Mr. Chair, and honourable members, thank you for your invitation to contribute to your study.
I'm an independent policy analyst, and I focus on energy. I've been following the energy sector now for about three decades. The opinions I express today are my own.
The current political crisis unfolding within Ukraine, and between Ukraine and Russia has raised the question: can Canada play a role in Europe's energy security? If you believe this crisis might drive an opportunity, then it may be fair to ask if that opportunity will outlast the political crisis.
Those in Europe with whom I spoke this week cannot see a future when Russia will be displaced from the energy markets of Europe. Russia simply has too large a role to play in supplying Europe with energy. More than 25% of Europe's total market for gas—34% is the last figure I had—and just under 30% of EU oil is shipped from Russia. Europe and Russia have become entwined in a symbiotic relationship, a web of interlocking business and financial relationships, based primarily on energy.
Of course, we've seen disputes that have arisen between Russia and states of the former Soviet Union, and these created some collateral damage for Europe, including interruptions to gas supply in 2009.
Security issues aside, the priority need for Ukraine today is financial help in meeting debts. I fully expect that Europe will assist as this is clearly in its interest to resolve the problem.
Is there an ongoing threat to European energy security? If markets are any indication, the answer is probably not yet. We see that European gas prices have moved little on the latest Ukrainian problems, not an indicator that energy security is top of mind, or that the intensity of the current political confrontation is enough to create a willingness by Europeans to pay an estimated $35 billion annual premium for diversification away from Russia as a supplier of choice.
It is also not likely that European consumers will be easily convinced to accept a 50% increase in their gas bills, so the energy security issue may well fade, provided the political crisis resolves itself.
After the crisis in 2009, there was increased investment to support trade with Russia, the most notable was the 14 billion euro Nord Stream project to bring gas directly from Russia to Germany under the Baltic Sea.
Some have decided to move toward less dependence on Russia. Lithuania, for instance, has commissioned a floating LNG receiving facility, and Poland is also taking steps to tap the world market for LNG.
Europe currently imports about 11 TCF of gas annually. To put it into a Canadian context, the Russian share would be equivalent to about four Sable Island gas projects exhausted every year, or about the volume of output from four or five good-sized LNG projects like the current one in Sabine Pass on the Louisiana-Texas coast.
That being said, Europe cannot afford to have uncertainty over where its energy will come from for any amount of time, let alone the decade or more it would take to transition away from Russia. During that decade there would be opportunity for an immense amount of dislocation: economic, political, and social.
The reaction from Europe on the energy security front will not be uniform, of course; we've seen that. It will reflect that individual states have to assess their own vulnerabilities, and those vary widely from the U.K., with very little direct need for Russian gas, to former Soviet Union states, which are wholly dependent on Russia.
Europe, with so much Russian-focused infrastructure, may augment a small portion of Russian gas with a little more gas from Norway, a little more LNG from the world market, a switch back to more coal, revisiting nuclear, ramping up renewables, and redoubling conservation efforts, but in the end, Russia still remains a key player.
We should therefore assess markets realistically with Russia as part of the dynamic, an entrenched player that has a competitive cost base and the infrastructure to deliver its product, and one that has demonstrated that it will defend its markets very aggressively.
What can Canada do? Canadian gas is not available on the east coast yet in sufficient quantities to justify the investment in LNG infrastructure. That may change, of course, with new discoveries or by making the investments in gas pipeline infrastructure required to bring more gas into the region. This is a five- to ten-year prospect.
Notwithstanding this, LNG will still go where it will fetch the highest price, and currently, that is Asia. Interestingly, we are about to repurpose the main west-east gas transmission pipeline to move bitumen, which won't really help the gas situation in Europe.
Is there really an opportunity to do something here? Well, considering the points that I've raised, the fact that there is little interest in the European market as demonstrated by the current round of U.S. LNG export project whose focus is Asia, the answer to that on the gas side is probably not. The question is if there's anything else we can do.
For Ukraine, it's been estimated that if that country were as energy efficient as western European countries, its own domestic production would be sufficient for its own needs. I see an opportunity if Ukrainians decide to take themselves off the Russian subsidized gas habit, and therefore the real opportunity may actually be Canadian energy efficiency expertise working in partnership with knowledgeable Ukrainians, not more gas to feed an inefficient energy system.
If I have time, I would like to make a short comment on oil.
Canadian producers at the moment have a negligible impact on the EU oil market. We currently export to the EU about .47% of their imports and that's light sweet crude. Perhaps there's some room to move more light sweet from Newfoundland and Labrador as more projects come on stream. However, I see no barriers to that production. It sells itself, it's very competitive.
Finally, on the matter of Canadian heavy blends, these certainly could displace imports to Greece and Turkey, but that would actually displace heavier gulf blends, not Russian Urals, and that is also true elsewhere in the basin.
I would like to leave it there and await any questions you may have.