Massive Russia-China gas deal to shake up LNG markets – by Nathan Vanderklippe and Brent Jang (Globe and Mail – May 22, 2014)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

BEIJING and VANCOUVER – Russia has struck a deal to supply some $400-billion (U.S.) worth of natural gas to China over three decades, a breakthrough pact that solidifies ties between the nations as the West seeks to isolate Russia amid the crisis in Ukraine.

After a decade of failed attempts, the countries struck the agreement on Wednesday while Vladimir Putin and Xi Jinping, the presidents of Russia and China, were in Shanghai for a two-day conference. The deal will spark development of massive gas fields in Eastern Siberia and the construction of some 4,000 kilometres of pipelines, efforts that together are expected to cost $55-billion (US).

Under the deal, China agrees with a single stroke to buy from Russia’s OAO Gazprom nearly half the volume of natural gas consumed by all of Canada.

And for Canada, that new source of natural gas is another sign that its own ambition to become a major exporter of the commodity faces intensifying global competition. Energy companies are planning several liquefied natural gas export projects on the British Columbia coast, but Canada is well behind other international players.

B.C. Premier Christy Clark insisted the province is still well-positioned to become an LNG exporter. She said Asian buyers, including China, still want their suppliers to include countries that offer reliability over the long term.

“We’ve certainly seen the way that Russia likes to do business these days, and we certainly know that the Chinese want a dependability of supply. We can supply that,” Ms. Clark said at a Vancouver news conference on Wednesday. “Being honourable, being trustworthy, providing the assurance that we are not going to play politics with energy. I think that’s worth a lot to our potential customers out there, especially for China.”

Shamsul Azhar Abbas, the chief executive officer of Malaysia’s state-owned Petronas, also played down the impact of the Russia-China natural gas deal on Canada’s fledgling LNG industry, and specifically the Petronas-led Pacific NorthWest project.

“What I am interested in is whether it will compete directly with our Canadian project, and the answer is no. The beautiful part of our project is that we have a buyers’ consortium,” Mr. Shamsul said during an interview at an international LNG conference in Vancouver.

The Pacific NorthWest LNG joint venture is being planned for Lelu Island, near Prince Rupert in northwestern British Columbia. “As far as China is concerned, they have a very huge need for energy,” Mr. Shamsul said.

Russia’s pact with China is “the biggest contract in the entire history” of the country and OAO Gazprom, the world’s largest gas producer, chairman Alexey Miller said. The deal involves 3.7 billion cubic feet of gas per day. On Wednesday evening, Mr. Xi and Mr. Putin looked on and applauded as the sales contract was signed by Gazprom and China National Petroleum Corp. The leaders’ presence underscored the significance of an agreement that will create a ribbon of steel linking the two countries even as Western nations seek to diminish their economic dependence on Moscow because of the conflict in Ukraine.

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