Shutting down LNG plants could wipe out PM’s shale gas ambitions, says an energy insider
The decision not to build a liquefied natural gas export terminal in Saint John could also spell the end of Premier Blaine Higgs’ long-held ambition to revitalize shale gas development in New Brunswick.
Repsol’s decision, announced on Thursday, cuts off the province’s most lucrative outlet for gas, according to energy insiders and environmentalists.
“That would certainly not be good news,” said Todd McDonald, president of Halifax-based gas trading company Energy Atlantica. “There would have been a lot of motivation to develop shale gas because you had a moment [European] Market with access to high prices.
“I don’t want to say it kills him, but it’s not good.”
Gas from New Brunswick could still be sold by pipeline to the United States, McDonald said, but because of the plentiful gas supplies there, the price may not be high enough to justify the development costs.
“There’s still a market for it and it’s economical, but it’s not that good,” he said. “It’s not terrible … but it’s not something people will move heaven and earth for.”
Higgs has long been an advocate for shale gas development and was part of a government that aggressively promoted the sector and witnessed confrontations between protesters and police near Rexton in 2013.
His rhetoric escalated after the start of the war in Ukraine in February 2022, when Europe faced the loss of natural gas supplies from Russia.
Gas produced in New Brunswick was a “potential solution” for Europe, Higgs said at the time, because it would be cheaper to ship from an export terminal in Saint John than western Canadian gas, which is pipelined to the plant.
Louise Comeau of the New Brunswick Conservation Council said a combination is never realistic.
“These were ideas that the PM put on the table as options that he thought, ‘if we could combine them, could we get a result that would work?’ You would never work.”
Higgs brushed off those attitudes on Friday, telling reporters that a gas industry in the province could still be viable “to meet our own needs and those of our allies in Europe,” though he didn’t explain how the gas would work without the terminal of Repsol would reach Europe.
He also said developing more natural gas for the local or regional market would provide an alternative source of energy that would allow both NB Power and Nova Scotia to shut down coal plants in time for a 2030 federal deadline.
“It’s not about me saying, ‘Why don’t we use more gas?'” Higgs said.
“We have a solution here in New Brunswick, and I think do we choose to embrace it or not? That is the challenge we face.”
McDonald and Comeau both agreed on Friday that the Repsol terminal itself has always been a difficult deal.
After war broke out in Ukraine, Canadian business leaders and politicians, including Higgs, floated the idea of arranging LNG gas exports to Europe to replace what Russia had supplied.
The scenario assumed that the war-induced rise in gas prices would continue, driven by tight supplies and a cold European winter driving up consumption.
It was also assumed that both of these circumstances would last long enough for the terminal to become operational quickly and be profitable for years to come.
But that didn’t happen.
“The economy isn’t working anymore,” McDonald said.
Europe has restarted some coal and nuclear power plants, started to switch more quickly to renewable energy and introduced energy efficiency measures that have enabled it to avoid gas shortages.
It was also lucky with record winter temperatures.
“It was insanely warm in Europe and that gave them time to think of alternatives,” McDonald said.
The International Energy Agency said last July that the war had damaged gas’s reputation as a reliable and affordable source of energy, rather than making LNG more attractive, resulting in a “significant downward revision” to future demand prospects.
In December, the agency said Europe had made “significant progress” in reducing dependence on Russian supplies and finding alternatives.
Lower than expected demand helped bring gas prices in Europe back to pre-war levels.
The price per gigajoule skyrocketed from $13. before the invasion to $110 after — but since then it’s fallen to $11, McDonald said.
That would have forced Repsol to wonder if the money and time it would have to spend expanding its export terminal in Saint John would ever be recouped.
“It takes billions of dollars and at least three to five years to do that,” says McDonald.
“The only way the project would have progressed would have been, say, six months ago if Germany had said, ‘We’re going to take all this risk and sign a 20-year contract for $40, assuring you that your project is economical.”
Comeau said Higgs’ fixation on LNG discouraged his administration from considering other energy options, such as renewables.
“I really believe that focusing on Saint John’s LNG option as an export facility was really an idea that was more in the Prime Minister’s mind than in the company’s mind,” she said.
“I think it was clear from the start that the economic case was weak or non-existent.”
Repsol said Thursday it was scrapping its plans because it would have cost too much to pipeline gas from western Canada to the terminal.
“Following a study conducted by the company, it was determined not to proceed with the Saint John liquefaction project because the associated fees made it uneconomical,” said spokesman Michael Blackier.
Higgs on Friday afternoon tried to call Repsol’s decision a close decision, prompted only by pipeline fees.
“The tolls were just too high and they were very aware that the project wasn’t profitable because of that,” he said.
“Repsol didn’t leave the project because they didn’t have a market. They left the project because they had no gas supply.”
But McDonald said it’s impossible to ignore broader market realities.
That pipeline toll would not have been prohibitively expensive for Repsol if Europe was going through an extremely cold winter or if natural gas prices were still rising as the Ukraine war began, he said.
“If you and I had this conversation and let’s say it was the coldest winter in 500 years, you and I would be talking about how Repsol approved this project and signed a contract with some countries in Europe.”