Canadian liquefied natural gas could begin shipments to Asia in as little as three years, B.C. premier Christy Clark said in China this week, in what she warned is a race against time to capture a highly competitive market.
“These companies have to lock up their long-term contracts with their Asian customers now. If they are thrown off by five years, it will be too late,” Ms. Clark said in a telephone interview from near the Great Wall just before returning to Canada this week. She has said one terminal, most likely the Apache-led consortium for which ground is now being cleared at Kitimat, will be operational by late 2015 or early 2016, with at least two more and possibly up to five running by 2020.
“My number one economic priority is to enable the construction of these lateral gas pipelines,” she said. “It’s a $1.5-trillion economic benefit for us.”
In competition with Canada to fill China’s oil and gas needs are not only nations like Australia and Russia, but the country’s own domestic reserves. China is accelerating efforts to extract its own shale gas reserves, despite conventional wisdom that holds most of its reserves are too deep in the ground to extract cost-effectively.
Earlier this year, China’s Ministry of Land and Resources announced its assessment of the country’s shale gas reserves, which it estimated at 25.1 trillion cubic metres of recoverable resources – the largest in the world. But while Chinese energy companies are drilling in experimental projects in Sichuan and Guizhou provinces, they still lack the technology to extract the gas cost-effectively. China also faces a critical shortage of water which is required for the hydraulic fracturing, or fracking, required to recover the gas.
Earlier this month, China opened bidding on 20 shale-gas blocks, for the first time opening them to Chinese-controlled joint ventures with foreign firms, reflecting the need for outside technology.
“It doesn’t have any of the kind of technology North America does and also it doesn’t have the regulatory framework that allows the sector to develop safely and get that resource to market,” said Michael Mbogoro, a consulting analyst specializing in shale gas at London-based research firm Frost and Sullivan, of China’s aspirations.
As a result, Canada’s Western premiers are hopeful the Chinese market offers an opening for Canadian technology. However, their Chinese audiences’ focus this week was still very much on accessing the resource itself.
“[With] Canada’s reserves of oil and gas, if they open up the pipelines – for example, the Northern Gateway which has been delayed – China can be a very stable market to take all these resources from Canada,” said Han Hua, managing director of the CNPC-Alberta Petroleum Centre in Beijing, a joint project between the Chinese state-owned oil major and the Alberta government. His firm, CNPC, expects to source as much as half of its production from Canadian oil and gas fields once the pipelines are running, he said.
Critics warn the extraction of natural gas is so expensive that even shipping it to the lucrative Asian market, where gas prices have been hovering around the $17 (U.S.) mark compared to about $3 in North America, may not be cost effective in the long run.
“You have to liquefy it, preserve it in a cryogenic state and then transport it halfway around the world,” Mr. Mbogoro said, warning the process is expensive and not without risk of accidents. Though gas would dissipate in the event of a leak, that leaves workers and cargo crew in a sea shipment at risk of asphyxiation.
But Mr. Mbogoro said China’s needs are so great, and the country is so anxious to secure new and stable sources, that even shipping from Canada may seem appealing.
“If Canadian companies are looking for a place to send natural gas, I would say the Asia-Pacific region, you don’t get a better market than that,” Mr. Mbogoro said.
Special to The Globe and Mail