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Aug 23, 2022
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Germany asks Canada for the impossible instead of the vital

Immediately after the collapse of gas negotiations with Qatar, Germany is trying to convince that it has found another great alternative to Russian gas. This is LNG from Canada, which is really rich in natural resources. The dreams of the Germans can come true, but not in the two months left before the start of the heating season. On the German nose is a much more fatal problem to be solved with the Canadian leadership.

“Canada is as rich in natural resources as Russia, with the only difference being that it is a robust democracy,” said German Chancellor Olaf Scholz, who is visiting Canada. In particular, Germany would like to buy liquefied natural gas from Canada. During the visit, Scholz intends to negotiate the supply of “important raw materials” instead of Russian, writes DPA.

However, Germany’s dreams will have to be destroyed against objective reality. “Of course, there is no talk of replacing Russian gas with Canadian gas this or next winter. Today, there is only one export LNG terminal in Canada,” says Aleksey Gromov, Energy Director at the Institute of Energy and Finance.

True, there is also a terminal for receiving imported LNG, which is owned by the Spanish company Repsol in St. John. It can be converted into an export terminal. But it will take three to four years, said Canadian Natural Resources Minister Jonathan Wilkinson.

In general, few people considered Canada seriously as an LNG exporter, because it was overshadowed by the United States, which has increased gas exports in recent years and insists on increasing the pumping of gas from Canada to its territory through the pipeline. Canada, however, had ambitions to develop LNG exports when Europe decided to accelerate the phase-out of Russian gas.

“Canada has plans to expand the network of LNG terminals and increase exports of its own gas, including shale gas.

When we analyzed the LNG market, we came to the conclusion that Canada can become a major player in the LNG market, but this will not happen until after 2025 or even 2026. That is, Canadian LNG export opportunities will appear approximately when a new wave of commissioning of American LNG terminals starts,” says Gromov.

It is worth noting that in Canada, the position of environmentalists is strong, who are sharply against the new tilt of the Canadian authorities, who had previously pursued a policy of abandoning hydrocarbons. That is why the gas market in Canada has not been developed, although there is potential there. Low gas prices, which were earlier, also did not contribute to this.

Therefore, Germany is hardly worth counting on Canadian gas in the next 3-4 years.

“Canada doesn’t have the real resources to help Europe right now. Therefore, I consider Scholz’s talks on this topic as a hope to reach an agreement on the future. Germany, one way or another, made a strategic decision to move away from Russian gas in the future, so it needs to look for new suppliers,” says IEF Energy Director.

Germany’s attempt to negotiate with a serious global player in the LNG market today – with Qatar – on gas supplies failed miserably. In March, after German Economy Minister Robert Habek visited the Middle East in search of an alternative to Russian gas, he boasted that Qatar was ready to supply Germany with LNG. However, last week the German press reported that the talks had broken down. Germany failed to conclude a contract with Qatar. Although Italy continues to receive fuel from there.

“Qatar insisted exclusively on its own terms for gas supplies. We are talking about the price, and the signing of long-term contracts. Qatar set the most stringent conditions that did not suit Germany, and the deal did not take place. The search for gas in Canada is the result of Germany’s failure in Qatar,” the expert says.

Whether the Germans will be able to negotiate with the Canadians on the price is a big question. After 2025, a new wave of new LNG terminals is expected to enter the market. This means that the world market has received additional volumes of LNG. In theory, if global demand for gas remains the same as it is now, then fuel prices will fall sharply. Will Canadians be willing to sell their gas for pennies, and even at high logistics costs? Most likely, the Canadians will ask the Germans for a rather big price for future gas, so that their investments in production and infrastructure will not go to waste.

But even if Canada’s conditions are more acceptable for Germany than Qatari’s, the Germans will wait a long time for Canadian gas. In fact, Canadian Prime Minister Justin Trudeau himself said that Canada can do little to help Europe this winter.

On this wave, another European country – Estonia – proposed to the European Union to include in the eighth package of sanctions against Russia a complete embargo on the import of Russian energy resources. For the EU to refuse from 2022 not only the import of Russian coal (since August) and Russian oil (since December), but also gas.

“The statements of Estonian politicians are out of touch with reality. Do not take such talk seriously. Nord Stream 1 was completely stopped for just three days for technical work, and gas prices in Europe immediately soared to $3,000 per thousand cubic meters. This shows how sensitive the European market is to supply restrictions from Russia. And what will happen if Russia itself unilaterally cuts off the valve? All European industry will stop, severe austerity and a deep recession will begin in Europe. Prices will skyrocket. Because there is no alternative gas in the world. And LNG supplies in Europe in recent weeks have been at low levels compared to supplies at the beginning of the year. Because at that time the Asian countries, for commercial reasons, conceded LNG to the Europeans, and now the closer the heating season, the higher the prices on the Asian market become. South Korea and Japan are already starting to compete for LNG,” the source paints a sad picture.

He is confident that Germany needs to fully restore Russian gas supplies via Nord Stream 1. Therefore, one of Scholz’s tasks is to agree with Canada on solving the problem with the turbine and, most importantly, to discuss the issue of future maintenance of the Russian gas pipeline.

“I am absolutely sure that the Germans, the Canadians and the British, no matter what they say to the public, making innocent eyes, perfectly understand what Gazprom wants. He made it clear that he is seeking a long-term exemption from the sanctions for all maintenance work on equipment necessary for the successful operation of the Nord Stream 1 gas pipeline,” Gromov explains. The temporary exemption from the sanctions for the repair of turbines, which was issued, is not enough for Russia. Because at any moment this exception can be canceled, and repair of turbines will become impossible again.

Achieving a permanent exemption from the sanctions of all works for turbines is the main task of all three parties: the EU (because Siemens), Canada (where the repair plant is located) and Great Britain (because the contract with Gazprom is drawn up according to British law and the engines in the turbines of the brand Rolls Royce).

“However, all parties are trying to hide the very fact of such negotiations, so as not to be criticized in the public space for assisting Russia. Therefore, the decision to restore gas supplies from Russia in full, which is vital for the German economy, must be framed in such a way as not to drop the political position of the modern leadership of Germany,”

– concludes Gromov. From the impasse into which the country’s leadership has led, he himself will have to get out. Bulgaria, for example, which refused to pay for Russian gas in rubles and was cut off from it, wanted to resume supplies and is ready to discuss this with Gazprom. The secret is simple – a little more than two months are left before the start of the heating season.

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