THE HEGEMON FALTERS

China And Russia Look To Challenge The Petrodollar

By Tsvetana Paraskova - Apr 04, 2023

• The U.S. dollar, which has been the currency of choice in oil trade since the 1970s, is still the dominant currency in the market.
• 
  
• While the Chinese currency has made inroads in global trade, the yuan accounts for just 2.7% of the market.
• 
  
• Several deals and summits in recent weeks signaled that China and Russia are moving to try to sideline the U.S. dollar.

The increasingly closer relations between China and Russia and the Chinese push to make its currency more relevant on the global markets are challenging the dominance of the petrodollar.   

The U.S. dollar, which has been the currency of choice in oil trade since the 1970s, is still the dominant currency in the market and global currency reserves. But several recent deals and highest-level summits have sought to undermine the dollar’s dominance. 

The new geopolitical alliances, where China and Russia are working to oppose a U.S.-led global order, could undermine the petrodollar. 

China has been looking for years to establish more trade deals in yuan to increase the relevance of its currency on the global markets and challenge the U.S. dollar’s dominance in international trade, including in energy trade.

During a landmark visit to Saudi Arabia’s capital Riyadh in December, Chinese President Xi Jinping said that China and the Arab Gulf nations should use the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trades.

“China will continue to import large quantities of crude oil from GCC countries, expand imports of liquefied natural gas, strengthen cooperation in upstream oil and gas development, engineering services, storage, transportation and refining, and make full use of the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trade,” Xi said in December, as carried by Reuters. 

While the Chinese currency has made inroads in global trade, the yuan accounts for just 2.7% of the market, compared to the U.S. dollar’s share of 41%. 

Moreover, the U.S. dollar accounted for more than 58% of the global currency reserves as of the end of 2022, compared to a 2.7% share for the Chinese yuan, per data from the International Monetary Fund (IMF). 

Several deals and summits in recent weeks signaled that China and Russia are moving to try to sideline the U.S. dollar. 

Last month, China’s Xi met with Putin in Moscow, and the Russian president not only endorsed trade in yuan with China but also with other countries. 

“We support the use of Chinese yuan in payments between Russia and countries of Asia, Africa, and Latin America,” Putin was quoted as saying by Russian media. 

According to Putin, two-thirds of the bilateral trade between China and Russia is already being done in the two national currencies—the yuan and the ruble, respectively. 

Over the past year, Russia has turned to trade in yuan in the wake of the Western sanctions on its exports, imports, and energy trade, as the Chinese currency has become Putin’s only alternative to reducing exposure to the U.S. dollar and the euro, and limiting the fallout of the sanctions that have seen Russian state assets seized in Western countries. 

Last week, China and Brazil agreed to carry out bilateral trade settlements in their own currencies and dump the U.S. dollar as the intermediary currency, in another move seen as China’s increased efforts to undermine the dollar dominance.  

Brazil and China are part of the so-called BRICS alliance of five major emerging economies—Brazil, Russia, India, China, and South Africa. 

Also last week, China reportedly completed its first trade of liquefied natural gas (LNG) settled in yuan on the Shanghai Petroleum and Natural Gas Exchange. 

Chinese state oil and gas giant CNOOC and TotalEnergies completed the first LNG trade on the exchange with settlement in the Chinese currency, the exchange said in a statement carried by Reuters.

The U.S. dollar hasn’t lost its power in global trade, especially in energy trade, but the growing divide between the U.S. and the West on the one hand, and the China/Russia axis on the other hand, could embolden China to look to further boost the relevance of the yuan in the new world order. 

By Tsvetana Paraskova for Oilprice.com

U.S. Losing Influence As Saudi Arabia Joins Shanghai Cooperation Organization

By Simon Watkins - Apr 04, 2023

• Saudi Arabia is set to join the  Shanghai Cooperation Organisation as a ‘dialogue partner’.
• 
  
• The SCO is the world’s biggest regional political, economic and defence organisation both in terms of geographic scope and population.
• 
  
• This latest step by Saudi Arabia away from the U.S. and towards the China-Russia axis should come as no surprise to anyone.

Saudi Arabia’s very public announcement last week that its cabinet had approved a plan to join the Shanghai Cooperation Organisation (SCO) as a ‘dialogue partner’ is the surest sign yet that any U.S. efforts to keep it out of the China-Russia sphere of influence may now be futile. The Kingdom had already signed a memorandum of understanding on 16 September 2022 granting it the status of SCO dialogue partner, as was exclusively reported by OilPrice.com at the time. However, Saudi Arabia did nothing to encourage the release of the news at that point, unlike now - just after it resumed relations with Iran, in a deal brokered by China.

The SCO is the world’s biggest regional political, economic and defence organisation both in terms of geographic scope and population. It covers 60 percent of the Eurasian continent (by far the biggest single landmass on Earth), 40 percent of the world’s population, and more than 20 percent of global GDP. It was formed in 2001 on the foundation of the ‘Shanghai Five’ that was set up in 1996 by China, Russia, and three states of the former USSR (Kazakhstan, Kyrgyzstan and Tajikistan). Aside from its vast scale and scope, the SCO believes in the idea and practice of the  ‘multi-polar world’, which China anticipates will be dominated by it by 2030. In this context, the end of December 2021/beginning of January 2022 saw meetings in Beijing between senior officials from the Chinese government and foreign ministers from Saudi Arabia, Kuwait, Oman, Bahrain, plus the secretary-general of the Gulf Cooperation Council (GCC). At these meetings, the principal topics of conversation were to finally seal a China-GCC Free Trade Agreement and to forge “a deeper strategic cooperation in a region where U.S. dominance is showing signs of retreat”.

This idea was the centrepiece of the declaration signed in 1997 between then-Russian President, Boris Yeltsin, and his then-China counterpart, Jiang Zemin. Veteran Russian Foreign Minister, Sergey Lavrov, has since stated that: “The Shanghai Cooperation Organisation is working to establish a rational and just world order and […] it provides us with a unique opportunity to take part in the process of forming a fundamentally new model of geopolitical integration”. Aside from these geopolitical redesigns, the SCO works to provide intra-organisation financing and banking networks, plus increased military cooperation, intelligence sharing and counterterrorism activities, among other things. The U.S. itself applied for ‘observer status’ of the SCO in the early 2000s but was rejected in 2005.

This latest step by Saudi Arabia away from the U.S. and towards the China-Russia axis should come as no surprise to anyone who has been watching developments in the Kingdom since the rise of Crown Prince Mohammed bin Salman (MbS) from around 2015. At that point, he was not Crown Prince (the heir designate position) – that role was held by Muhammad bin Nayef (MbN) – but rather Deputy Crown Prince with burning ambition to take the number one succession spot upon the death of King Salman. His stint as Defense Minister was disastrous, with the dramatic escalation of the war against the Houthis in Yemen – including indiscriminate bombing of civilian targets – roundly condemned by the West. This led the German intelligence service, the Bundesnachrichtendienst (BND), to leak an abridged internal-only assessment report of MbS to various trusted members of the press that stated: ‘Saudi Arabia [under MbS] has adopted an impulsive policy of intervention.’ It went on to describe MbS in terms of being a political gambler who was destabilising the Arab world through proxy wars in Yemen and Syria.    

In order to rebuild his reputation with a view to usurping MbN as Crown Prince, MbS came up with an idea that he thought would win over senior Saudis who supported his rival. That idea was to float a stake in the Kingdom’s flagship company, Saudi Aramco, through an initial public offering (IPO), as analysed in depth in my latest book on the global oil markets. In theory, the idea had several positive factors going for it that would benefit MbS. First, it would raise a lot of money, which Saudi Arabia needed to offset the economically disastrous effect of the 2014-2016 Oil Price War that it had instigated. Second, it would likely be the biggest ever IPO, thus boosting Saudi Arabia’s reputation and the breadth and depth of its capital markets. And third, the new money from the sale could be used as part of Saudi Arabia’s ‘Vision 2030’ development plan aimed at diversifying the Kingdom’s economy away from a reliance on oil and gas exports.

MbS pitched the idea to the senior Saudis based on very specific benchmark targets. First, the flotation would be for 5% of the company. Second, this would raise at least USD100 billion, which would value the whole company at US$2 trillion. Third, it would be listed not just on the domestic Tadawul stock market but also on at least one of the world’s biggest and most prestigious stock markets – the New York Stock Exchange and the London Stock Exchange were the exchanges MbS had in mind. None of these targets was hit, of course, as the more information was made known about Saudi Aramco to international investors the more they regarded it as an omni-toxic liability, including financially and politically. 

At that point, China stepped in with an offer to save MbS’s face, an offer that he has apparently never forgotten. The offer was that China would buy the entire 5% stake for the required US$100 million, and it would be done in a private placement, meaning no possibly embarrassing details about anything surrounding the deal would ever be made public, including to those senior Saudis who opposed MbS. Although the offer was declined as King Salman did not at that point want to alienate the U.S. any further than had already been done by launching the 2014-2016 Oil Price War with the intention of destroying or disabling the then-nascent U.S. shale oil sector, the relationship between Saudi Arabia and China blossomed from that point onwards. A little under a year before the Russian invasion of Ukraine in February 2022, Saudi Arabia was already so aligned to China that Saudi Aramco’s chief executive officer, Amin Nasser, spent several days at the annual China Development Forum hosted in Beijing, during which time he said: “Ensuring the continuing security of China’s energy needs remains our highest priority - not just for the next five years but for the next 50 and beyond.” One year later, and just a few months after the Russian invasion of Ukraine, Aramco’s senior vice president downstream, Mohammed Al Qahtani, announced the creation of a ‘one stop shop’ provided by his company in China’s Shandong.  He said: “The ongoing energy crisis, for example, is a direct result of fragile international transition plans which have arbitrarily ignored energy security and affordability for all.” He added: “The world needs clear-eyed thinking on such issues. That’s why we highly admire China’s 14th Five Year Plan for prioritising energy security and stability, acknowledging its crucial role in economic development.”

At the same time as this relationship was moving up several gears, so was the relationship between Saudi Arabia and Russia. By the end of the 2014-2016 Oil Price War, as also analysed in depth in my latest book on the global oil markets, the U.S. shale oil sector had reorganised itself into an oil-producing machine that could survive on prices as low as US$35 per barrel (pb) of Brent if necessary. Saudi Arabia’s budget breakeven price then was over US$84 pb and there was no way it could compete with the U.S. Saudi Arabia desperately needed to push oil prices back up to repair its budget but was unable to do so because its disastrous Second Oil Price War (the first being the 1973/74 Oil Crisis) had critically undermined its credibility with other OPEC members and with the global oil market. At that point, Russia had stepped in to support the OPEC oil production cuts in late 2016 aimed at bringing oil prices back to levels that allowed OPEC members to begin to repair their decimated finances. This support has continued ever since and has formalised into the ‘OPEC+’ grouping. 

Both Russia and China know how to leverage such relationships, as they have been doing in the Middle East ever since the U.S. withdrew from the Joint Comprehensive Plan of Action with Iran in 2018, Syria in 2019, and Afghanistan and Iraq in 2021. These combination of factors put China in the position of being able to broker the relationship normalisation deal between Saudi Arabia and Iran – the leaders of the Sunni Islam world and the Shia Islam world, respectively. Although White House national security spokesperson, John Kirby, did observe tersely at the time that the deal between Iran and Saudi Arabia “is not about China”, it absolutely was about China. What it absolutely was not about was the U.S. 

By Simon Watkins for Oilprice.com

China’s Coal Boom Is Undermining Global Phase-Out Efforts

By Irina Slav - Apr 06, 2023

• New coal capacity under development in China increased by 38% in 2022, with 366 GW of new coal generation capacity planned.
• 
  
• While China’s planned coal capacity climbed, the rest of the world saw its coal capacity decrease by 20% to 172 GW.
• 
  
• While China is bringing on significantly more coal capacity than any other country, there are increases across other countries such as India, Turkey, and Indonesia.

China is building or planning to build some 366 GW in new coal generation capacity, accounting for some 68% of global planned new coal capacity as of 2022.

This is according to a new report by climate think tank Global Energy Monitor, which also found that China accounted for more than half of the new global coal generation capacity that came online last year.

Outside China, coal generation capacity is shrinking, with 2.2 GW getting retired in Europe last year and 13.5 GW of capacity retired in the United States—the highest rate of coal power plant retirement globally.

Total new coal power plant additions last year amounted to 45.5 GW but with closures, the net additions came in at 19.5 GW.

Source: Global Energy Monitor

"The more new projects come online, the steeper the cuts and commitments need to be in the future. At this rate, the transition away from existing and new coal isn’t happening fast enough to avoid climate chaos," said the lead author of the report, Flora Champenois.

Chances are that the transition will continue not to happen fast enough because China and other countries, most notably India, Turkey, and Indonesia, plan to bring significant new coal capacity online.

According to Global Energy Monitor, this will throw the transition off course because “the global pace of retirements needs to move four and half times faster in order to put the world on track to phasing out coal power by 2040, as required to meet the goals of the Paris climate agreement.”

Keeping the transition on track, in accordance with Paris Agreement decarbonization targets, all existing coal power generation capacity in the developed world would need to be retired by 2030 and all other coal capacity in the rest of the world would need to go by 2040.

By Irina Slav for Oilprice.com

A New Era For Nuclear Power In America?

By Robert Rapier - Apr 06, 2023

• Two new nuclear reactors are expected to come online at Georgia Power's Vogtle plant.
• 
  
• The new reactors will give a boost to U.S. nuclear power growth, which has stalled for the past 20 years.
• 
  
• The Vogtle project has experienced years of delays and cost overruns.

Nuclear power has been a source of electricity in the United States for more than 60 years. The first nuclear power plant in the U.S. was the Experimental Breeder Reactor I in Idaho, which started up in 1951.

The Atomic Energy Act of 1954 established a regulatory framework for the development of nuclear power, and in 1957 the Shippingport Atomic Power Station in Pennsylvania became the first commercial nuclear power plant in the world.

The early years of nuclear power in the United States were marked by significant growth. During the 1960s, nuclear power plants were built across the country. In 1973, the United States had 29 operating reactors, producing over 16,000 megawatts (MW) of electricity. By the end of the decade, that number had grown to 60 operating reactors, producing over 50,000 MW.

However, the industry would suffer its first major setback in 1979, when the Three Mile Island nuclear power plant in Pennsylvania experienced a partial meltdown. This accident resulted in a small release of radioactive material into the environment. While there were no deaths or injuries from the incident, it led to increased scrutiny and regulation, and it increased opposition of nuclear power plants.

Since Three Mile Island, there have been major accidents at Chernobyl in 1986 and Fukushima, Japan in 2011 that had a significant impact on global nuclear power growth.

Global Nuclear Power Generation 1965 to 2021. ROBERT RAPIER

The U.S. has consistently been the world’s leading producer of nuclear energy, with a 29% global share in 2021. Nuclear energy is responsible for 8% of all U.S. energy consumption. However, after rapid growth from 1965 t0 2000, nuclear power growth in the U.S. has been stalled for the past 20 years.

U.S. Nuclear Power Production 1965-2021. ROBERT RAPIER

Prior to this year, only one new nuclear reactor come had online since 1996. The Watts Bar Unit 1 came online in 1996 in Tennessee, and the Watts Bar Unit 2 came online in 2016.

That should change this year, as Georgia Power, a subsidiary of Atlanta-based Southern Co. prepares to start up two new reactors. The reactors at Plant Vogtle, southeast of Augusta, Georgia, were approved by the Georgia Public Service Commission in 2009. The reactors are two Westinghouse AP1000 nuclear units with a capacity of about 1,117 MW each.

The first reactor was supposed to start generating power in 2016, but the project has suffered years of delays and billions in cost overruns. But, last month Vogtle Unit 3 began to split atoms, as startup testing got underway. Commercial operation is expected to commence in May or June. Unit 4 could start up as early as November of this year. So, nuclear power should finally see a boost in the U.S. this year.

According to the U.S. Nuclear Regulatory Commission (NRC), a number of new reactors were approved in the U.S. over the past decade or so. But most of those were cancelled by the applicants in the wake of the Fukushima disaster. Beyond Vogtle, there are no more nuclear reactors under construction in the U.S.

Given the significant delays and cost overruns seen in the Vogtle project, it may be a long time before we see another conventional nuclear reactor built in the U.S.

The next generation will likely see the rise of Small Modular Reactors (SMRs). SMRs are designed to be more flexible than traditional nuclear reactors. They can be used to generate electricity in remote locations or to replace retiring coal-fired power plants. SMRs are also designed to be safer and more efficient than traditional nuclear reactors.

In January 2023, GE Hitachi Nuclear Energy (GEH), Ontario Power Generation (OPG), SNC-Lavalin and Aecon announced a contract for the deployment of a BWRX-300 SMR at OPG’s Darlington New Nuclear Project site. This is the first commercial contract for a grid-scale SMR in North America, and it represents a significant step towards the adoption of SMRs.

By Robert Rapier for Oilprice.com

Vogtle Nuclear Unit Begins Producing Power

By Leonard Hyman & William Tilles - Apr 06, 2023

Last Saturday, April 1, (yes we’re aware of the date) Southern Company’s largest operating subsidiary, Georgia Power, announced that the first of its two nuclear plants under construction, Unit 3 of the new Alvin W. Vogtle nuclear power station, had been synchronized to the grid and was producing electricity for consumers. All technicalities aside this means the plant is now complete, loaded with fuel, irradiated, and producing electricity for commercial customers. Its companion, unit 4, presently undergoing hot functional testing, is expected to enter commercial operation either later this year or early next year. Together these two Westinghouse-designed AP 1000 reactors (four loop PWRs) will contribute about 2400 MWs to Southern Company's existing nuclear generating fleet which includes Plant Vogtle Units 1&2,  Plant Hatch (also in Georgia) as well as Alabama Power’s Farley unit.

As an aside, we should point out that Southern Company has a tradition of naming these facilities after its CEO’s and Board Chairmen. Georgia Power’s website notes that, Mr. Vogtle, apart from his years of executive service to the company, was a POW in the second world war. His numerous, ultimately successful escape attempts were incorporated into the movie, The Great Escape. One would’ve thought that being portrayed by Steve McQueen would’ve been enough. Apparently not.

Much has already been written (including by us) about how costly the plant is and how lengthy the construction process. Stated simply the build time was twice what they expected and the final costs look to be triple the initial estimates. All we know publicly is that the co-owner, Municipal Electric Authority of Georgia (MEAG )complained a year ago about the plant costing in excess of $30 billion. To that figure we have to add the $3.7 billion paid by Westinghouse as a settlement to the co-owners as part of Westinghouse’s bankruptcy. Let’s call it a $36 billion plant costing  $15,000 per kw installed.  (A new, large natural gas fired power plant by comparison would cost about $2500 per kw.) No matter what you compare it to this is an extremely expensive power plant. One major mitigating financial factor is that Georgia Power only owns about 50% of the unit. The remainder is split between three municipal entities: Oglethorpe Power (30%), Municipal Electric Authority of Georgia (17.7%), and Dalton Utilities (2.2%). A similar sharing arrangement exists for the other nuclear stations as well. In all fairness, we should point out that both of Southern Company's previous nuclear projects, which were completed in the mid to late 1970s, came in at a cost of well under $1,000 per kw. In fact, Georgia Power’s website boasts that the two GE Mark 1 BWRs at Plant Hatch cost $938 million for 1800 MWs. Our point here is that going into the Plant Vogtle construction process, Southern Company had strong municipal partners, a relatively favorable construction experience, as well as considerable operating expertise in nuclear power.

But before we move on we should recall that this nuclear construction episode was responsible for: 1) the bankruptcy of Westinghouse and Toshiba (for signing fixed price contracts), 2) the cancellation of its twin- —the VC Summer nuclear plant in South Carolina owned by SCANA— after spending $8 billion, 3) several senior SCANA executives were sent to prison (presumably for lying to investors about escalating plant costs), 4) SCANA was soon sold to Dominion Resources shortly thereafter, 5) the governor of SC threatened to privatize the Santee Cooper Electric Co-op (Summer’s co-owner) and fired its chief executive, 6) while exposing Georgia regulators as being highly prejudicial in favor corporate versus the public’s interest (the regulatory disallowances Southern Company would face for a financial boondoggle of this magnitude would be financially crippling in many other state jurisdictions). Co-op leaders in both South Carolina and Georgia felt confident in 2008 that they would get a piece of a new, larger nuclear unit that would cost $10 billion or less.

One major impact of a nuclear construction program gone awry like this is that it makes the rest of the utility industry skittish about following suit with additional new, gigawatt scale nuclear projects. Georgia Power notes that Plant Vogtle is the first US nuclear power station to be completed in thirty years. The real question for us is who’ll agree to finance the second? We don’t think it’s a coincidence that small modular reactors (SMRs) are receiving considerable attention since they literally portray themselves as the opposite of Plant Vogtle’s experience with on time and rapid construction. Part of the appeal of SMRs right now are in reaction to construction and financing difficulties at huge nuclear megaprojects in the US, France, and the UK. But this is not necessarily a good thing. We may want large scale nuclear power plants in the mix if we want low-carbon, gigawatt scale base load options. All we can say is that the nuclear power industry continues to alter its appeal, now presenting itself as the best utility scale, low carbon option. 

By Leonard Hyman and William Tilles for Oilprice.com

Tesla's Pivot Away From Rare Earths Could Push Other Automakers To Follow Suit

By Ag Metal Miner - Apr 06, 2023

• Rare Earths MMI dropped by 15.5% in March, but prices began to rise again by the end of the month.
• 
  
• Tesla's shift away from rare earth metals in their motors could impact the automotive industry by hastening the development of alternatives for rare earth magnets.
• 
  
• The US is establishing regulations to secure a "made in America" supply chain for rare earth minerals which are considered strategic and critical materials due to their necessity in many modern technologies.

Via AG Metal Miner

The Rare Earths MMI (Monthly MetalMiner Index) dropped drastically again this month, suffering a 15.5% decline. Despite this, downward price action began to slow down and flatten around March 16. As of March 30, prices began to rise again.

Further adding to the confusion was the fact that some components in the index traded flat. This included yttrium, samarium oxide and europium oxide. However, virtually every other part of the index dropped in price, some drastically. Ultimately, the ride between the beginning of March and April proved to be a roller coaster ride.

Tesla Could Impact the Rare Earths Industry

In last month’s MMI, MetalMiner discussed Tesla’s announcement that they will eliminate the use of rare earth elements in their engines. Instead, they plan to create a permanent magnet electric vehicle motor using zero rare earth elements. According to reports, Tesla’s primary reason for the decision is to battle ongoing, problematic supply chain issues.

However, some theories have since arisen. Some believe that Tesla’s shift away from rare earth metals could impact the automotive industry in multiple ways. For one, the race to develop alternatives for rare earth magnets, especially Chinese-sourced rare earths, could hasten dramatically. Unfortunately, China’s monopoly on the whole rare earth chain of supply, production, and workers will make it difficult to reduce dependency on the country entirely. However, a cadre of countries and companies remain determined to ween off Chinese rare earths, Tesla being a prime example.

Still, rare earth suppliers remain concerned that Tesla’s move could impact the rest of the EV industry. The main worry is that Tesla will influence other automotive companies relying on rare earths for their EV models to make a similar switch. Currently, the EV industry accounts for about 12% of global rare earth magnet use. Tesla’s next-gen motor will utilize a new power train that uses 75% less silicon carbide to produce. This technological leap forward could inspire other EV manufacturers to seek similar solutions, significantly reducing dependency on China across the industry.

U.S. Creating its Own Rare Earth Supply Chain

In other news, the U.S. has begun putting together its own rare earth supply chain network. The Biden administration considers rare earths to be a strategic, critical materials due to their necessity in many modern technologies. The U.S. government has established regulations to secure a “made in America” supply chain, and that includes commodities like rare earth minerals. The recent discovery of rare earths in southern Bitterroot Valley, Montana will contribute to this goal. Indeed, if the U.S. can continue to foster projects like this, a new domestic rare earths supply chain could arrive sooner than expected.

While the decisions to locate homegrown rare earths will likely prove the best option in the long run, the switch will not be easy. China currently supplies over 80% of the world’s refined rare earth supply. Neodymium, for example, is one of the world’s most commonly used rare earth types. Right now most neodymium is produced and exported by China. It could prove tricky to find enough non-Chinese neodymium to sustain the growing EV movement and power cell phones, headphones, and other electronics.

The U.S. also lacks many fully operational rare earth mines. Therefore, the focus should be on finding and developing more deposits like Bitterroot Valley, as such discoveries will prove crucial for developing a sustainable domestic supply chain.

By Jennifer Kary

 

Davie Named Third Shipyard in Canada’s National Shipbuilding Strategy

Canada's Prime Minister Justin Trudeau announcing that Davie would be added to the shipbuilding program (Davie)

PUBLISHED APR 4, 2023 4:59 PM BY THE MARITIME EXECUTIVE

 

Canada officially added Davie to its National Shipbuilding Strategy (NSS) as the third shipyard designated to participate in the effort to renew and expand the Canadian Coast Guard and Royal Canadian Navy. The shipyard based in Quebec reports that the agreement will provide a minimum of 20 years of work with a minimum of C$8.5 billion (US$6.3 billion) in work. 

“Today’s announcement is an important step in the government’s ongoing efforts to ensure that Canada has the modern and reliable ships it needs, especially as we adapt to the continued growth of commercial shipping and the increasing impacts of climate change on our communities,” the Prime Minister’s office said in the official announcement. “We will continue to create opportunities for workers and businesses in Canada’s marine industry while ensuring the brave members of the Canadian Coast Guard and the Royal Canadian Navy can continue to carry out their important work in the years to come.”

The designation as the third strategic partner is the first step for Davie to begin formal negotiations with the Canadian government for contracts under the shipbuilding initiative. The federal government announced in 2019 that it would seek to add a shipyard in addition to Seaspan Shipyards in British Columbia and Irving Shipbuilding in Nova Scotia to the long-term plan. 

The initial phase of the program called for the construction of six icebreakers and one polar icebreaker for the Canadian Coast Guard as part of a plan that provides for the renewal of up to 18 new large ships built in Canadian shipyards. In 2019, the federal government said it planned to devote at least C$15.7 billion in funding to the shipbuilding program.

Speaking during a ceremony at the Davie shipyard, Canadian Prime Minister Justin Trudeau said “Today’s announcement is bringing us one step closer to building the fleets for Canada’s future. Our strategic partnership with Chantier Davie will help ensure our Coast Guard is supported by modern, made-in-Canada vessels so it can continue to save lives, keep our waters secure, and protect the environment.”

The addition of Davie to the program comes after a multi-step qualification process. The government ran a competition requesting submissions and conducted third-party assessments of the shipyard’s infrastructure. The government calculates that Davie has already received over C$2.2 billion in contracts over the past decade, including the conversion of three medium interim icebreakers for the Coast Guard, refits for the Coast Guard and Navy, and currently the design and construction of two ferries for Transport Canada.

“This historic agreement puts the ‘National’ in National Shipbuilding Strategy and the federal government deserves much credit. Together, we will bridge a strategic shipbuilding gap and create guaranteed capacity for future fleet renewal at Canada’s largest shipbuilder,” said James Davies, President and CEO of Davie. “We can now get to work delivering the icebreakers Canada urgently needs to meet its growing responsibilities as an international Arctic presence, while fulfilling its critical southern wintertime mission to keep our economy flowing.”

Davie had already been pre-qualified as it was moving through the certification process and in May 2021 the federal government announced plans for a second polar icebreaker. Construction of the second ship was reportedly earmarked for Davie pending completion of the process. Seaspan had previously been awarded the contract for the first polar icebreaker.

The Canadian government estimates that it was awarded more than C$21 billion in shipbuilding-related contracts since 2012. Contracts awarded under the NSS are estimated to contribute on average nearly $2 billion annually to Canada’s GDP.