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Ambassador Carlos Pascual, Special Envoy and Coordinator for International Energy Affairs for the U.S. Department of State, speaks during the CERAWEEK world petrochemical conference in Houston March 7, 2012.

© Donna Carson / Reuters/REUTERS

Far from watching jealously as Canada plots to ship oil and gas to Asia, Washington is learning to like it.

Both Canada and the United States now have an interest in seeing that China's thirst for energy is satisfied, said the U.S. special envoy for energy affairs, Carlos Pascual. And they can co-operate to promote free markets for energy in Asia, so big players – like Russia – can't use energy wealth for undue geopolitical power.

In a week when Russia signed a $400-billion, 30-year deal to sell natural gas to China, the geopolitical implications of energy deals, and the rapidly evolving economics of Asian demand, are hot topics in world capitals and financial markets.

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Canadian investors who worry Moscow's deal will chill Chinese interest in Canadian liquid natural gas need not fret, Mr. Pascual believes. The deal is a "drop in the bucket" compared to China's booming demand.

That ballooning Asian demand, plus the natural-gas revolution which will make both Canada and the U.S. big exporters, is also radically changing Washington's view of Canada's efforts to ship energy to China.

Americans are used to seeing Canadian oil as part of their energy security. Some in Washington fret over Prime Minister Stephen Harper's campaign to sell energy to China, and projects like the proposed Northern Gateway pipeline.

Mr. Pascual isn't worried. "I think it's a good thing," he said in an interview at the U.S. embassy in Ottawa during a visit to meet Canadian government officials.

"Canada and the United States have to face basic realities: that the demand in the future in energy, demand growth, is going to come from Asian markets. And we have a self-interest in seeing those Asian markets be satisfied and serviced."

Why? Nearly all growth in demand for energy will come from emerging economies, but especially China. Its needs will shape global prices. If it suffers shortages, or supplies are at risk, it will send price shocks through world markets.

That would hit the U.S. economy – because "we pay global prices," Mr. Pascual said. And a U.S. slowdown would hurt Canada, even if energy exporters benefit from price spikes.

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There are also critical questions of how energy affects geopolitics, made sharper in the Ukraine-Russia crisis. Moscow has used energy as a political lever, shutting pipelines to Ukraine, while Europe's dependence on Russian gas has cooled drives to tougher economic sanctions.

Mr. Pascual, however, believes Europe's example offers hope in preventing a nation from using energy as a political lever in Asia.

Europeans invested in infrastructure so natural gas can flow in different directions, rather than just westward from Russia. They banned "destination clauses" so Russia's Gazprom can no longer bar customers from re-exporting gas. That promotes competition, and allows Ukraine to get gas through Poland, Hungary and Slovakia, Mr. Pascual said. Europe is also building infrastructure for liquid natural gas, shipped from places like Qatar.

Now a liquid-gas revolution can make that happen in Asia, driven by the explosion of shale gas development. Gas production in North America is booming.

The U.S. has given policy approval for seven export licences that, in theory, would see the U.S. export 95 billion cubic metres a year. Canada, he said, could export a comparable amount.

Right now, Asia's natural-gas markets work mostly on "national" contracts – like the country-to-country deal struck between China and Russia. But if Canada and the U.S. work together to promote real markets, where gas is traded and swapped competitively, Mr. Pascual said, "that reduces the ability of any single actor to assert undue political influence on players in the market."

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China, he said, will also have an interest in diversifying suppliers – and Canadians need not worry that Russia has locked up the Chinese market. Forecasts indicate Chinese gas demand will double to 400 billion cubic metres by 2020, and it could go up to 600 billion – while this week's deal with Russia was for 38 billion. "That's a drop in the bucket," Mr. Pascual said.

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