Germany will not discuss rapid expansion of LNG exports during visit to Canada

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When German Chancellor Olaf Scholz visits Canada next week to talk about the energy crisis gripping his country, prospects for a rapid expansion of liquefied natural gas exports from Canada will not be a topic of discussion, according to Canadian and German officials.

Instead, Mr. Scholz and his entourage are expected to focus on longer-term energy goals. And they will attempt to bolster Canadian efforts to develop renewable energy markets, with a special focus on hydrogen fuel.

The two countries will enter into an agreement to promote the expansion of Canadian hydrogen exports. Mr. Scholz and Prime Minister Justin Trudeau will sign the accord in Stephenville, N.L., where there are plans to build a plant that will use wind energy to produce the fuel.

The German Federal Ministry of Economics confirmed that LNG would not be under discussion at next week’s visit. But spokesperson Susanne Ungrad noted that the German government is still interested in Canadian LNG. “Whether there could be deliveries would have to be decided by the companies that trade,” she said.

The visit is not a trade mission, but it will resemble one. Mr. Scholz will be joined by executives from Germany’s energy, environment, chemical, automotive, shipping and mining sectors. Volkswagen‘s chief executive, Herbert Diess, will be among the delegation. And so will Siemens Energy CEO Christian Bruch.

The trip and the agreement are part of the German government’s efforts to become less dependent on Russian gas and mineral supplies by deepening energy and raw materials partnerships with other countries. Acquiring those essential supplies from Russia has become politically fraught over the past few months, as Moscow’s invasion of Ukraine has drawn international condemnation and sanctions. Recent sharp cutbacks in Russian natural gas flows to Europe have forced Germany to prepare itself for gas rationing.

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Although Germany is interested in Canadian LNG, its leadership in Berlin has little confidence that Canadian companies are capable of delivering in the country’s time of need. And Germany’s desire for natural gas could decrease over time, because the country is committed to phasing out fossil fuels by 2035.

Canada currently has no operational LNG export terminals. And it only has one of them under construction: the Shell PLC-led LNG Canada project, which will ship natural gas in liquid form to Asia from Kitimat, B.C.

To send the fuel to Europe, Canada would need to build terminals on its East Coast, but the likelihood of those coming together quickly is low. Environment Minister Steven Guilbeault told All Nova Scotia, a media outlet in Atlantic Canada, that the federal government won‘t support expanding pipeline capacity from Alberta to help export LNG from the Atlantic provinces. He added that new Canadian LNG facilities can‘t be built in time to address Europe‘s short-term energy needs.

Charlie Grueneberg, a spokesperson for Future Gas, a German association, said Canadian investors’ interest in building LNG export terminals on the East Coast is limited, because the German government’s energy and climate policies make the country seem unlikely to be a long-term buyer of gas.

Ottawa recently nixed the idea of federal funding for two private-sector proposals to export LNG from the East Coast to European countries: one from Pieridae Energy Ltd.‘s Goldboro LNG, and one from Repsol SA‘s Saint John LNG, which operates an LNG import terminal. Neither company has made concrete construction plans.

Natural Resources Minister Jonathan Wilkinson told The Globe in June that the two proposals would have to stand on their own merits and go through Canadian regulatory reviews to ensure they meet this country‘s climate goals.

In a statement to the Globe on Thursday, Mr. Wilkinson’s office reiterated that “any new potential project should build energy transition considerations into project design, such as plans to transition to hydrogen production and export.”

In an e-mail, Repsol spokesperson Mike Blackier said the company is constantly exploring options for maximizing the value of its import terminal, with a particular focus on new lower-carbon ways of meeting market demand and supporting the transition to renewable energy.

Pieridae Energy spokesperson Sophie Schneider said the company is considering reviving its East Coast terminal plans, and that its CEO, Alfred Sorensen, recently met with Deputy Prime Minister Chrystia Freeland and other energy leaders in Halifax to discuss advancing energy security, and ways for Canada to collaborate with businesses on meeting the energy needs of the country’s allies.

To make their terminal dreams into reality, Calgary-based Pieridae and Madrid-based Repsol would need to arrange transportation of natural gas from Alberta through a circuitous route to the East Coast.

According to Future Gas, building an LNG export terminal takes at least five years, and it can be 10 to 20 years before investors recoup the cost, which usually amounts to around $13-billion. Building an export terminal is about 10 times more expensive than building an LNG import terminal. This is because the gas liquefaction process is complex and requires a great deal of energy.

Despite the challenging economics, Volker Treier, foreign trade chief of Germany’s Chambers of Commerce and Industry, said the construction of LNG export terminals on Canada’s East Coast could be supported by the high prices Germany would be willing to pay for a non-Russian supply of the fuel.

Gas importers in Germany are not currently planning on receiving gas from Canada. Energy company EnBW, which has already reserved LNG capacity at a German import terminal currently under construction in the city of Stade, said in a statement that additional LNG volumes will come from the U.S. and the Middle East.

An analysis by the Institute of Energy Economics at the University of Cologne shows that direct LNG exports from Canada to Europe will be limited. “It is more cost-effective for Canada to export LNG gas to Asia,“ said Eren Çam, head of the energy commodities department at the institute. This is mostly because of the export terminal that is already under construction in British Columbia, and the fact that a pipeline will bring LNG directly to the area from Alberta, where it is produced.

The most realistic way for Canada to help satisfy Germany’s energy needs might be some kind of energy swap, experts say. “LNG exports from Western Canada could have an indirect impact on Europe and lower prices,“ Mr. Çam said. Canadian gas exports could replace U.S. LNG exports to Asia, which would allow the U.S. to increase the volumes of the fuel it sends to Europe.

Some policy-makers in Canada and Germany, including Prime Minister Trudeau, have expressed hope that LNG export infrastructure could later be repurposed to export hydrogen fuel. But hydrogen-capable LNG infrastructure does not exist today, and building it would be a technical challenge.

Unlike natural gas, hydrogen in its pure form is not suitable for shipping by boat. This is because it has to be cooled to -253 degrees in order to convert it into a liquid state. (LNG only needs to be cooled to -161 degrees.) And hydrogen’s energy density is significantly lower than LNG’s, meaning a boatload of hydrogen fuel doesn’t provide as much power as a boatload of gas.

Because of this, the likeliest way for hydrogen to be transported at commercial scale is in the form of ammonia, a hydrogen derivative that only needs to be cooled to -33 degrees and has a much higher energy density than liquid hydrogen.

The process of ammonia production is considered to be simpler than liquefying natural gas, so the cost of building ammonia export terminals should be lower than that of building LNG export terminals, according to Future Gas. But ammonia synthesis is a chemical process, while liquefaction of natural gas is a physical one, so different facilities are needed.

The Association of German Engineers notes that it is easier to build terminals that can export both LNG and liquid hydrogen, rather than attempt to retrofit an LNG terminal for hydrogen use. “Retrofitting at a later date is possible, but not economically viable, as too many major components would have to be replaced,“ the association says on its website.

Gas experts say the situation is different for LNG import terminals, which can easily be adapted for ammonia if their tanks have been prepared for the switch, because the changeover would only require swapping a few components, such as internal pumps and compressors. The designs of German import terminals in Wilhelmshaven and Stade already provide for this.

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