Varcoe: Wilkinson Seeks to Disarm Burning Energy Issues: Future of LNG and Production Shutdown

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With Ottawa facing criticism for its emissions cap in the oil and gas sector and for sending mixed messages about LNG projects in the country, federal Natural Resources Minister Jonathan Wilkinson attempted to take down two active political cables in Calgary on Tuesday.

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He insists that Ottawa is making no effort to shut down Canadian production and is not opposed to LNG developments.

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Speaking at a Calgary Chamber of Commerce luncheon, Wilkinson said continued development of a new emissions limit for industry, the highest-emitting sector in the country, must be done in consultation with producers and the province.

“It needs to be done in a way that drives emission reductions,” he said of the cap.

“But also in a way that ensures continued economic opportunity and, in particular, in a way that should not result in the shutdown of production as we head into 2030, when most forecasts indicate that oil demand around the world it will not decrease.”

Last week, the minister met with the chief executives of a group of major tar sands producers, known as the Pathways Alliance, to make sure the two sides are working together on the issue.

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His comments come as Ottawa has been pushing a promise made by Prime Minister Justin Trudeau during the 2021 federal election campaign to put a strict cap on emissions from the oil and gas sector.

The federal government wants the sector to cut its greenhouse gas emissions by about 42 percent by 2030. It’s an intermediate step as Canada strives to reach its goal of net-zero emissions by 2050.

Major oil sands producers are already working together on a plan to get to net zero and plan to cut emissions from operations by 22 megatonnes annually by 2030, which it says equates to a cut of about 27 percent.

However, oil sands producers and industry groups have said that the larger federal goal by the end of this decade is not feasible in such a short period of time.

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And the UCP government has warned that it will lead to a loss of expected output growth, and jobs, in the coming years.

Federal documents indicate the government is considering two options for the incoming cap: altering the existing carbon price and potentially setting a higher tax for the oil and gas sector, or implementing a cap-and-trade system.

the The federal government plans to raise the national carbon price to $170 a tonne by the end of this decade, cut methane emissions in the sector by 75 percent by 2030, and introduce a new clean fuel standard.

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The federal cap is “too much, too fast,” Mark Cameron, vice president of external relations for the Pathways Alliance, said in an interview Tuesday.

“If they were to use one of the two methods that they proposed, with a 42 percent target, then it would be necessary to shut down production,” Cameron said in an interview.

“It would be terrible for the Canadian economy. There are billions of dollars in royalties and revenue and income taxes going to both levels of government that are going to be affected by that, and thousands of jobs lost.”

The two parties are talking, which is positive. However, Wilkinson was unwilling to issue an ironclad guarantee that no production would be turned down because of the limit.

“It’s hard to give you an absolute guarantee,” he told reporters after the speech.

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“But it shouldn’t result in production shutting down, that wouldn’t happen, absent a decline in oil demand around the world, (and) we don’t expect that to happen between now and 2030.”

So how can Ottawa meet its 42 percent target and industry targets? That is not clear, although the minister spoke of seeking solutions with the industry and the possibility of “compliance flexibility”.

It’s safe to say that business leaders want to see the details.

“There’s a lot of tension around him,” said Mac Van Wielingen, founder and partner of ARC Financial Corp. and president of the Business Council of Alberta.

“Frankly, there’s something about it that doesn’t feel collaborative. And that is a problem and creates tension. It fuels an already existing level of, frankly, distrust in Alberta and among investors.”

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In addition to the controversial cap, Wilkinson also spoke Tuesday about LNG development in the country.

Canada has two projects underway, including the massive installation of LNG Canada on the Pacific coast, although Ottawa sometimes seems ambivalent about future growth in the sector, particularly on the east coast, where the gas could be exported to Europe.

On Tuesday, Wilkinson noted that Europe has asked the federal government how Canada could potentially help with the export of LNG and hydrogen from eastern Canada. She has also established a working group with Germany and the European Union.

“I must point to Canada’s west coast LNG and in particular the Canada LNG facility. . . it can also help our European friends by providing improved supply to the global LNG market,” she added.

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And yet, a clear signal does not always come from Ottawa on this issue.

In August, Trudeau said “there has never been a strong business case” for exporting LNG to Europe from the Atlantic coast. This view has frustrated industry advocates who see additional projects as a tangible way that Canadian natural gas can displace the higher-emitting coal used in power generation in other countries.

“There are many of us who believe that LNG from . . . the BC coast is a great opportunity. But of course it needs to be done in a way that is consistent with Canada’s own climate goals,” Wilkinson said at the event.

“We haven’t given up on those (East Coast) projects, and we’re still talking to the Germans. . . but at the end of the day, there has to be a value proposition that the customer is willing to buy, and that is the challenge.”

Chris Varcoe is a columnist for the Calgary Herald.

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