Transpacific Energy Trade: Should We Strike While the Iron is Hot, or Will We get Burned?

©iStockphoto.com/Mayumi Terao

Recently, I’ve come across stories suggesting that Canada needs to pull it together and quickly at that, if it wants to claim any meaningful stake in Asia’s growing LNG market. Shell CEO Peter Vose has warned that regulatory uncertainty could hold Canada back while other more ‘organized’ countries have the chance to leap ahead. Considering that the Canadian government is showing a burgeoning interest in the Asia-Pacific region and that it has demonstrated a willingness to position the nation as a reliable source of energy globally, warnings such as these are enough to set off alarm bells at the National Energy Board and may rush decision-making. In light of the alleged weakening of the environmental review process, I was curious about the validity of such claims. Based on the facts available, it seems wise to proceed with caution.

On one hand, Vose has a point and there is a case to be made for strengthening ties with Asia by growing our transpacific energy trade. Furthermore, the North American LNG market is oversaturated and faces prices of ten-year lows. The United States, Canada’s primary LNG export market, has reserves of its own that if fully developed could surpass those of Qatar, currently the world’s largest exporter of LNG. In contrast to waning demand and low prices in North America, the Asia-Pacific’s need for LNG is set to soar over the next decade. In Japan, the world’s largest LNG market, spot natural gas can be up to 10 times that of Canada’s.

Other countries are responding much faster to Asia’s healthy appetite for LNG, often locking in multiyear contracts which could potentially leave Canada in the dust. Among these countries is Australia, a nation that Canada often compares itself to in terms of Asia-Pacific engagement; Australians have invested heavily in LNG infrastructure and now reap $180 billion of Asian backed demand. Canada, like Australia, holds vast potential for LNG development and its shipping route to Japan is equidistant to that of Australia’s. All things considered, it is no wonder that there are voices calling for urgent regulatory approval of the Kitimat projects.

Lost in the discussion about how Canada should participate in the Asian LNG market seems to be the very real environmental and political risks of building a pipeline over traditional lands, not to mention those risks involved with shipping carbon fuel across the Pacific. But, for argument’s sake, let’s compare apples with apples and examine the economics involved.

The prospects for LNG are not as sure-fire as some have argued nor is it likely that Canada has to act hastily out of fear of losing out on coveted Asian demand. Asian energy markets are variable. Moreover, should the necessary infrastructure be put in place in countries like Russia and China, both of which have large reserves of shale gas that have yet to be mined, geography could dull Canada’s edge in the LNG market in the years to come. The multi-billion dollar price tag of building a pipeline to the coast necessitates a long-term view of LNG. At this point, it is too early to tell whether the return on investment will be worthwhile.

Meanwhile, the argument that Asia will ignore Canadian supplies and turn to more prepared countries does not necessarily hold true and the urgency of pushing projects through may be unwarranted. Consider that state run Korea Gas Corp., PetroChina Co. and Japan’s Mistubishi Corp. are taking part in a joint-venture LNG project with Shell in Kitimat. Here the suppliers are also the customers, working to safeguard access to energy for national use.

I suspect that the calls for hurried action are more reflective of domestic competition amongst oil and gas companies for their share of Canadian LNG resources rather than a legitimate concern for Canada’s strategic role in the Asia-Pacific. I’d like to know what you think about Canada’s position on LNG vis-à-vis the Asia Pacific – comment below!