial Group and CN Rail. Both have been banned by Russia’s foreign ministry in response to Canadian sanctions against Russia.