The Canadian Advantage in Natural Gas

The Canadian Advantage in Natural Gas [GGP]

The world is clamouring for gas.

From East Asia to Western Europe, supply shortages and soaring prices are crushing consumers, shuttering industries and leaving governments scrambling for new sources of supply.

Meanwhile, Canada, the world’s fifth largest natural gas producer, is seeking to recalibrate its influence in a world upended by Russia’s brutal war in Ukraine and the drawing of new red lines around China. Geo-politics is drawing us more deeply into the US orbit at a time when our closest neighbour is riven by political divisions.

As we learned in the pandemic, Canada has a strategic imperative to be holding more trading cards in an uncertain global marketplace. And so our gas needs to be a bigger part of the national conversation as we debate whether we will turn up production or whether we’ve already missed the boat.

When we look back on 2022 a couple of decades from now, it is likely to be remembered as the year in which the energy transition realists mounted a comeback against policy romanticism. This has nothing to do with Paris targets or net zero, but how we get there while being vigilant about security, reliability and affordability.

Three developments over the past 12 months bring the point home: 

– Even before Russia attacked Ukraine, European and British consumers were paying a steep price from having moved too swiftly in phasing down reliable and affordable sources of power in favour of renewables not quite ready to carry the load. Gas and nuclear were suddenly added back to the EU’s list of acceptable green transitional fuels.

 – The invasion exposed Europe’s folly in failing to give security proper due in its policy mix, leaving it scouring the globe for new supplies of gas in the medium term and hydrogen for the longer term.

 – Finally, the same US led coalition that sanctioned Russia also embraced new approaches to contain Chinese power, including the forging of closer ties with others in Asia. Canada put forward its own beyond-China Indo-Pacific strategy, which identified Japan and Korea as allies akin to our European NATO partners.

As a result, Canada must grapple with a new set of energy propositions. How do we help our long-standing allies in Europe overcome their energy dependence? How do we help a newer set of allies in Asia as they, too, seek greater energy and economic distance from both Russia and China? How can we help both regions in their quests for net-zero emissions? And how do we make sure we don’t subject Canadians to the kinds of energy upheavals our friends are experiencing? 

There are several answers, to be sure. Canada must pursue a two-track strategy of developing alternatives to our fossil fuels (through investments in electrification, renewables, storage, hydrogen) while also working aggressively to decarbonize those fossil fuels (which will remain an important part of the energy mix for years to come).

Yet the greatest contribution Canada can make to the global and national good is by further developing our natural gas.

Canada happens to be home to some of the lowest carbon-intensity gas in the world. A combination of good geology, good geography and good governance accords us a significant clean gas advantage. According to a 2022 International Energy Agency study, the LNG Canada plant nearing completion in Kitimat, British Columbia, “is designed to be one of the lowest CO2 intensity LNG facilities currently operating in the world, with a 60 percent lower emissions rate than the global average. Future West Coast projects, such as Woodfibre, Cedar, FortisBC’s Tilbury expansion and a second phase of LNG Canada will possess emissions profiles closer to 90 per cent better than global competitors.

While still a fossil fuel, Canada’s gas comes out of the ground low in carbon. Proximity to hydropower enables cleaner processing.

Our northern climate provides an assist on the cooling necessary to liquify gas for shipping.

Some of the strictest methane regulations in the world are making inroads against fugitive emissions.

So long as gas figures in the world’s energy equation, Canada’s gas is the best bet when it comes to the E in ESG. Its development is also backed by most affected First Nations (S), which see it as a key to their sovereignty. And purchasers get to deal with one of the world’s most diverse and successful democracies (S and G).

It also provides a here-and-now alternative to a disturbing uptick in global coal production. Nearly 200 new coal-powered generating plants are under construction all over Asia. Even Europe, in its desperate response to its energy crisis, is firing up old coal plants The IEA reports that increased coal usage was responsible for more than 40 percent of the overall growth in global CO2 emissions in 2021.

To the very real extent that Canadian LNG exports would displace coal, the world is better off. The same is true even if it crowds out gas from other countries.

Canada has already blazed the trail of coal-to-gas switching in Ontario and Alberta, with Saskatchewan, New Brunswick and Nova Scotia next up. The time has arrived to take this domestic success on the road by making it an explicit plank of our foreign policy. We should systematically negotiate to provide our trading partners with access to Canada’s clean gas advantage in assisting them to achieve their own emissions targets.

Many critics of gas reject this logic by arguing that renewables will shut the window for LNG before new investments could pay off. Perhaps, but if purchasers in Asia are prepared to commit – and they are – this remains a matter for buyers and sellers to figure out. Policymakers are entitled to an opinion on societal goals, such as net zero. Business viability is not in their skill set.

The real problem lies elsewhere, in any case – the fact that emissions are tallied against the producing country, not the importing one. In the case of Canadian gas, this creates a perverse situation where the very same actions that reduce global emissions would add to our domestic count.

The Paris negotiators anticipated this dilemma through the agreement’s Article 6, the only portion still not enacted. It sought to create market mechanisms, such as carbon credits, that would allow importing nations to share the burden. Japan and Korea have expressed an interest in bilateral arrangements of this sort. Canada has good reason to become a leader in Article 6-type agreements, just as we have been a leader in free trade agreements.

That Canada does not yet have a single terminal for the liquefaction and export of natural gas (the first one is slated to open mid-decade) speaks to policy failures in the last decade now in jeopardy of being repeated. Over the past half-dozen years, the US has launched multiple LNG facilities. To make matters worse, Canada is currently shipping stateside almost the precise volumes of gas the US exports to world markets for higher prices and with greater emissions.

The geo-political shifts so evident in 2022 now present Canada with a new opportunity to get it right – and the timing couldn’t be better. We have been whipsawed in recent years by Donald Trump’s arbitrary measures against Canadian steel and aluminum and his attack on NAFTA. Two of our citizens were arbitrarily and unjustly detained by a willful China and our canola was shut out. The COVID-19 pandemic exposed health security shortcomings as we were forced to scramble for supplies of everything from masks to vaccines.

Since no nation can be an island, the way ahead requires us to protect ourselves by generating more “tradeables” – more of what we do well and can provide to willing buyers in the rest of the world. Critical minerals fall into this category, if we can get them out of the ground in a timely manner. So, one day, may our hydrogen.

Right now, gas counts big time. There are countries and companies that understand our ESG advantages and are prepared to invest in Canada’s LNG capacity and ultimately buy the product.

And so our gas is lined up to yield multiple benefits: providing security of supply to our friends, reducing global emissions, strengthening our economy, empowering Indigenous communities, building a base for hydrogen development and, perhaps most importantly, giving this middle-power nation more strategic cards to play in an unsettled global environment.

(Edward Greenspon is President & CEO of the Public Policy Forum and former Editor-in-Chief of The Globe and Mail. He started his journalism career in the heavy oil town of Lloydminster and has also served as Global Managing Editor for Energy, Environment and Commodities at Bloomberg News. PPF operates the Energy Future Forum.)

This article was originally published in a supplement, sponsored by Enbridge, to the January-February 2023 edition of Policy magazine.