The changing landscape of global energy security
Yesterday, Natural Resources Minster Jonathan Wilkinson announced Canada will export an additional 300,000 barrels of oil and natural gas daily to Europe to offset the drop in Russian supply due to international sanctions. It was one many announcements at the International Energy Agency 2022 Ministerial Meeting in Paris but one of high importance to Canada’s oil and gas industry.
Wilkinson further stated that Canada is “very open to the discussion” about what else it can do to help, including new terminals on Canada’s East Cost to facilitate exporting Canadian LNG to Europe. This signals a significant shift in the federal government’s approach to the oil and gas industry because of global supply shortages due to the Russian invasion of Ukraine, potentially opening the door to new approaches.
Three hundred thousand barrels is small change relative to Canada’s production of approximately 4.7 million barrels of oil per day. Wilkinson also qualified his comments by suggesting that the government’s support for these investments would depend on the time to get them up and running and be contingent upon ultralow emissions for new infrastructure.
The Russian invasion of Ukraine started a sea change in the government’s level of concern about securing export and development opportunities, moving from passive interest to active engagement. Yesterday’s announcement was the first public demonstration of this détente toward oil to further isolate Russia.
The IEA meeting was held under the theme “The Year of Implementation: Accelerating Global Action on Clean Energy and Energy Security,” and focused on the need to move to practical, concrete clean energy transitions and urgent energy sector transformation. Further, the communique issued at the end of the meeting acknowledged that:
- Stabilization of the 1.5 degrees Celsius climate target is difficult but still within reach;
- Skyrocketing energy prices are hurting consumers, and that without energy reliability and affordability, public support for climate action and successful clean energy transitions may falter;
- There is a need to continue working to prevent energy and resource supply disruptions and ensure diversification of energy sources, supplies, routes, and means of transport to build system resilience and promote competitive, reliable energy markets based on transparent rules;
- There is a need to help decision makers decouple economic growth from growth in greenhouse gas emissions, while maintaining security and affordability of energy supply;
- There is a need to incorporate gender, equality, and social inclusion in all policies and to sustain clean energy jobs and equitable opportunities for all; and
- Energy efficiency is the “first fuel” and a critical component of net zero strategies as it still represents the cleanest and, in many cases, the most cost-effective way to meet our energy needs.
This evolution in the federal government’s position will be welcomed by oil and gas producers.
The Russian invasion of Ukraine has put the spotlight on energy supply issues that were evident even before recent events. France was already experiencing unexpected nuclear outages, Germany was in the process of decommissioning the last of its nuclear reactors, and Russia had already turned down the flow of petroleum products to most of Europe. History will be the judge of whether German Chancellor Angela Merkel put too much trust in Russian supply to help Germany reach its climate targets.
The piece that many producers may find missing from Wilkinson’s announcement today is a clear articulation for the government’s longer-term view of the role of low emission hydrocarbons within the Canadian energy mix. Canada is widely seen in international boardrooms as having “Sovereign Risk,” due to an uncertain regulatory environment. Without certainty, there may be fewer producers willing to make long-term investments without government action.
While this latest crisis underlines how fragile global energy security can be, it has also highlighted the need for a new global plan that could involve Canada playing a significant role in accelerating global progress to net-zero. Minister Guilbeault is set to deliver Canada’s 2030 Emissions Reduction Plan to Parliament by the end of March. It will be interesting to see how today’s announcement is addressed within this plan. StrategyCorp will continue to monitor these events and have more to say in the coming days.