Canada sees trade benefits in green supply chains

Thursday, November 24, 2022

Significance

Canada placed second in this year’s BloombergNEF global lithium-ion battery supply chain ranking, released on November 12, above the United States and close to first-placed China. Ottawa is looking to tie its innovation and natural resource strengths to a geopolitical strategy that promotes trade among democracies.

Impacts

  • Provincial governments in Ontario and Quebec will play an increasing role in developing Canada’s international energy profile.
  • The federal government’s Critical Minerals Strategy is due to be published before the end of the year.
  • CNOOC, China's top offshore oil and gas producer, is preparing to end its operations in Canada due to sanctions concerns.

            Image of Canada from space compiled from LANDSAT satellite data (Planet Observer/UIG/Shutterstock)

Event

Innovation Minister Francois-Philippe Champagne is visiting Japan and South Korea this week to talk about Canada’s role in the green energy transition.

Significance

Canada placed second in this year’s BloombergNEF global lithium-ion battery supply chain ranking, released on November 12, above the United States and close to first-placed China. Ottawa is looking to tie its innovation and natural resource strengths to a geopolitical strategy that promotes trade among democracies.

Analysis

While the eventual transition away from oil and gas remains the country's long-term objective, Canada's role as a global provider of energy sources continues to grow. Already a significant exporter of oil, liquefied natural gas (LNG) and uranium, Canada will soon join Australia and Latin America as a key provider of lithium.

At the same time as expanding its role in the green energy sector, Ottawa is also making it clear that Chinese capital is no longer welcome in Canada's upstream and midstream energy sectors. This should not mean a significant increase in the cost of capital, however, given recent political enthusiasm in Washington and Berlin for backing Canadian ventures and the growing number of Western and East Asian investments now being made.

The recent trip to Newfoundland by German Chancellor Olaf Scholz to sign a deal with Prime Minister Justin Trudeau for imports of Canadian green hydrogen, from 2025 onwards, underlines the political as well as commercial interest in Canada as an energy supplier to major industrial economies (see CANADA/GERMANY: Scholz visits Trudeau for energy talks - August 23, 2022).

Energy and diplomacy

In a speech delivered at the Brookings Institution in Washington last month entitled 'How democracies can shape a changed global economy', Deputy Prime Minister Chrystia Freeland emphasised Canada's unique position as the only G7 member benefiting from trade agreements with all other members.

Canada is linking critical mineral supplies to trade among democracies

In a thinly veiled reference to China, her argument is that democracies should trade more with each other to strengthen their supply chains. Canada is well-placed to provide democracies with critical minerals including lithium and rare earths (see CHINA: Renewables supply chains will cause tensions - May 31, 2022).

Chinese investment limits

Canada is already beginning to act along these lines. On November 2, Ottawa ordered several Chinese state-owned companies to divest immediately their stakes in three Canadian critical minerals companies: Power Metals, Lithium Chile and Ultra Lithium. This move follows the introduction of a new policy on foreign direct investment in the critical minerals sector which clarifies the ways in which the Investment Canada Act applies.

The new approach is not limited by geography and targets Chinese investments in Canadian-listed companies which control assets in Latin America, although it is not yet clear how successful the Canadian government could be in blocking a Chinese takeover bid for such an asset, should it occur.

Uranium

Canada remains the world's second-largest producer of mined uranium, after Kazakhstan (see INTERNATIONAL: Geopolitical strains mar uranium market - November 23, 2022). Ottawa is leveraging this position to promote investments in new nuclear technologies.

Ontario Power Generation has secured a CAD970mn (USD724mn) financing commitment from Canada Infrastructure Bank for a planned 300-megawatt small modular nuclear reactor facility at its Darlington nuclear plant. In another initiative, Saskatchewan and Ontario have each selected Japan's GE-Hitachi as the supplier of small modular nuclear reactors (SMRs), which will be deployed by the 2030s.

Canada's flagship uranium miner, Cameco, has transformed its strategy by announcing last month that it will acquire US-based Westinghouse Electric for USD7.9bn. Westinghouse Electric is one of the world's largest nuclear services businesses, operating plants, contracting nuclear fuel for manufacturing and installation, designing new reactors and providing environmental monitoring. The move shows Cameco taking advantage of concerns about fossil fuels in terms of constrained supply as well as environmental impacts.

Electric vehicle (EV) value chain

Ontario and Quebec are on the path to become the most vertically integrated jurisdictions in North America's EV market. Over the last 18 months, Ontario's automotive sector has received investments of CAD14bn in vehicle production and battery manufacturing:

  1. Honda Canada will spend CAD1.38bn over six years to upgrade an Ontario manufacturing plant to make hybrid EVs, a project supported by grants totalling CAD262mn from the federal and provincial governments.

  2. Stellantis and LG Energy Solution will invest over CAD5bn to build the first large-scale lithium-ion battery production plant in Canada, with production targeted for 2024.

  3. General Motors Canada announced a CAD1bn investment to transform its CAMI Plant into Canada's first commercial EV manufacturing plant to build BrightDrop EV600 vans, with production starting next year.

Belgium's Umicore is planning a manufacturing facility near Kingston, Ontario, to produce both battery cathode precursor materials and cathode active battery materials by the end of 2025. This would be the first such facility in North America. By the end of the decade, it could potentially have an annual production capacity to power about 1 million EVs. Companies are also able to use Canada's hydroelectricity to reduce their manufacturing carbon footprints.

Ontario's Critical Minerals Strategy

Ontario, a province with deep resources of lithium, nickel, cobalt and rare earth elements, unveiled its Critical Minerals Strategy in March 2022. This five-year roadmap outlines a plan to attract more critical mineral investment to the province, together with support for a local EV supply chain that will connect mines in the north of the province with manufacturing capacity in the south.

Ontario has its own strategy for critical minerals from mining to manufacturing

Under the strategy, the provincial government in Toronto will encourage more mineral exploration and the development of refining capacity for battery minerals such as cobalt while amending the regulatory framework for mining, investing in battery technologies and developing a skilled labour force.

Lithium mining and production

Canada is fast catching up as a vital lithium producer, further bolstering the country's credentials as a green energy and decarbonisation hub:

  1. Last summer, Patriot Battery Metals shook the global lithium sector with its large-scale lithium discovery at the Corvette property in Quebec. Further drilling success could see Corvette become one of the world's top ten lithium deposits.

  2. Frontier Lithium is developing two large lithium deposits in northern Ontario, which will rank as the highest-grade operations in North America.

  3. Sayona Mining is nearing the production stage of its operations in Quebec, whose medium-term growth potential will be supported by the completion of a partially constructed lithium conversion plant.

Global majors are also entering the sector, with Rio Tinto having started producing lithium concentrate at a demonstration plant in Quebec. This is targeting industrial-scale use of a new concentration process that obtains lithium oxide grades and recoveries well above the industry average.

Conclusion

Growing awareness of Western dependence on Russian and Chinese energy sector inputs has highlighted Canada’s growing importance for the green energy sector. The Trudeau government will continue to encourage interest from fellow democracies in developing its resources as this curtails opportunities for Chinese investment in its energy companies. The response will be positive as the Minerals Security Partnership, launched this summer to bolster critical mineral supply chains, gains traction.

© Oxford Analytica 2022. All rights reserved. This content contains general information about geopolitical, macroeconomic and social developments or (where stated) other matters. It does not contain advice or recommendations that may be relied on. Where links to external websites are provided, this does not indicate that Oxford Analytica or Emerald Group agree with, endorse or have checked for accuracy the contents of said sites.

Related articles

Expert Briefings logo
Stay up to date
Sign up to the Expert Daily Briefings email alert and receive up-to-the-minute analysis of global events as they happen.
*If your university does not have access to Expert Briefings, visit our information page to find out more.