Troilus Gold brings potential funding from ECAs to $1.3 billion
The company has signed an additional LOI with Export Development Canada worth $300 million.
Even before Russia invaded Ukraine, shocking oil and natural gas markets, an energy crisis had already been brewing in Europe – a crisis that was somewhat self-induced.
The Western world may be at an inflection point in the energy transition – one that underscores the dangers of miscalculating how much traditional energy (oil, coal and natural gas) will still be needed as advanced, industrial societies try to move away from them, and how much alternative sources of energy are needed to replace them.
The current energy crisis – marked by high oil, gasoline and natural gas prices – underscores the urgency of moving away from fossil fuel dependency, especially in Europe, while at the same time highlighting just how stubborn and important fossil fuels still are to energy security and the global economy.
“The world may be entering a period of profound energy scarcity,” said Joseph Calnan, an energy security analyst at the Canadian Global Affairs Institute (CGAI).
“Traditional energy companies are investing as if we are on track for the International Energy Agency’s (IEA) net zero scenario. Meanwhile, clean energy investment is not expanding enough to even meet the IEA’s stated policies scenario. We are potentially facing a global shortage of both traditional and renewable energy in the next decade.”
Despite Western Canada’s significant reserves of both oil and gas, it is in no position to ride to the rescue with oil tankers and liquefied natural gas (LNG) carriers brimming with crude and natural gas. The best Western Canada may be able to do is maximize existing pipeline and rail capacity to pump a bit more oil and gas to the U.S. and learn some lessons from Europe on the need to carefully balance old and new energy sources.
“The way that Canada handles its own energy resiliency in the coming years could determine whether we are caught off guard by this energy shortage, or whether we will be able to master it, and perhaps even thrive, as a secure and trustworthy supplier of desperately needed traditional energy and minerals for the world,” Calnan wrote in a recent analysis for the CGAI.
The last major energy crisis in the 1970s was all about oil and conflict in the Middle East, and it led to one of the deepest recessions North America has ever experienced. This one is different, and for Europe is it somewhat self-made.
Germany, France, the U.K., the Netherlands and other European countries banned fracking, denying themselves a domestic source of natural gas, and making Europe thrall to Russia, which supplies Europe with 45 per cent of its natural gas imports.
And while it has invested heavily in wind, solar and biofuels, Germany is at this very moment in the final phase of shutting down all of its remaining nuclear power plants.
A severe winter that depleted European natural gas stores, a drastic shortage of wind power and a lack of nuclear power left Europe short of both electricity and natural gas in 2021, sending energy prices through the roof.
And now war in Ukraine and the redrawing of the Iron Curtain around Russia threatens to turn a regional energy crisis into a global one as the world suddenly finds itself short on both oil, natural gas and clean alternatives.
High oil and natural gas prices theoretically should accelerate the transition away from fossil fuels. After all, making fossil fuels expensive through measures like carbon taxes in order to discourage their use is a key climate change policy tool.
But Western governments have also found themselves in conflict with some environmentalists pushing renewable wind and solar power, to the exclusion of all other mitigation approaches, like nuclear power, coal or gas power with carbon capture and storage, and even some biofuels.
“When politicians get to power who are really influenced by environmentalists, those aren’t necessarily good market-oriented people,” said Simon Fraser University sustainable energy economist Mark Jaccard, who is currently working on the Intergovernmental Panel on Climate Change’s Working Group 3 sixth assessment.
“What it means is you’ve started to really narrow your ability to switch off fossil fuels. What’s happening in Europe is the alternatives to fossil fuels are not developing as fast as they should, and they’re going to need some shocks to make that happen.”
When the global economy recovered from a pandemic-induced contraction, the world found itself short by about two million barrels of oil compared to pre-pandemic levels. Normally, oil producers simply respond to rising demand and prices by drilling more wells.
But Canadian and American producers have been told by some environmentalists, banks, pension funds and politicians that they need to “keep it in the ground,” and shale producers in the U.S. in particular have done just that. They are not investing in new wells as one might expect in such a high-price environment.
Meanwhile, some argue not nearly enough has been invested in alternative sources of energy or electric vehicles either.
The isolation of Russia – one of the world’s largest oil and gas producers – by Western countries is having a profound effect on oil and gas supplies and prices. Russia supplies about 10 per cent of the world’s crude oil and about 45 per cent of Europe’s natural gas.
Given that Canada has the third-largest oil reserves in the world as well as significant amounts of natural gas, the country could theoretically step up production but is not necessarily in the position to do so. It has limited ability to increase exports, owing in part to government policy in both the U.S. and Canada – policies that are unlikely to change.
Following her recent attendance at CERAweek, a major energy conference, Alberta Energy Minister Sonya Savage said existing pipeline and rail capacity is sufficient to allow Alberta oil producers to make up about one-third of the oil that the U.S. will lose from Russia – about 200,000 barrels per day.
“There’s really a pretty clear theme coming through from CERAWeek as a whole, and generally it’s that government needs to start treating our oil and gas reserves as a strategic asset to be proud of, not a liability to phase out,” Savage said.
“The supply disruption and the need to weed out Russian barrels really put a strong focus on this. And it put a really strong focus on the weakness of North American energy policy. Governments around the world have dropped the ball on energy security.”
The expansion of the Trans Mountain pipeline will add 590,000 barrels per day in capacity, which will allow Canadian oil producers to export more oil. But the expansion is now not expected to be finished until 2023. By then, the Organization of Petroleum Exporting Countries (OPEC), the U.S. and possibly Iran may be making up for whatever oil exports are lost from Russia, which could very well find a home for its oil in China and India.
“If the Canadian oil industry is saying this is a reason to build not only Trans Mountain, but some other pipeline, that’s complete self-serving nonsense,” Jaccard said. “The oil markets will reequilibrate very quickly.”
He said there may be a stronger argument to be made for increasing Canada’s ability to export natural gas in the form of LNG, however. Pointing to the Coastal GasLink pipeline, which will supply the LNG Canada plant in Kitimat, B.C., Jaccard said: “Maybe this pipeline is justified, and maybe another one will be.”
The LNG Canada project is one of three major projects under construction around the world that were supposed to be in operation by 2024, but which are now likely to be delayed until 2025, according to the IEA.
There is a proposal for a new East Coast LNG project – Pieridea Energy Ltd.’s (TSX:PEA) Goldboro LNG – that could conceivably meet some demand for LNG in Europe, and another West Coast LNG project – the Haisla First Nation’s Cedar LNG project – making its way through the environmental review process.
Calnan doubts an LNG terminal will be built on the Atlantic coast and doesn’t think Canada can compete with the U.S. when it comes to building major LNG projects on the scale of LNG Canada.
The biggest contribution Canada may be able to make to address a critical demand for LNG in Europe is through increased exports of natural gas from Western Canada via existing pipeline networks to the U.S. Gulf Coast, where major LNG terminals are located.
“We don’t have the industrial base setup,” Calnan told BIV. “We don’t have a streamlined permitting process like they have down in the States. It’s a bit of a mess, to be honest, and it’s a real failure of our governments not to seize onto this.”
(This article first appeared in Business in Vancouver)
