Hey Canada – Russia’s eyeing the Far East
As Canada’s political and business elite descended on Beijing last week to drum up new business with China, I wonder if they were having nightmares of being devoured by a bear.
If you’re not getting the bear reference, take a gander at this video segment from Platts Commodity Pulse feature. The bear I’m referring to is Russia, and as the Platts’ talking heads in the video point out, the world’s most prolific petroleum producer is taking just as much a shine to Asia these days as Canada is.
That’s not great news for companies like Apache Canada Ltd. and Shell Canada who are looking to export liquefied natural gas from British Columbia’s West Coast – and invest billions of dollars in the process. It’s also not good for Enbridge Inc. as it tries to advance its $5.5 billion Northern Gateway pipeline that would ship 525,000 barrels per day of oil sands production to offshore markets.
Producers operating in Alberta’s oil sands and northeastern B.C’s Horn River and Montney tight gas basins are in a race against time here. They are trying to get their projects approved, sanctioned and built before the demands of Asian markets are met by competitors like Australia, Qatar and Russia.
Russia is currently producing 10.3 million barrels of crude oil per day, according to Platts. A total of 4.7 million barrels is used by the Russians, but that still leaves 5.6 million barrels to export. The country reportedly has over 1,680 trillion cubic feet of natural gas reserves, too. In the past much of Russia’s oil and gas has been sold to Europe. But the Eurozone is starting to turn on the Russians. And as William Powell, editor of Platt’s International Gas Report says in the video, Europe is sending signals to Russia that it “doesn’t need its gas anymore.”
So what’s a poor petrostate to do in this case? It turns its attention to Asian markets like China and Japan, of course. Russia’s state-owned gas giant Gazprom is planning to spend US$200 billion between 2012-2015, and you have to figure some of that capital will be directed towards projects that serve markets like China, which the International Energy Agency forecasts will be using 500 billion cubic meters (bcm) of natural gas annually by 2035. (Chinese demand in 2010 was 110 bcm.)
On the oil front, the Russians are already shipping significant quantities of oil to China on the 300,000 barrel per day East-Siberia Pacific Ocean Pipeline. Another spur line has been built that ships 300,000 barrels into China, and the Russians are looking to expand the capacity on that line to one million barrels per day by 2015-16.
How all of this will affect Canada’s designs on becoming a key exporter of petroleum to the Pacific Rim is difficult to say. But what I can say is that while North Americans fret and debate about the pros and cons of exporting oil and gas to Asia, Russia is quickly making inroads there and eating into the market share.