Canada losing the race to supply Asian markets with energy

Russia, Australia, even South America, prove far more fleet-footed

 

By Gary Lamphier, edmontonjournal.com October 27, 2011

 

Pipeline operator Enbridge Inc would prefer to supply natural gas to the Kitimat liquefied natural gas plant in British Columbia over any other export project in western Canada, the company's chief executive told Reuters on Thursday.

EDMONTON — The new LNG plant that will soon be under construction on the B.C. coast is great news for Canada’s energy sector.

By 2015, when shipments of liquefied natural gas begin from the $5-billion Kitimat facility, Canada’s beleaguered natural gas sector will finally be able to establish a modest toehold in Asia’s fast-growing markets.

That’s the positive side of the story, anyway. On the flip side, you might ask what took so darn long.

After all, we’ve all been reading about the rapid ascent of China and other Asian economies for the better part of two decades, and B.C. has promoted itself as Canada’s “Pacific Gateway” since I lived in Vancouver in the 1990s.

But talk is cheap. In reality, when it comes to pursuing new export markets, Canada moves at glacial speed. Far more slowly than Asian nations, which have gone global in a big way, and are transforming their economies at lightning speed even as the western world faces years of slow growth.

Meanwhile, other resource-rich nations, from Russia to Australia to Venezuela, are already moving into China, South Korea and other Asian markets far more aggressively than Canada, with huge future expansion plans of their own.

Australia has some $250 billion of LNG projects planned or under construction — roughly 50 times the scale of the investment at Kitimat. Meanwhile, Russian Prime Minister Vladimir Putin is pushing hard to cut deals to export Russian natural gas by pipeline to China and South Korea.

Even developing countries like Peru are moving more quickly to capitalize on export opportunities to Asia. Peru is already ramping up LNG exports at a rapid clip.

If Putin is successful in his efforts to cosy up to countries like China and South Korea, that could eventually displace Asian demand for LNG imports from countries like Australia and Canada. In fact, some observers in Australia are already warning about a future LNG supply glut in China, which has untapped shale gas reserves of its own.

The point is, the window of opportunity for Canada’s oil and gas industry won’t stay open forever. The clock is ticking, and the time to move is now, not five or 10 years from now. Asia simply won’t wait for us to get our act together.

The doomed Mackenzie Valley pipeline project, which once promised to transform the economy of the Northwest Territories, is perhaps the best example of Canada’s proclivity for inaction. A decade ago, it looked like a sure thing. Today, it’s just another monumental missed opportunity.

Since LNG prices in Asia are more than four times higher than conventional natural gas prices in North America, the potential upside for Kitimat’s backers — Encana Corp., Apache Corp. and EOG Resources — is huge.

Further, by exporting as much as three billion cubic feet of LNG a day to Asia by the end of the decade, shipments from Kitimat should help to offset Canada’s shrinking gas exports to the U.S., which is awash in new shale gas supplies.

On the oil side, despite significant projected production growth in Alberta’s oilsands, the picture remains murky.

With environmental groups waging war against two proposed, critically needed export pipelines — TransCanada’s Keystone XL pipeline to the Gulf Coast, and Enbridge’s Northern Gateway pipeline to Kitimat — oilsands output remains all but landlocked.

That means virtually no access to world markets, where oil prices — like LNG prices — are far higher than in North America. The current gap between West Texas Intermediate (the benchmark U.S. grade of light crude) and Brent crude, the de facto international grade, is nearly $20 U.S. per barrel.

Since Canada exports some two million barrels of crude oil a day to the U.S., that price discount translates to more than $1 billion of lost revenue for Canada’s energy sector each and every month, or more than $12 billion a year.

Think of all the hospitals, schools, social programs and infrastructure those lost billions would have helped to fund each year, and you’ll begin to understand what this means to Canada as a whole.

The choice is ours. Either we continue to dither, held hostage by radical environmentalists, bandwagon-hopping Hollywood celebs and special interest groups, or we more aggressively pursue the economic growth opportunities that are right in front of us.

With the American economy growing at a fraction of China’s current 9.1 per cent growth, and crude production in the U.S. on the rebound after decades of decline — thanks largely to North Dakota’s booming Bakken play — it’s not hard to predict what the future holds for Canada’s energy sector, if it can’t gain access to global markets in a much bigger way.

After spending the past three weeks in South Korea, where the frenetic pace of economic activity makes Canada seem like Sleepy Hollow, I can’t help but wonder whether this country is squandering its economic future.

Could Canada end up looking more like the debt-saddled nations of Europe than the fast-growing nations of Asia in another decade? That’s essentially the choice we face. Let’s hope we make the right call.

glamphier@edmontonjournall.com