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As Canada rolled out a host of climate policies aimed at the fossil fuel industry, Shell sat down with Energy and Natural Resources Minister Jonathan Wilkinson to discuss the fate of its massive LNG project on the West Coast, documents reveal.

Shell requested a meeting with Wilkinson on April 27 to understand whether investment in the second phase of that project makes sense, Canada’s National Observer has learned. Attending the meeting was Wilkinson, assistant deputy minister for the fuels sector Erin O’Brien, Shell Canada president Susannah Pierce and Shell’s executive vice-president for LNG, Cederic Cremers.

The fossil fuel giant is building a liquefied natural gas (LNG) export terminal in Kitimat, B.C., called LNG Canada. At a cost of $48.3 billion (including the export terminal, the Coastal GasLink pipeline that feeds the terminal and the costs related to drilling for gas), LNG Canada Phase 1 is the largest private investment in Canadian history. When it opens, it will be the largest emitter of heat-trapping greenhouse gases in the province.

Shell is interested in expanding the site to export even more planet-warming natural gas with a second phase of construction. But these are long-term investment decisions. LNG Canada is expected to operate into the 2060s, and further investment will only increase the risk from the unfolding energy transition.

In the meeting with Wilkinson, Shell’s objective was to help the federal government understand “global market dynamics and Shell's work to align [LNG Canada] Phase 2 with climate objectives,” according to a brief prepared for Wilkinson ahead of the meeting, which Canada’s National Observer received through a federal access-to-information request.

According to the same note, Wilkinson’s objective was to better understand Shell’s LNG forecasts in order to inform policy relating to LNG Canada Phase 2 and other potential LNG projects across the country.

The briefing note sheds light on the delicate communications between oil and gas companies and the federal government as climate policies designed to lower planet-warming greenhouse gas emissions come into effect. Because climate science is clear that the only way to avoid disastrous global warming is to phase out all fossil fuels as quickly as possible, the tougher Ottawa gets on the sector, the less likely it is that oil and gas companies will be able to increase their production.

For years, the federal government has tried to walk a line between supporting the oil and gas sector and responding to climate change by cutting domestic emissions while simultaneously increasing fossil fuel exports. Both the federal government and industry have promised an unmatched economic opportunity that could also curb emissions by supplying gas to Asian countries as they phase out coal. But that business case now appears to be coming off the rails.

LNG Canada site under construction, June 2023. Photo via LNG Canada

The market in Asia, where Canadian LNG would be destined, is shifting. Since Russia’s invasion of Ukraine pushed some European countries to close the door on Russian gas, Russia has quickly pivoted to Asia, upgrading its relationships with countries on the continent, particularly China, as a key priority just behind Eastern Europe. It now appears Russia intends to pivot to Asia for the long haul. Exporting gas is a central pillar of that strategy.

The market for Canadian LNG is shifting as Russia pivots to Asia for gas exports, suggesting competitiveness challenges are mounting, documents obtained by @NatObserver reveal. #cdnpoli

“How are Russia's gas pivot toward Asia and the pace of the energy transition affecting LNG markets in general?” and “What competitiveness challenges exist for Canadian LNG in Asia?” are listed as “points to register” in the meeting note.

Shell did not directly answer questions posed by Canada’s National Observer about how Russia’s pivot to Asia is affecting the business case for LNG Canada. Instead, it claimed that exporting natural gas will reduce global greenhouse gas emissions, even though natural gas is a fossil fuel that drives global warming. While true gas creates fewer CO2 emissions than coal, extracting and transporting natural gas results in leaked methane — a greenhouse gas that’s 86 times more potent than CO2 over a 20-year period, making it a vital greenhouse gas to tackle on the road to net-zero emissions by 2050.

It is not known if Wilkinson asked the questions provided to him in the briefing note or how Shell responded. Wilkinson did not return requests for comment by deadline.

Marc Lee, senior economist with the Canadian Centre for Policy Alternatives, told Canada’s National Observer that Russia’s pivot to Asia could seriously affect the business case for West Coast LNG projects generally, but LNG Canada specifically is better insulated from risk than others.

That’s because beyond Shell, LNG Canada’s owners include PetroChina (China’s largest oil and gas producer and supplier), the Korea Gas Corporation (South Korea’s main LNG importer), Mitsubishi Corporation (which owns more than a 50 per cent share of the LNG exports into Japan), and energy giant Petronas (Malaysia’s state-owned oil and gas company). The companies also own huge swaths of the gas deposits in northern B.C. called the Montney Formation, which feed LNG Canada via the Coastal GasLink pipeline. The gas exported from LNG Canada would be sold to South Korea, Japan, Malaysia and China.

“It's basically a buyer's cartel,” Lee said. “They've already got their market. They're not producing LNG and they don't know who is going to buy it. They're going to buy it.”

That’s quite different from the other LNG projects in development that would be selling into a market and needing the price of gas to stay above a certain level to stay profitable, Lee said, referring to four other potential LNG export sites dotting the British Columbia coast in various stages of development.

Threat to Shell’s bottom line

Russia’s pivot to Asia isn’t the only issue for fossil fuel companies trying to increase production in Canada.

Following years of pressure from environmental advocates, Canada is now seeing a flurry of policy developments, from an emerging cap on oil and gas sector emissions to new rules curbing subsidies to the fossil fuel sector. Climate advocates say these policies, if implemented properly, could help shift the Canadian economy to a cleaner future. Shell sees them as a threat to its bottom line that could upend the business case for LNG expansion.

Shell’s forecasts predict the demand for LNG will grow significantly, with a major supply gap starting mid-decade and rising through 2040. For that reason, the company is looking to increase its exports to fill the gap and believes LNG Canada Phase 2 could play a role. However, a lot rides on Canada’s forthcoming emissions policies, which will inform the company’s investment decisions, according to the meeting note.

“Industry is closely watching the development of positions and policies on topics including the oil and gas emissions cap, enhanced methane regulations, inefficient fossil fuel subsidies (IFFS), international carbon credit offsets” and other programs that could affect competitiveness, reads the meeting note.

Fundamentally, the energy and climate change policies chosen today determine whether or not long-term fossil fuel projects can be commercially viable. LNG could continue to grow if policies to slash greenhouse gas emissions aren’t put in place, according to the Canada Energy Regulator’s (CER) June forecasts. However, if policies to cut emissions are adopted globally, LNG demand could start to fall as soon as 2026, the report notes. Regardless of other countries, if Canada imposes credible emission reduction policies, the CER anticipates LNG demand falling after 2030.

Policy incoherence

Lee said these types of conversations between government and industry are “fascinating and disturbing.”

“We should actually be ramping [fossil fuel projects] down based on what's happening in the climate, and yet we're trying to find ways of making projects go ahead while simultaneously bringing in climate policies,” he said.

“The two have always been in contradiction, and they just get more and more [contradictory] with each passing year,” Lee said of policies aimed at fighting climate change while supporting the fossil fuel sector.

The federal government has given LNG Canada $275 million in support while also developing policies like an oil and gas emissions cap. In recent years, Ottawa has also adopted a carbon tax, clean electricity regulations and more, while simultaneously building the Trans Mountain pipeline expansion project and approving Bay du Nord, Canada’s first deepwater oil project, which is currently on hold. Taken together, it’s why environment commissioner Jerry DeMarco has repeatedly described what he sees as policy incoherence.

The LNG Canada owners have “got the Canadian government giving them tax breaks, they've got the B.C. government giving them tax breaks — they're getting gas for a song, and they just have to pay for this LNG facility,” Lee said.

In a recently published analysis, Lee specifically points to an agreement LNG Canada has with the B.C. government that caps its carbon tax at $30 per tonne, despite the national carbon price rising to $170 per tonne by 2030. This “represents a growing annual subsidy to LNG Canada,” he wrote.

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It seems, more and more, that governments -- neoliberal, social democrat, whatever -- have internalized the view that corporations are merely benevolent providers of jobs, and should, in fact, be incentivized with taxpayer money for those jobs. And, actually expecting corporations to pay taxes? That's so 1970s.

Neoliberalism has been very effective.

"... Shell’s objective was to help the federal government understand 'global market dynamics and Shell's work to align [LNG Canada] Phase 2 with climate objectives',”

IOW, on top of getting tax breaks, cheap energy for extraction, waiver of environmental rules that apply to everyone4 else, and tax-payer-subsidized pipeline transport, they want outright cash grants. How much ya wanna bet they get them, by claiming that gas is a "clean" or "renewable" fuel.

For some time, I've wondered what the dividing line is between an "efficient" and an "inefficient" subsidy.
Here's what our gov't says:

Interestingly, it includes loan guarantees. It mentions "gradually"
Not only are some of the guidelines ridiculous, but they make it clear that the feds are aiding and abetting the carbon extraction industries in shuffling the downsides off on to First Nations; they've always done this in terms of environmental destruction, and now they're extending that to being left holding the bagful of stranded assets that are readily predictable.

Predictably (ho hum) , there's lots of weasel-ing. Like what counts as a "significant" reduction of carbon capture ... given that the carbon counting doesn't end with getting the stuff out of the ground.

And if we don't tax it at home, it's not a subsidy to subject it to export tariffs. Say wot! One more case of Canadians bear the ecological, environmental, economic downsides ... and foreign purchasers get cheaper product, while the foreign corps who've been subsidized from the beginning and have subsidies locked in till the end, run laughing all the way to the bank.

I don't know about you, but I find the whole picture profoundly disturbing. Not because it accomplishes nothing, but because it accomplishes way less than someone might think, just looking at the WTO definition of a subsidy . You have to read all the way till the end to be told that Canada's using that definition only for reference purposes. But we're never told, exactly, what "alternative definition" applies.

The whole piece about Indigenous ownership/benefits looks to me like a trojan horse.

Thank you for this article. The whole LNG thing has been such a travesty to Canadians and to future generations. It's a shame that our political leaders, both federal and provincial, have let this happen. It eliminates any hope of BC reducing its GHG emissions. A few points:

- The assertion that "natural" gas is cleaner than coal has been called into question - less impact when extracting it (except for fugitive emissions) but powerful emissions (methane) when it's transported and burned.
-When will be stop calling it natural gas and find a term that describes what it actually is- mostly methane, a much more powerful GHG
-The companies involved in LNG Canada own the rights to frack gas deposits in NE BC and are investing in the LNG facility in Kitimat so they can sell the product abroad. This sounds like colonialism to me.
-The impact on climate is bad enough, but there's also the huge amounts of water used (and polluted) in the fracking process.

To illustrate just what a travesty it is, that is the very same LNG plant that the people of Terrace, the surrounding areas, and all the First Nations in the area, said No to in a referendum. I guess we're supposed to have forgotten that by now.

If memory serves, the Haisla Nation which has been based in Terrace for millennia support this project and have negotiated a piece of the profit and jobs at the plant located very close to their village. It's the hereditary chiefs that do not support it, especially the gas pipeline corridor in pristine remote areas. This internal conflict is unresolved.

If the government was serious about climate policies, it would cease to meet with fossil fuel executives and lobbyists, or, at the very least, would ensure that the climate minister was at the table. Until environmental, climate and energy portfolios are combined, the governments will continue with their contradictory approaches, none of which will reduce our climate impacts: precisely what the neo-colonial fossil fuel executives want.

They have been ... and it meant that no attention was paid to Environment, at all.

Mrs Spencer asks; « When will be stop calling it natural gas... » How about fossil gas?

Hello Green Party? Is anybody there? Hello? Hello? Are you ready for an adult conversation with the NDP yet? Hello? Have you clamped down on your candidates and instructed them to grow up and stop infighting? Is anybody home? Hello? Hello? Do you have what it takes to actually govern or will you remain a repository for protest votes and donations? Is anybody there? Hello? Hello?

Re: “.. an agreement LNG Canada has with the B.C. government that caps its carbon tax at $30 per tonne, despite the national carbon price rising to $170 per tonne by 2030. “

This is a conflict. How can it be resolved? I hope the federal government can impose the tax if the BC government can not.

The carbon price for end users isn't the same as for big emitters.
This article from January 2020 describes what Canada agreed with Alberta was a sufficient carbon tax for "big emitters":

Isn't BC a province not subject to the federal carbon tax, because it was already doing enough? Despite that its emissions, like Alberta's, keep rising and rising ... and every more gets locked in all in the name of "the economy" that provides nothing much positive for ordinary Canadians.

We all know why Wilkinson meets with his investment partners and that is to do their bidding.
Natural Resources Minister Jonathan Wilkinson and his staff have praised Enbridge and Shell in recent months, after his spouse invested in the two large fossil fuel companies.

The case is just one example of a broader trend of investment ties between Canadian lawmakers or their families, and the oil and gas industry.

In November last year, Wilkinson congratulated Enbridge for partaking in a federal government grant program to retrofit homes for energy efficiency. And during a June meeting involving a manager at Shell, Wilkinson was urged by his ministerial briefing note to “recognize the great leadership” of the multinational company headquartered in the United Kingdom for helping build electric vehicle charging stations.

Before Wilkinson presented the Enbridge grant program and met with a representative from Shell, he had already listed both companies in his public ethics disclosures, as investments made by his spouse.... Narwhal

BIG conflicts of interest but at least 30 MPs have investments in O&G. Self serving politicians are not serving Canada but rather themselves. Wilkinson should resign from energy with this revelation.

We can't continue to believe we can 'have our cake and eat it too' when it comes to the climate emergency and sound climate policy. Fracked gas isn't natural.........and it seems to me we're going to see a lot more fracking in western Canada, if the LNG industry continues to expand.

We need to face the Catch 22 we're in. Conservative governments increasingly campaign on ending the carbon tax...which would be an obvious boon to oil and gas..........but Liberal policy is absolutely incoherent.
We're currently going to end 'inefficient subsidies'....whatever those are, but from the sounds of the industry lobbying detailed above, big guns are working to continue....and increase....subsidies that make it economical to frack northern B.C. and Alberta to death.......poison for the long term more water than most of us can imagine.......and continue building pipelines, and liquification facilities in order to transport this gas to
Makes Danielle Smith's latest ramp up Alberta's blue hydrogen pipedreams....sound like one more excellent greenwash taking us to hot house earth. While pretending, via peanut subsidies for green be fighting the growing climate emergency, we're going to remain, quite openly, in Big Fossil Fuel's pocket.

Sucks to be Us.....with a Science education so thin we think we can pull this off.....ramp up oil and gas production, in order to save the climate? Too stupid.
And for my grandbabies, SAD.

China is getting a supper duper deluxe discounted price on gas and oil from Russia, mainly due to Putin's stupid empire expansionist war on Ukraine. There are pipelines from Siberia in the works. Yes, sanctions exist on Russian exports, but it takes the form of a greatly discounted price on fossil fuels, a price that means Russia can't even break even on the costs of producing the stuff. They can't even get ships with insurance to deliver it by sea. There is no doubt that Canadian LNG will not be able to compete with that in China and India, the latter which is also importing discounted Russian oil & gas.

Indonesia and Malaysia have fantastic solar energy capability. Australia is in the midst of building a set of undersea HVDC cables to export cheap solar and wind power generated in massive farms in the desert Outback first to Singapore, right at the tip of the Malaysian peninsula. Malaysia is just one km away across the Johor Strait. Australia, which has an abundance of lithium, manganese, iron and phosphate, recently launched headlong into LMFP battery production for EVs and the large scale solar and wind grid. There are also a number of LNG competitors already shipping to Asia at relatively affordable prices (e.g. US Gulf).

It's not impossible to imagine BC LNG will be outcompeted by other fossilized companies and by renewables by 2030-35.