Rus­sia builds gas pipe­line to China while Canada stays on side­lines

Vancouver Sun - - FINANCIAL POST - VIC­TOR FER­REIRA

As mul­ti­ple Cana­dian pipe­line projects linger in limbo, Rus­sia and China have just turned on the taps on a nat­u­ral gas be­he­moth long enough to con­nect Timmins, Ont., to Burn­aby, B.C.

Rus­sian Pres­i­dent Vladimir Putin and Chi­nese Pres­i­dent Xi Jin­ping brought the Power of Siberia pipe­line, which will stretch 3,000 kilo­me­tres from Siberia into north­east China, on­line Mon­day. The US$55-bil­lion pipe­line is ex­pected to carry five bil­lion cu­bic me­tres of nat­u­ral gas into China in 2020, with pro­duc­tion ramp­ing up and hit­ting 38 bil­lion cu­bic me­tres by 2025.

The part­ner­ship be­tween the two na­tions came in re­sponse to the sanctions levied on Rus­sia fol­low­ing its an­nex­a­tion of Crimea. Bru­tal­ized by the fi­nan­cial sanctions in par­tic­u­lar, Rus­sia des­per­ately needed to bring new cap­i­tal into the coun­try and China ap­peared to be an ea­ger part­ner to sup­ply it. The pipe­line is ex­pected to yield Rus­sia US$400 bil­lion over 30 years.

“This is a gen­uinely his­tor­i­cal event not only for the global en­ergy mar­ket but above all for us, for Rus­sia and China,” said Putin, who watched the launch via video link from the Rus­sian Black Sea re­sort of Sochi.

“This step takes Russo-Chi­nese strate­gic co­op­er­a­tion in en­ergy to a qual­i­ta­tive new level and brings us closer to (ful­fill­ing) the task, set to­gether with Chi­nese leader Xi Jin­ping, of tak­ing bi­lat­eral trade to US$200 bil­lion by 2024.”

Through its agree­ment with China, Rus­sia is very clearly try­ing to take more of the global liq­ue­fied nat­u­ral gas mar­ket share, Tu­dor, Pick­er­ing, Holt & Co an­a­lyst Jor­dan Mc­Niven said. The coun­try is also con­struct­ing pipe­lines that ex­pand its reach far into Europe.

The Nord Steam 2, an un­der­sea pipe­line, will de­liver Rus­sia’s nat­u­ral gas as far as Ger­many, while the Turk­Stream pipe­line will run to Tur­key and into South­ern Europe.

Canada, mean­while, has lagged on its en­ergy in­fra­struc­ture projects. The coun­try’s gas ex­ports all head to the U.S., Mc­Niven said, be­cause while China is an ap­peal­ing mar­ket that it would like to tar­get, Canada does not even have an LNG ex­port ter­mi­nal that would al­low it to be­come a global ex­porter.

The $40-bil­lion LNG Canada ter­mi­nal is cur­rently un­der con­struc­tion in Kiti­mat, B.C., but is not ex­pected to be com­pleted un­til 2024. The pipe­line ex­pected to feed it, a 670-km project called Coastal GasLink, has been in the works since 2012, but main­line con­struc­tion is only set to be­gin be­tween 2020 and 2021. The Power of Siberia is 10 times the size and was built in just over five years.

“There’s cer­tainly risk that the longer this drags out, the po­ten­tial less mar­ket there will be to take (for Canada),” Mc­Niven said.

Still, the de­mand for nat­u­ral gas in China is so sig­nif­i­cant, Mc­Niven said, that there will be plenty of op­por­tu­nity for other pro­duc­ing na­tions even once the Power of Siberia ramps up to full pro­duc­tion.

China’s im­ports are track­ing to about 63 mil­lion tonnes of LNG for 2019, Mc­Niven said, and at ca­pac­ity, the Power of Siberia could pro­vide 10 mil­lion tonnes. While it may seem like Rus­sia has carved out a gi­ant chunk of the mar­ket for it­self, fore­casts have China’s de­mand for LNG hit­ting about 100 mil­lion tonnes by 2025, mean­ing that Rus­sia will only be re­spon­si­ble for 10 per cent of im­ports.

While there will still be op­por­tu­nity for Canada to ag­gres­sively en­ter the mar­ket if those num­bers hold true, he said, where they’ll have to compete is on price.

“The most im­por­tant thing for Canada is go­ing to be can you compete on price be­cause it is get­ting to be much more of a com­pet­i­tive mar­ket and if you can’t of­fer a com­pet­i­tive price, it’s go­ing to be tough to find a home for your mol­e­cules,” Mc­Niven said.

Bryan Cox, the pres­i­dent and CEO of the B.C. LNG Al­liance, is also con­fi­dent that there will be an op­por­tu­nity for Canada to en­ter the mar­ket, but it can’t put off its projects any­more.

“Canada does have this op­por­tu­nity, but we do need to take ad­van­tage of it now,” Cox said.

MAXIM SHEMETOV/REUTERS

An em­ployee stands at the site for Gazprom’s Power of Siberia pipe­line out­side Rus­sia’s south­east­ern town of Svo­bodny.

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