Part 1 – Can Canadian ‘green LNG’ save the planet?

Energi Media’s 15-part investigation will examine the arguments for and against Canadian “green LNG.” Can it really displace Asian coal plants?

Of the three fossil fuels, only natural gas appears to have a long-term future. Canada has plenty of it, but so do many other countries and it’s not clear if gas fits into Canada’s long-term climate goals. Nevertheless, the Alberta-based industry claims low-emissions “green” LNG can displace coal for Asian power generation, reducing global greenhouse gas emissions, attracting investment, and creating plenty of good-paying jobs. Should Canadians support a substantial expansion of gas production as Canada transitions to the low-carbon future? 

There is a case to be made on both sides of the argument. 

The argument against aggressive natural gas/LNG expansion

Source: Government of Canada.

Canada’s Paris Agreement targets commit to reducing GHGs 30 per cent below the 2005 level of 732 megatonnes (Mt) of carbon dioxide equivalent (CO2e) by 2030 and net-zero emissions by 2050. The oil and gas sector already accounts for 27 per cent of national emissions. The oil sands alone are responsible for 10 per cent of Canadian GHGs and while emissions-intensity per barrel is falling, the total volume of emissions has been rising with growing production, which is forecast by the National Energy Board to go up another million barrels per day by 2040.

Canada is already behind on its climate commitments. Doubling down on the hydrocarbon sector will end any chance of meeting them, say environmentalists.

“Our research disproves the claim that LNG is a clean transition fuel,” David Suzuki Foundation science and policy director Ian Bruce said in an October 2018 press release about Ottawa’s green light for LNG Canada. The research he cites is a Foundation study published earlier that year that found emissions from NE BC natural gas production to be two-and-a-half times higher than government estimates.

“We should be investing in renewable energy rather than locking our economy into decades of fossil fuel infrastructure that is likely to be left stranded as the world transitions to a 21st-century low-carbon economy,” Bruce concluded.

Source: Lazard 2019 Levelized Cost of Energy estimates.

The case for investing in renewables instead of LNG is bolstered by the latest levelized cost of energy (LCOE) estimates that show new wind and solar to be less expensive than new coal and natural gas, and competitive with the “marginal cost of existing conventional [coal, nuclear, gas] generation technologies,” according to Lazard Asset Management. Costs for renewables are still declining. When coupled with rapidly improving battery storage – Lithium-ion batteries are very close to $100 per kilowat hour (kwh) while energy density continues to improve – renewables appear poised to displace fossil fuels with no help from natural gas in the form of LNG.

The problem is timing. The IEA reported in mid-2018 that investment in renewable energy declined by 7 per cent the year before, its biggest drop in over 15 years. Current rates of investment would have to double to $550 billion per year for the global energy system to meet the goals of the agency’s Sustainable Development Scenario, which is aligned with the Paris Agreement. Currently, renewables investment isn’t even meeting half of global energy demand growth. That trend doesn’t appear likely to change in the short-term.

“Current investment trends show the need for bolder decisions required to make the energy system more sustainable,” says Dr. Fatih Birol, the IEA’s executive director. “Government leadership is critical to reduce risks for investors in the emerging sectors that urgently need more capital to get the world on the right track.”

The Canadian oil and gas industry is betting the necessary leadership will not emerge in time.

The argument for aggressive natural gas, LNG expansion

“The window for Canada is open right now,” Tim McMillan, CEO of the Canadian Association of Petroleum Producers, recently wrote in a trade press op-ed.

The case made by CAPP and its supporters comes in three parts.

One, Canada makes up only 1.6 per cent of global emissions and stringent domestic climate regulations won’t make a dent in the big picture. China, India, and Southeast Asia is where Canada can really have a positive impact.

“With the total net global GHG reduction from each Canadian LNG plant estimated to be about 100 Mt CO2e per year, we can achieve the equivalent of removing 22 million cars from the roads,” McMillan argued. “It means Canada can make a much bigger difference outside of our borders in lowering global GHG emissions than we could ever achieve by focusing only on ourselves.”

Artist’s rendering of the LNG Canada facility.

Two, LNG projects are capital-intensive and will have a significant economic impact. For example, the $40 billion LNG Canada project at Kitimat, BC will employ 4,500 at peak construction. The $8 billion Coastal Link pipeline that will supply the 14 million tonnes per annum (mtpa) plant will create up to 2,500 construction jobs. It also enjoys significant support from indigenous communities that signed community benefits agreements.

Three, without a lot more demand created by LNG, many junior and mid-sized oil and gas producers, especially those more heavily weighted to gas, will fail.

The “shale gale” that started in 2008 doubled American production and enabled US companies to encroach on Western Canada’s traditional markets in Ontario and Quebec. Gas prices plummetted, according to the NEB, hovering between $1 and $2 per Gigajoule (GJ) over the past few years, only half of the American prices.

The problem became so acute by mid-2019 that nine Canadian producers wrote Alberta Premier Jason Kenney imploring the United Conservative Party (UCP) government to “take swift and decisive action” that would “help avert a crisis in the natural gas sector which could result in widespread corporate failures, significant job loss and a further deterioration in investor confidence that will impair the Alberta gas sector’s ability to participate in any future recovery.”

Canadian gas producers are in serious trouble and the only viable long-term solution is new markets like those that might be provided by a big LNG build-out on the West Coast. 

Going forward

So, where does this leave the argument for Canadian “green LNG”?

Ideally, Asian coal power plants would be displaced by enough low-cost, low-emissions wind and solar electricity to meet Asia’s rapidly growing energy demands. In the wake of the mid-December COP25 failure that seems unlikely to happen. The table appears to be set for the widely expected strong growth of LNG exports to Asia over the next 20 years.

Does the evidence support Canadians and their governments supporting the industry’s LNG ambitions?  

Energi Media will try to answer that question with a 15-part investigative report into the state of the Canadian national gas industry, as well as the likelihood of “green LNG” pushing coal out of the Asian power market.

The stakes – climate, environmental, and economic – are too high to accept at face value either the pro or anti-LNG argument.

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