LNG plant cancellation could kill premier's shale gas ambitions, says energy insider

The decision to not build a liquefied natural gas export terminal in Saint John may also spell the end of Premier Blaine Higgs's long-held ambition of reviving shale gas development in New Brunswick.

Repsol's decision, announced Thursday, cuts off the most lucrative possible outlet for the sale of gas extracted in the province, according to both energy insiders and environmentalists.

"It would not be good news, for sure," said Todd McDonald, president of the Halifax-based gas trading firm Energy Atlantica. "It would have given a lot of motivation to develop shale gas because you had an instant [European] market with access to high prices.

"I don't want to say it kills it, but it's not good."

Gas from New Brunswick could still be sold into the United States via pipeline, McDonald said, but because of plentiful gas supplies there, the price might not be high enough to justify the cost of development.

"There's still a market for it and it's economic, but it's not as good," he said. "It's not terrible … but it's not anything people are going to move heaven and earth for."

Higgs has long championed shale gas development and was part of a government that aggressively promoted the sector and saw confrontations between protesters and police near Rexton in 2013.

His rhetoric ramped up again after the start of the war in Ukraine in February 2022, when Europe faced the loss of natural gas supplies from Russia.

Gas extracted in New Brunswick was a "possible solution," for Europe, Higgs said then, because it would be cheaper to ship from a Saint John export terminal than Western Canadian gas travelling by pipeline all the way to the facility.

Louise Comeau of the Conservation Council of New Brunswick said that combination was never realistic.

"These were ideas that the premier put on the table as options that he thought, 'if we could combine them, could we get an outcome that would work?' They never were going to work."

Higgs brushed off those takes on Friday, telling reporters a provincial gas industry could still be viable "in order to meet our own needs and those of allies in Europe," though he didn't explain how the gas would get to Europe without Repsol's terminal.

He also said developing more natural gas for the local or regional market would provide an alternate energy source that would allow both NB Power and Nova Scotia to shut down coal-generated power plants in time for a 2030 federal deadline.

"It's not about me saying 'why don't we use more gas?'" Higgs said.

"We have a solution here in New Brunswick, and I guess do we choose to take it or not? That's the challenge we have."

McDonald and Comeau agreed on Friday that the Repsol terminal itself was always a difficult business proposition.

After the war in Ukraine broke out, Canadian business and political leaders, including Higgs, trumpeted the idea of arranging for LNG gas exports to Europe to replace what Russia had been supplying.

The scenario assumed that a war-induced spike in gas prices would continue, driven by scarce supplies and a cold European winter pushing up consumption.

It also assumed those two circumstances would last long enough for the terminal to get up and running quickly, and be profitable for years to come.

But that's not what happened.

"The economics don't work anymore," McDonald said.

Europe restarted some coal and nuclear plants, began shifting more quickly to renewables and instituted energy efficiency measures that allowed it to avoid a gas shortage.

It also lucked out with record high temperatures over the winter.

"It was insanely warm in Europe, and that bought them time to come up with alternatives," McDonald said.

The International Energy Agency said last July that rather than making LNG more attractive, the war had damaged gas's reputation as a reliable and affordable energy source, leading to "a considerable downward revision" of prospects for future demand.

In December, the agency said Europe had made "significant progress" in reducing dependence on Russian supplies and on finding alternatives.

The lower-than-expected demand helped return the price of gas in Europe to prewar levels.

The price per gigajoule leapt from $13 US. before the invasion to $110 afterward — but it has since dropped to $11, McDonald said.

That would have forced Repsol to ask itself whether it would ever see a return on the money and time it would have to commit to expanding its Saint John terminal for exports.

"It takes billions of dollars and a minimum of three to five years to do it," McDonald.

"The only way the project would have gone forward would have been, say six months ago, if Germany said, 'we will take on all that risk and we'll sign a 20-year agreement at $40, which assures you that your project is economic."

Comeau said Higgs's fixation on LNG has distracted his government from looking at other energy options such as renewable power.

"I really do think that the focus on the Saint John LNG option as an export facility was really an idea that was more in the premier's mind than it was in the company's mind," she said.

"I think it's been clear from the beginning that the economic case was weak or non-existent."

Repsol said Thursday it was scrapping its plans because it would have cost too much to ship gas from Western Canada through pipelines to the terminal.

"Following a study carried out by the company, it was determined to not continue with the Saint John liquefaction project as the tolls associated to it made it uneconomical," said spokesperson Michael Blackier.

Higgs attempted Friday afternoon to define Repsol's decision as a narrow one, prompted only by the pipeline tolls.

"The tolling fees were just too high and they were very clear that that's why the project was not viable," he said.

"Repsol didn't walk away from the project because they didn't have a market. They walked away from the project because they didn't have a gas supply."

But McDonald said it's impossible to ignore the broader market realities.

Those pipeline tolls would not have been prohibitively expensive for Repsol if Europe were going through an extremely cold winter, or if a spike in natural gas prices at the start of the Ukraine war was still happening, he said.

"If you and I were having this conversation, and let's say it had been the coldest winter in 500 years, you and I would be talking about how Repsol has approved this project and signed a contract with some countries in Europe."