The huge natural gas deal signed this week by China and Russia shows the risk the B.C. Liberals are taking by putting all their eggs in the liquefied natural gas basket. The 30-year deal between the two countries certainly doesn’t put B.C. out of the LNG game, but it makes the game significantly tougher.
The agreement reached Wednesday by Russian President Vladimir Putin and Chinese President Xi Jinping will see about 40 billion cubic metres of natural gas shipped by pipeline each year from Russia to China. The deal will increase China’s gas imports by 50 per cent and will supply about a quarter of the country’s gas consumption.
Premier Christy Clark and her government see LNG as B.C.’s economic future, and have said that B.C. will be a world leader in the industry. With their eyes on the Asian market, more than a dozen groups are considering building LNG facilities on B.C.’s coast.
Clark said the Russia-China deal doesn’t alter the province’s plans.
“I’ve never said that B.C. would be the only supplier of natural gas to any country, but what I have said is that every country, every receiver of natural gas is going to want to have one reliable partner in their portfolio,” she said at a Vancouver conference. “We've certainly seen the way that Russia likes to do business these days, and we certainly know that the Chinese want a dependability of supply. We can supply that.”
Experts in the energy industry say the Asian gas market is huge and the Russian deal doesn’t shut the door to LNG exports from Canada.
China, plagued by severe air pollution and other environmental concerns, is trying to replace coal with natural gas to generate electricity, and its appetite for gas will likely grow. The U.S. Energy Information Administration predicts that China’s natural gas needs will triple in the next 25 years, to about 480 billion cubic metres a year. Its domestic production will fall about 200 billion cubic metres short of that, and the Russian agreement will fill only a fraction of the shortfall.
Meanwhile, Japan is still the world’s biggest consumer of natural gas, and South Korea imports twice as much gas as China. As the economies of other South Asian countries grow, so will the market for gas.
But so will the competition — it is understood that China bargained hard with Russia and got a good price. Gas coming through a pipeline is a lot cheaper than gas that has to be liquefied, shipped across the ocean and turned back into a gas.
A report issued in April by the Canadian Centre for Policy Alternatives says four countries that account for 70 per cent of LNG imports — Japan, Korea, China and Taiwan — are forming a “buyer’s club,” which will put the pressure on for lower prices.
The CCPA report says the B.C. government should lower its LNG expectations. The government’s touted returns of $100 billion are “a little more than wishful thinking,” says economist Mark Lee. The report looked at forecasts for the Asian energy market, the time and cost it takes to develop the LNG industry, plans to earn royalties from gas extraction and taxes. It says it would take a best-case scenario to realize the revenues projected by the government.
The market for natural gas is huge and growing, but it is a market subject to variables beyond B.C.’s control. It is not foolishness to pursue that market, but it is foolish to depend so heavily on one volatile industry.