Making A Deal

"The deal removes a part of the demand that would have been met by LNG [liquid natural gas]. It makes the game a little more congested with regard to LNG projects in Western Canada, Western United States, Gulf of Mexico, Australia and Mozambique -- it is going to make it a little more complicated."
Pete Howard, president, Canadian Energy Research Institute

"The Russia-China deal has zero impact on Canadian LNG projects. China is only one of the many countries that buy LNG. South Korea and Japan (which make up a huge chunk of the LNG market) are victims of their geography, and you can't get the gas there cheaply."
Bill Gowzd, senior vice-president gas services, Ziff Energy/Solomon Associates, Calgary

Reuters

A coup for Russian President Vladimir Putin. His sole ally within the UN's Security Council, supporting Russia's continuing refusal to sanction Syria over its war crime atrocities, has grasped at the opportunity to ensure that his energy-voracious country will procure Russian gas at a hugely preferential price. Their $400-billion natural gas deal, while giving leverage to China's energy needs, allows Russia some relief from European fury over Ukraine.

While Europe looks around for alternative fuel sources rather than continue to be subject to the Kremlin's gas-delivery spats with Ukraine over its pipeline delivery, Vladimir Putin is purring like one of those wild cats he loves to stroke for the camera: "This is the biggest contract in the history of the gas sector of the former USSR", speaking of the deal signed between Gazprom and China National Petroleum Corp.

Not so fast; there's the simple matter of delivery. While Russia states it is prepared to invest $55-billion and China $22-billion in development costs for the project, it's a long way into the future to produce that development. And while the International Energy Agency expects China's natural gas demand to rise six% yearly through to 2035, the delivery still has to be managed. Both countries stand to gain, however; China through heightened energy assurance at a preferential $10- per mcf, Russia through the monumental sale and the profit it gains the country.

The 30-year-agreement is for the supply of 38-billion cubic metres of natural gas annually through pipeline, the rate a whole lot cheaper than the $14 - $15 per mcf for Asian gas imports. But natural gas demand is on a rampage across Asian markets. Canada Russia and Australia are among two dozen countries hoping to capture a good share of the natural-gas demanding geographic region.

Canadian LNG projects are economic at $10 - $13 per mBtu, where two of the biggest markets, South Korea and Japan are unable to seal a deal like that given to China. A "robust pricing" protocol is critical for companies like Royal Dutch Shell, Chevron and Petronas Bhd assessing investment decisions on Canada's west coast. China's total energy needs will not be met by Russia alone. As a rising superpower and production centre for the world economy it will require ever more resources.

Reuters

The infrastructure for gas delivery that the two countries plan to invest in and build will be centred in an area that sees little human habitation. The project will be a long and difficult one to complete. And the kind of irritable fractiousness that has taken place between the aggressive Russia and the hapless Ukraine, may well be repeated, but with Russia taking the place of Ukraine in its business dealing with China.

There have also been predictions for the future, that a China whose population is burgeoning and a Russia whose population is diminishing will eventually see border spats where giant China will take possession of the empty border land that Russia cannot populate. An interesting development that would be, in reflection of Russia's fixation on broadening its own real estate at the expense of the Baltic states.

Beam with pleasure now, grimace in pain later.