Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

Flags fly near an advertising screen displaying the logo of Gazprom company, in St. Petersburg, November 14, 2013.

© Alexander Demianchuk / Reuter

A massive natural gas agreement between Asian superpowers may have just pulled the proverbial rug out from under Canada's hopes to become a major exporter of Liquefied Natural Gas. The deal underscores one of the risks of playing in the global energy game–the goal posts can suddenly move just when you're ready to kick the ball.

In the LNG business, global trade flows are driven by prices or, more precisely, price differentials between where natural gas is produced and where it's sold. British Columbia's plans to become a big natural gas exporter hinge on the wide disparity between Asian and North American prices. In Asia at the moment, natural gas is selling for upwards of $15 per thousand cubic feet. On this side of the Pacific the cost is around $4.50 per mcf. Getting that gas from here to there is tricky, but it's easy to see how much money there is to be made if you can pull it off.

Of course, the rest of the energy world isn't exactly going to sit still while you get your plans together. Last decade, Quebec City found that out first hand when its plans to import LNG from Russia through a regasification terminal were scuttled after North American natural gas prices crashed. The emergence of shale gas drilling and the ensuing spike in production made those hopes obsolete. The same thing is about to happen to British Columbia's ambitions to become a major player in the global LNG business. China, for one, has now found a much cheaper source of supply that's right in its own backyard.

Story continues below advertisement

There's no small irony to the fact that by exhorting their European allies to wean themselves off their dependence on Russian gas, President Barrack Obama and Prime Minister Stephen Harper may have quashed their domestic hopes of exporting LNG to China. In an unintended consequence of the turmoil in Ukraine, the resurgence of Cold War tensions has acted as a catalyst to cement one of the world's largest-ever energy deals between Russia and China.

Russia's reliance on western European markets is as strategically problematic for it as it is or for its customers. If a dispute compels Russia to turn off the gas the lights may go out in Kiev and Berlin, but it also means cash flows start to dry up in Moscow. Right now, Russia's state run gas company, OAO Gazprom, counts on European countries for about 80 per cent of its revenue. Reorienting its sales eastward is a natural hedge against any future conflict with western Europe that can imperil those vital cash flows. It's also a natural fit. The world's largest energy producer sits right next door to its biggest energy consuming economy.

The new $400-billion accord between Russia and China will also serve as a springboard for OAO Gazprom to develop its vast and largely untapped natural gas reserves in eastern Siberia. Some 4,000 kilometres of new pipeline will hook up Siberian gas wells to Beijing and other parts of northeastern China, a region that holds the same population as all of western Europe. As part of the deal, Russia will supply 3.7 billion cubic feet of gas per day to China for the next three decades. First gas is expected to flow as early as 2018.

Just as the supply of shale gas brought down North American gas prices, so too will the new supply of Russian gas lower prices in China. It's thought that Gazprom will get just under $10 per mcf for its gas exports to China, which is $3 to $4 less than current Asian LNG spot prices. What's more, China also has its own supplies of shale gas just waiting to be developed. The International Energy Agency estimates those reserves to be among the largest in the world. Tapping those supplies will bring prices down even further.

There are at least a dozen proposals to export LNG from the B.C. coast. What will lower natural gas prices in China mean for those projects? Just ask Quebec City.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies