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Joe Oliver's Oil-Fueled Love Song to Europe

Canada's new tune on energy exports: Forget Putin, buy from us!

Andrea Rexer 13 Aug 2014TheTyee.ca

Andrea Rexer is a German journalist working for The Tyee for two months on a journalism grant (The Burns Fellowship). Back home she heads the Frankfurt office of one of Germany's biggest daily national newspapers, Sueddeutsche Zeitung. She covers economics and financials. Sueddeutsche Zeitung has 1.5 million readers daily and is considered a left-liberal newspaper. Andrea studied in Germany and Chile and has worked from Vienna/Austria, Buenos Aires/Argentina and several cities in Germany. In 2014 she earned the Ludwig Erhard prize for economic journalism. On twitter: @andrearexer

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Finance Minister Joe Oliver: 'A secure Europe requires ... friendly suppliers, like Canada.'

It's over 7,000 kilometres from the oilsands of northern Alberta to Rotterdam, Europe's biggest oil harbor -- a trip not yet made by a single ounce of Canadian crude. That didn't seem to faze Finance Minister Joe Oliver when, earlier this summer in Berlin, he made a sales pitch on behalf of his country's energy exporters.

"The fact is that Canada is emerging as a 21st-century resource superpower," Oliver told guests -- including a Tyee reporter -- gathered in Berlin's Canadian embassy on June 25. "A secure Europe requires secure energy partners -- responsible, reliable, friendly suppliers, like Canada," said Oliver.

While Oliver only directly referred to oil, his speech did not rule out Canada's other much hyped energy ambition: exporting liquefied natural gas.

To the gathered audience of politicians, business people and journalists, Oliver's vision likely seemed farfetched, given that Europe already has multiple fossil fuel partners including Russia, Norway and various Middle East countries. Oliver's remarks failed to generate headlines in Germany or elsewhere on the continent.

Still, the very first export of oilsands crude from Alberta to Spain reached the port of Bilbao in early June, greeted by local by local environmental groups protesting the emissions-intensive nature of the ship's 525,000 barrels of bitumen-derived Canadian fuel. A modest start, given that Europe has 500 million inhabitants.

Why Europe?

Up until now, the United States has been the biggest and nearly only buyer of Canadian oil and gas. But since the U.S. is having its own boom in unconventional oil and gas production, Canada is on the hunt for new markets -- and until recently assumed they'd be found in abundance in Asia.

But that prospect is being challenged from many sides.

First: Canada faces fierce competition in Asia from other suppliers. The biggest Asian market -- China -- has recently signed two massive contracts with its Russian neighbor, a $270-billion oil deal and a $400-billion gas deal.

Another competitor is the prime foreign consumer of Canada's energy. The United States is producing so much natural gas of its own that it is ramping up plans to export LNG to Asia as well.

It is winning that race against Canada, according to a recent report from the New York-based Eurasia group. From now till 2020, the report's authors say, the U.S. sites are likely to produce faster and seal long-term deals with Asia, whereas Canadians are still struggling with tax issues and resistance from environmental groups and First Nations. In 2015 there will be four LNG sites under construction in the United States, whereas none of the 15 projects in B.C. have a final investment decision yet from their proponents.

On top of that, Kitimat, the project furthest along in Canada has just been thrown into question. An American activist hedge fund has forced one of the two main investors out of the deal, pushing the company to focus on U.S. LNG.

In the meantime, political resistance and court decision have thrown into question the Northern Gateway and TransCanada pipeline projects intended to deliver Alberta diluted bitumen to B.C. ports for shipment to Asia.

Bashing Russia

If Asia is fading as an immediate prospect for Canadian oil and gas exports, what else might take its place? Oliver's pitch to Europe is timed to key off the Russian-European conflict.

On average, 27 European countries import 30 per cent of their oil and gas from Putin's Russia. But just last week Putin banned all food imports from Western Europe to Russia. Will he stop supplying oil and gas? The Europeans have reason to be worried. He has cut the gas supply to Western Europe before.

"Beyond being an aggressive neighbor," Oliver told his Berlin audience, "Russia is a notoriously unreliable energy partner. It froze natural gas exports to Ukraine twice in the past decade, with resulting shortages in other European countries."

For Oliver the consequences are obvious: "So it is a clear strategic imperative for Europe to diminish its dependency on Russian energy."

What do Europeans think about that?

They very much agree they should diversify their energy sources. Fears of too much dependency on Russia are years old. And this week Ukraine threatened to stop transporting Russian gas to Western Europe. Ukraine is the most important transit country for Russian gas to Western Europe.

Whenever Europeans think about alternatives to Russian oil and gas, however, the possible scenarios almost never include Canada.

The Brussels-based think tank Bruegel just released a study on how Europe could survive without Russian gas, and the answers are: More imports through pipelines from Scandinavian countries and LNG from the Middle East, Africa and South America.

Not a single word about Canada. It's simply not in the minds of Europeans. Hence the blank stares Oliver received in Berlin.

A lot of ifs

When asked if Europe wanted or needed Canadian oil and gas, the spokesperson of the European Energy Commissioner, Guenther Oettinger, told The Tyee, "The EU has been holding a high-level energy dialogue with Canada since 2007." But obviously that dialogue hasn't led to specific exports yet -- apart from those 525,000 barrels shipped to Spain.

One reason is the long distance and high transportation cost. "To ship LNG from Canada to Europe would be very expensive. There are more logical suppliers for Europe -- like the Caspian region or Northern Africa," said Philipp Richter, energy expert of the Berlin Think Tank DIW in an interview with The Tyee.

Richter challenged the bright scenario painted by British Columbia's premier and Liberal party, which has bet heavily on LNG development: "Reserve estimations of LNG are still unreliable," he says. "There is uncertainty whether the underlying estimates of shale gas resources will prove accurate. Second, these estimates describe the technical potential, not the economically producible amounts of shale gas."

Other analysts expressed doubts as well: "Energy supply from Canada to Europe cannot be realized in the short or even medium term. There is simply no infrastructure. Canada is cut off from the international energy markets," said Eugen Weinberg, commodities analyst at the German banking corporation Commerzbank.

The Energy East pipeline that would transport oil from Western Canada to the Atlantic coast is waiting for permission from government, expected by end of this month.

The Canadian oil that was shipped to Spain in June had a rather long way to go. It went through a maze of pipelines to the U.S. Gulf Coast and was shipped from there over the Atlantic. That's the route a U.S.-approved Keystone XL pipeline would expedite.

In the very long term, Weinberg does see a chance for Canada to become a significant energy supplier to Europe. Once pipelines are built and once LNG terminals are ready to work, if the price is competitive enough, there might be a chance, he muses.

But for now, this scenario is closer to science fiction than reality.  [Tyee]

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