Front Burner - Germany needs energy. What can Canada offer?

Episode Date: August 25, 2022

This week, German Chancellor Olaf Scholz visited Canada as part of his mission to shore up alternative sources of energy to reduce Germany's dependence on Russian natural gas. Scholz finished the trip in Newfoundland, where he and Prime Minister Justin Trudeau agreed to form what Trudeau called the “Canada-Germany hydrogen alliance.” Meanwhile, Scholz also said he wanted more liquified natural gas from Canada. Today, CBC’s Peter Cowan and J.P. Tasker explain what happened during this trip and what it means for the future of Canadian energy.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. This week, German Chancellor Olaf Scholz visited Canada as part of his mission to shore up alternative sources of energy to disentangle Germany from its dependence on Russian natural gas. The Chancellor finished the trip in Newfoundland, where he and the Prime Minister, Justin Trudeau, agreed to form a kind of hydrogen alliance. Today, my colleagues Peter Cowan and J.P. Tasker are here, and we're going to talk about this future bet on hydrogen

and the global geopolitics of energy right now. Hey guys, it is great to have you. Hi Jamie. Hello. So look, JP, maybe I'll start with you. First of all, tell me why the Chancellor of Germany was touring around Canada with Justin Trudeau this week. It was kind of like a royal tour. Right. Well, Germany needs friends right now, especially energy-rich friends. And they're really scrambling to get their hands on any and all energy they can find. And it just so happens we have an abundance of that right now, obviously. We're the second largest country in the world, and we sit on a wealth of natural resources.

So, Scholz was here to, you know, wheel and deal and tap into our abundance of energy. And it's especially important for them right now because Russia is persona non grata. You know, they've been Germany's supplier of choice for decades. But that well is running dry because of the war in Ukraine and the ongoing geopolitical drama over there, obviously. So all of a sudden, Germany is getting a little cozier with Canadians as they try to make up for Russia dramatically reducing the amount of natural gas that they're sending to Germany and other countries in Europe. I mean, it's hard to overstate just how dramatic the change has been. I mean, Russia is basically sending about a fifth of what they would normally

send in natural gas to Germany. And they are just like, what are we going to do? And they are trying to turn over every rock to find the stuff they need to power their economy. Yeah. And talking about those rocks, I guess I want to spend a bit of time talking about the two different types of energy that Germany is really pursuing right now. Of course, trying to replace some of the natural gas that it is getting from Russia. We'll get to that in a minute. But the other source that they're really going after is hydrogen here. And so the visit with the chancellor wrapped up with this announcement this week about hydrogen in Stephenville, Newfoundland. And Peter, what was this announcement and what have our two countries essentially agreed to here? This is an alliance as they're billing this.

And it's really just a case of Germany and Canada saying, hey, hydrogen is important. Let's work together to try and make this happen. We've got the ability to produce it here in Canada. You in Germany really want it. So let's find a way. The Canada-Germany Hydrogen Alliance is a historic step forward for our shared future. Our target is clear, working towards initial exports of Canadian hydrogen to Germany by 2025. The time to act is now. Not only in order to reach our ambitious climate targets and secure our energy supply, but also in view of international competition.

The only specifics in here really are that by 2025, they want to have that first shipment of hydrogen. But of course, this isn't a binding agreement. So this is really just the two countries saying, this is a priority for us. Let's figure out a way to get it done. Okay. And before we talk about how we might get it done, I wonder if we could just back up a tiny bit. And in kind of simple one-on-one terms, maybe you could explain to me what hydrogen is like as an alternative form of energy. Right. So the reason that everyone's really interested in hydrogen is because it does not

produce greenhouse gas emissions when you burn it. So it's become very desirable as an alternative to things like natural gas, which does have a lot of carbon footprint that comes with it. The trick, of course, is how do you make the hydrogen? So the projects that we're talking about in Atlantic Canada are looking at wind as the main way. So the idea is you have a wind turbine, it produces electricity. You take that electricity, you combine it with water, it actually splits the water because looking back at science class, water is H2O, two hydrogens, one oxygen. You take the hydrogen and then you're able to use that hydrogen as a source of energy.

So in that process, you're not producing greenhouse gas emissions when you generate the electricity and you don't produce greenhouse gas emissions when you actually burn the hydrogen on the other end. So that's really why it's kind of the holy grail as energy sources when we're looking for a low carbon future. Right, right. This is also called green hydrogen, right? Yeah, there are all sorts of colors with different hydrogen because, of course, it all depends on how you're producing the hydrogen will determine how clean it actually is. Right, because you were saying it doesn't release greenhouse gases when you burn it, but to create it, some kinds of hydrogen use. Yeah. In Canada today, we do produce hydrogen, but most of that is produced from using natural gas.

So you're able to split apart the natural gas, keep the hydrogen. The problem is you've still got a whole bunch of carbon that's produced. Problem is, you've still got a whole bunch of carbon that's produced. And they are working on technologies to be able to capture that carbon so that it doesn't just get released into the atmosphere, which is basically what happens right now. But the reason the Germans love green hydrogen is because it is clean end to end. You don't have to worry about all this carbon and what you're going to do with it. Why is Newfoundland considered a good place to develop this green hydrogen? Anyone who visits Newfoundland will be able to tell you that there is a lot of wind. It's very windy. Yes. And so that it really has an untapped wind resource.

In fact, you know, there have not been large scale wind projects in Newfoundland before. So now they're looking at it and saying, OK, we've got these places that are really windy. There tend to be, we heard from Olaf Schultz, sparsely populated. So, you know, there's more area to put wind turbines compared with somewhere like Europe where you're running out of places to be able to put them. And it's not just Newfoundland and Labrador. Nova Scotia has a wind project that has a similar plan to produce hydrogen. And in fact, they just announced a deal this week to actually sell to two German companies. So there's definitely some interest there. And we saw the prime minister really trumpet that like, hey, it's not just us politicians that love hydrogen. We actually have some companies that want to get involved in this, too. It's not just governments talking about it. It's businesses signing deals that involve real money because they know that this is going to be needed in the coming years.

So, JP, this bet that Canada and Germany are making on hydrogen here, or essentially this deal to work towards this, it's quite $60 a gigajoule, for example, to produce that cleaner, greener form of hydrogen compared to natural gas, which is about three bucks. So we're talking 20 times more expensive. And we don't have the infrastructure in this country just yet to actually do this on a large scale. We don't have pipelines to move product. We don't have some of the plants that are required to do this. He's on a shopping trip, but there's nothing here to buy, at least not yet. Chancellor Olaf Scholz is in Canada looking for new energy suppliers as Germany reduces its reliance on Russia. We are working hard to become independent of this gas supply, and we are doing a lot of investments to make it happen.

So that's why this announcement from Germany and Canada was so substantial, because it is a substantial amount of money going into this project. They're trying to stand it up. The German chancellor was asked this week about it, being like, are you really going to be able to rely on green hydrogen for such a large economy? And he said, well, all technology, all energy sources started out in their infancy, right? They all started out as maybe a bit of a pipe dream, but we're going to try and just pour a bunch of money into it. And we're going to try

and make this work. And we're going to try and stand it up and make this the alternative to natural gas, not just in Germany, but around the world. My perspective is that this is like all these industrialization processes were in the past. It starts and it's starting slowly. But then there is the moment where from one day to the other, it's there is a big scaling up happening because so many different industries decided that they will change the way of production with electrifying their processes and with using hydrogen as the gas to be used in the industrial processes. And this is the time we are living in. It will be a big industry in a very short time. And we all together, assembled here, will understand this as a part of our lives,

not just of those of future generations. It's happening now. And I think it is important to point out, there is not another example of green hydrogen production that we can sort of point to and say, oh, look, here's another project. They're doing it really well. Let's just copy that. We're figuring this all out right now. And the hope is that, especially by combining some of the industrial know-how from Germany, that there can be a lot of research and development done saying, look, there is a demand for this. Let's sharpen our pencils, get some smart people on it and figure out how can we lower the cost of production. The other challenge we have is shipping hydrogen around. Right now,

you can't really turn it into a liquid form the way you can in natural gas quite easily and load it onto a ship. So in fact, right now you have to convert it into ammonia. Takes more energy to do that. Load that into a ship, send it over to Europe. Then they need to split it apart, the ammonia, to get the hydrogen out of it at the other end. So, you know, are there better ways that we can try and ship it? Are there better ways that we can basically make the process more efficient so that cost per kilogram of hydrogen delivered to Germany can be lowered to make it be competitive? But one of the points that they have been making is even with it being more expensive, there are some areas that need to use hydrogen. So, for example, if you're refining oil and gas, you need hydrogen. So to be

able to say, look, if you want to reduce your greenhouse gas emissions from something like that or making steel that you're going to need the hydrogen, you're going to have to pay a premium for it, but it lowers the emissions in areas of the economy that otherwise are going to be really difficult to try and reduce those greenhouse gas emissions. Peter, how do the people of Newfoundland feel about this, about being like the ground zero kind of for this new energy pursuit? It's a mixed bag. And we saw protesters who greeted the chancellor and the prime minister when they arrived in Stephenville,

because there are people who live on the Port-au-Port Peninsula where they're planning to put up 164 wind turbines who said, look, we are the guinea pigs of the Port-au-Port Peninsula. So we don't want to have this in our backyards. I don't want the impact that this is going to have. Why should I have to put up with this when I don't even get the benefit of this energy? It's all going to go over to Europe. And I think what we've heard from the proponents, especially like John Risley, who is the billionaire businessman from Nova Scotia, best known for Clearwater Seafoods, he's one of the people backing the plan for Stephenville. And he says, look, this project could displace all of the emissions for all of Newfoundland

and Labrador. So we've got to move quickly. We can't afford to do what we did with our natural gas opportunity, which is to have an enormous resource and not an opportunity to reduce the greenhouse gas emissions and actually try and tackle climate change. And if we've got the resources to do it, we should get going and actually start on that now. And we can't wait. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix.

I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples,

I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. And JP, I'm wondering if now we can spend a little bit of time on another energy source, natural gas, which of course you mentioned up at the top, and then we've talked about in this conversation how it's cheaper. So tell me a little bit more about what natural gas is compared to hydrogen or even oil. Yeah, sure. So natural gas obviously is a different kind of fuel source.

It's widely used in utilities across the country and around the world. But what we're talking about here is liquefied natural gas, which is essentially turning natural gas into a liquid, which makes it easier to ship. They liquefy the gas, they cool it down to minus 162 degrees Celsius. That shrinks it up massively. And then they can put it on a big tanker ship and take it all around the world. So many countries ship LNG to Asia, for example. Asia is an energy-starved region. They don't have a lot of natural resources there. A lot of LNG goes from Norway to countries in Europe and around the world. It's a very common technology. It is in its infancy, I would say, here in Canada, though. We don't really have LNG plants up and running at this point. Two are under construction on the West Coast. There are none on the East Coast. plants up and running at this point, too, are under construction on the West Coast. There are none on the East Coast. And the German chancellor mentioned, well, if you happen to have some LNG on the East Coast, we'll take it. We would really like Canada to export more LNG to Europe, yes. Those plans are not very well developed, and the federal government has given kind of a mixed

response on their interest in actually developing LNG plants and gasification terminals on the East Coast to ship it to places like Germany. Tell me more about why they perhaps wouldn't be interested. The problem is most of it is in Western Canada. And we're talking about a huge country and we're talking about moving it across that country and across the Atlantic Ocean. So there's a lot of infrastructure that's required to actually take the natural gas from BC, Alberta, or Saskatchewan and get it to port in St. John, New Brunswick, or elsewhere, and then on to Germany. You need all new infrastructure to do that. They could repurpose some existing pipelines, but it's going to be a hugely

costly endeavor and politically unpopular because guess where those pipelines go through? They go through Quebec, and Quebec has been clear that they really don't want any new natural resources development that revolves around oil and gas. So the prime minister was asked about this earlier this week, and he said, you know, there really hasn't been a good business case to this point to actually stand up an LNG facility in Atlantic Canada. There are a number of potential projects, including one in St. John's and some others, that are on the books for which there has never been a strong business case because of the distance from the gas fields, because of the need to transport that gas over long distances before liquefication.

We are looking right now, and companies are looking, at whether or not the new context makes it a worthwhile business case to make those investments. We're not necessarily opposed to it, but we think it's going to be hugely expensive. It's going to take a long time. And by the time that you get something up and running, Europe might be running away from fossil fuels. They might be on to other cleaner technologies. So it might be money that's not well spent.

But some are saying there might be a business case now. If Europe is no longer reliant on Russia, if they are moving quickly away from it, if Russia is holding back its natural gas supplies, maybe Canada can step into the fray. Maybe they will be able to supply the continent for a few more years to come because this transition to greener, cleaner sources is not going to happen overnight.

These are massive economies that cannot power them on solar panels alone. So there will be a need for natural gas, which burns a lot cleaner than coal. And there is an argument to be made for developing on the West Coast as well, the LNG facilities out there, because Canada can pump that LNG into the Asian market. And some suppliers like Qatar and African nations can instead focus on sending their products to Europe instead of sending it to places like Japan. So a lot of observers say there is a role for Canada in the energy future before we get to a fully net zero economy.

Does it seem to you like Schultz with this visit lit a fire under Canada here to build up some more energy infrastructure to export what we've got or what we could have to the world. I think it's fair to say that energy projects in Canada have historically been marred by inertia. Yeah, I think it was definitely a shot in the arm to the hydrogen industry. The government has been hot on this, but this is a big commitment from Germany, one of the largest economies in the world. So to have that financial backing, to have that hunger for Canadian hydrogen, I think it really is a boon for that industry. And I think it will make the federal government think about what they can do to support the development of LNG in Atlantic

Canada. Chrystia Freeland, the Deputy Prime Minister, was out in New Brunswick a couple weeks back and she said, we do think that there actually is a role for the federal government in this and that we do want to help Europe transition away from Russian energy. I think it is a political responsibility for us as a country to support our allies with energy security. This is a very tough moment for many European countries. And I think that it's very important for Canada to step up and to say, we're going to help you. We're going to help replace that energy. So I think it's kind of focused the mind and it's encouraged the federal government to think about Canada's role as an energy superpower. And I think from the hydrogen point of view, this has brought a lot of attention to these projects in Atlantic Canada that we probably wouldn't be talking about otherwise.

And with that attention comes businesses who have money, like just one project on the West Coast in Newfoundland. They're talking about $15 billion. That money's got to come from somewhere. And the fact that both countries have now said, yes, this is a priority, may get some of those big institutional investors to say, hey, maybe this is is a priority, may get some of those big institutional investors to say, hey, maybe this is a project that's worth putting some of my money behind in order to actually make it happen. You know, it seems to me that Schultz and Trudeau, they're kind of caught in a similar tension here. These are progressive leaders who want to project a green image to the world. But at the same time, there are these real geopolitical energy pressures right now.

Yeah, they want to be climate warriors. They want to really drive down greenhouse gas emissions. The pressure on Scholz is immense. Germany is a very green country. There is a huge segment of the voter base there that really does want to transition off fossil fuels. But it's not going to happen overnight. They're not going to be able to rely on green hydrogen or solar or wind for that matter. And the country has moved to take their nuclear power plants offline.

So they got to turn to something and that's natural gas. And I think that what he is saying is we'd rather work with a country like Canada because we know that this is a country that takes climate seriously, that has some sort of plan to drive down emissions. So we're open to taking natural gas from you. They just don't know if it's going to happen on the right timeline, because Canada does not have LNG facilities on the Atlantic coast that are ready to start exporting LNG anytime soon. But if he had to pick, he'd rather go with Canada over some other entity like Qatar in the Middle East or some of the African countries where climate standards really aren't the same as what we have here.

All right. JP, Peter, it was a pleasure. Thank you so much. Thanks, Jamie. Thank you. All right. That's all for today. Thank you very much for listening, and we'll talk to you tomorrow. Thank you.