Reality check: exporting Canadian LNG won’t help Europe but will hurt Canada’s economy

The Russian invasion of Ukraine and the ensuing energy crisis mean Europe is desperate for energy, sparking renewed interest in developing liquefied natural gas (LNG) export facilities on Canada’s East Coast. After proponents’ hopes for a Germany-Canada LNG export deal were dashed in favour of green hydrogen in August, some argue that Canada is missing an opportunity to take advantage of its natural gas resources and today's record-breaking gas prices. But this ignores a host of realities. Specifically, the reality of timing, the reality of energy markets, and the reality of economics. Before we dive headlong into a massive and costly infrastructure investment with enormous implications for Canadian taxpayers (today and for years to come), let’s take a pause to consider the facts. Timelines don’t add up The first problem: Canada cannot scale up its LNG infrastructure fast enough to meet Europe’s immediate needs. Canadian governments and gas proponents are largely aware of this mismatch, which suggests any desire to help our European allies is mixed with a separate desire to cash in on sky high gas prices. Europe is looking for short-term solutions, particularly to restock supplies for this upcoming winter. At the same time, the European Union is doubling down on renewables, energy efficiency, and fuel switching to cleaner and more secure alternatives. German Chancellor Olaf Scholz said it clearly in July: “if we want to reconcile supply security and climate protection, then this is only possible with renewable energies.” Nichole Dusyk is a senior policy adviser at the International Institute for Sustainable Development. Photograph courtesy of the IISD Analysis shows that the EU could eliminate Russian gas as early as 2025, with much of this coming from structural changes transitioning its energy system away from gas entirely. Optimistically, it would be three to five years before any LNG export facility could be operational on Canada’s East Coast. By the time LNG from new Canadian facilities is ready to ship, EU gas demand will already be declining. This would be like Blockbuster investing billions of dollars in new bricks-and-mortar outlets to meet entertainment demand, just as streaming hits its stride. We know how that story ends. Which brings us to the next problem: the role of gas in a changing global energy market. Gambling on high gas prices is a bad bet Gas is not a secure form of energy. Gas markets are volatile by nature and prone to boom-bust cycles. The long-term impacts of today’s crisis are uncertain, but a couple of trends raise red flags for gas’ global economic outlook. First, the longer that prices stay high, the more incentive there is to reduce demand. Some of this will be temporary but, as Europe is demonstrating, there is now the option to make a structural transition to cheaper and less-volatile renewable energy. The dynamic of high prices and energy security concerns has led the International Energy Agency to lower projections for global gas demand in the medium term (2022–2025). Second, Russian gas may not be flowing to Europe, but it will find new markets outside of the EU. This could also put downward pressure on prices. The upshot: betting on today’s record prices, driven up by what we know are unique and time-limited factors, is a huge risk. And Canadian taxpayers will likely be left on the hook. Will Canadians be paying the price? Ignoring the economic risks of massive new investments in LNG infrastructure could carry major public costs. The only Canadian LNG export facility currently under construction, LNG Canada in British Columbia, has received well more than a billion dollars in subsidies from the federal and B.C. governments. The federal government has stated it will not subsidize the proposed East Coast facilities, but the industry players involved will likely seek government financing and other support. There is a reasonable chance Canadians will end up covering part of the cost, for instance in the form of loan guarantees or other financing as was the case with the Trans Mountain pipeline expansion. Does it make sense to continue wrapping up limited public (and for that matter private) dollars in the energy infrastructure of the past while Europe and the rest of the world are actively focused on building the infrastructure of the present and future? That is the real question we should be asking ourselves. The honest answer is no. Nichole Dusyk is a senior policy adviser at the International Institute for Sustainable Development, working on the Canadian Energy Transitions Team. With more than 10 years’ experience working on Canadian energy and climate policy, she focuses on providing research and analysis to support a transition toward a more just and sustainable energy system. The Hill Times