Germany enlists Canada to speed transition away from Russian gas

German flag Source: iStock/photosvit

German Chancellor Olaf Scholz used a meeting with Canadian Prime Minister Justin Trudeau to push for closer energy ties as his ruling coalition in Berlin races to find alternatives to Russian fossil fuels.

Germany hopes to import liquefied natural gas from Canada to help replace the Russian gas it still relies on for more than a third of its imports, down from about half before the invasion of Ukraine. Germany and Canada have been discussing options for an LNG terminal on Canada’s east coast to export to Europe, German officials said.

Meeting Monday on the sidelines of the Group of Seven summit in Bavaria, Scholz and Trudeau discussed how to maintain pressure on President Vladimir Putin and cut reliance on Russia for energy. “The two countries will cooperate even better than they already do,” Scholz said, standing next to Trudeau before their talks at Schloss Elmau.

Scholz plans to visit Trudeau in Canada in late August, and German officials are hopeful the two countries will be able to announce an LNG deal by then.

An agreement can’t come quickly enough for Europe’s biggest economy. Scholz’s government last week warned that recent Russian moves to slash Europe’s gas supplies risked sparking a collapse in energy markets.

Economy Minister Robert Habeck raised the country’s gas risk level to the second-highest “alarm” phase and invoked the role of Lehman Brothers in triggering the financial crisis.

“Lower Russian gas flows are leaving Germany in a dangerous situation,” Maeva Cousin, a euro-area economist for Bloomberg Economics, said in a note published Monday. “Whether this turns into a full-blown energy crisis may depend on how willing European partners are to spread the pain.” 

Canada is among the world’s largest producers of natural gas but it lacks export infrastructure on its eastern coast. Building a new LNG terminal could take a decade to get through the regulatory process and would likely face fierce opposition from environmental groups.

However, there is an import terminal owned by Spanish firm Repsol SA that could be converted to an export terminal relatively quickly. If the company decides to proceed, Canada’s Natural Resources Minister Jonathan Wilkinson has said the terminal could start shipping gas in three to four years.

“We are interested in trying to help our friends in Germany, and the Germans have been pressing us to try to do what we can,” Wilkinson told Bloomberg in an interview last week.

But he added that “the Government of Canada is never going to itself announce a decision on this project. It’s got to be the private sector that is going to put the billions of dollars into actually doing this.”

Another concern for both countries is that signing up to a long-term deal on natural gas could compromise their commitments to transition away from fossil fuels. Canada has said it would require any new LNG terminal to be low-emission and be capable of exporting hydrogen in the future.

© 2022 Bloomberg L.P.

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