Jack Mintz: Squandering our resource wealth

The ‘political case’ not the ‘business case’ against LNG is costing Canada billions in GDP

By Jack M. Mintz

Justin Trudeau and German Chancellor Olaf Scholz: Germany’s leader was in Canada last week hoping to strike an LNG deal as his country races to replace Russian natural gas. PHOTO BY ADRIAN WYLD /The Canadian Press

Last week’s visit to Canada by German Chancellor Olaf Scholz did little to help ease his country’s energy crisis. Germany desperately needs Liquified Natural Gas (LNG) now, not hydrogen that won’t be available in smallish quantities until years from now.

The visit also opened more wounds with Alberta, as the prime minister scoffed there is no “business case” for LNG exports to Germany — a comment that surprised many participants at the Canadian Energy Executive Association Forum held in Banff last Thursday. If anyone can judge whether LNG will be profitable or not, it’s an oil and gas industry willing to invest billions of dollars in it. The real reason Canada still does not have LNG exports today is not the “business case” but the “political case”: federal regulations focused on GHG emissions to the exclusion of Canada’s interest in contributing to the world’s energy and security needs.

Other countries are successfully exporting LNG to Europe and Asia. Australia, the largest LNG exporter though its natural gas production is only about four-fifths ours, has annual LNG capacity of over 85 million tons. Qatar and the United States follow with 77 and 74 million tons, respectively. And many more LNG plants are either under construction or have been approved by governments around the world. The United States, which isn’t that much closer to Europe or Asia than we are, operates eight LNG export terminals, with four more under construction and another 11 approved but not yet being built

LNG is a big business that can generate billions of dollars of GDP for a country. Each ton of exported LNG is worth, according to this week’s spot prices, US$830 when sold to Japan and US$1,800 when sold to the European Union. For Australia, LNG exports add up to over AU$50 billion, almost 2.5 per cent of the country’s GDP.

So, what have we achieved in Canada? A big fat zero. We do have one plant being built by LNG Canada in Kitimat, B.C. with capacity to export 14 million tons a year starting in 2025. But that’s a far cry from the many LNG proposals that have fallen by the wayside in the past 15 years. Natural Resources Canada reports that 13 west coast and five east coast proposals have been made over the years totalling 216 million tons.

Not all proposals would have gone ahead but some certainly would have if not for the federal and Quebec governments discouragement of resource development. Petronas, for example, withdrew its $23 billion B.C. project in 2017 because of low gas prices and high political risk. Prices have recovered but even so no large replacement projects are being constructed. In 2021, Quebec rejected the $14 billion Saguenay LNG terminal that would have exported Alberta natural gas. A good argument can be made that its veto usurped federal constitutional powers over both international and interprovincial trade.

To be fair, the federal government did step in to promote the TMX expansion pipeline when B.C. tried to block it. In fact, as many at the Banff conference suggested, the federal government has an inconsistent approach to the oil and gas industry. Some projects its encourages: TMX, the development of blue hydrogen, an investment tax credit for carbon capture and sequestration (CCS) and Newfoundland and Labrador’s offshore oil. Other policies, however, are clearly aimed at nixing oil and gas development. In June, it announced an unrealistic target of reducing oil and gas GHG emissions by 42 per cent by 2030, which effectively requires a production cut given available technology. And its clean fuel standard is biased against CCS, undermining the investment tax credit for it.

Listening to these various arguments, I found myself asking the bottom-line question: just how much has Canada squandered over the years by discouraging oil and gas exports? If we were exporting another one million barrels of oil per day this year, we could have added another $46 billion to GDP. And if the LNG Canada project and one other were exporting 28 million tons of LNG, that would have been another $25 billion in GDP. Add it up and Canada would have been richer by over $70 billion in GDP today. That would have translated into higher incomes and more tax revenues and would have helped ease the European energy crisis this winter, not three or four winters from now.

The main argument against further oil and gas development is that it would increase Canada’s GHG emissions. Maybe so. But would it increase global emissions? That is — or should be — the ultimate objective. If our LNG makes it easier for Europe and Asia to cut back on coal, their emissions will fall, as emissions did in the U.S. and Ontario after gas/coal substitutions. And if Canada produces more oil, that could reduce the demand for state-owned enterprise oil from Russia, Saudi Arabia, China and other countries with poorer ESG records than ours.

Given the unfolding energy crisis in Europe with its impacts on the rest of world, we need an energy policy that serves Canada’s interests. As many people argued at the Banff conference, we should seek an energy transformation toward producing cheap, clean and reliable oil and gas rather than no oil and gas.

Source: Financial Post