If the crisis in Ukraine has a silver lining, it may well be for Canada’s energy sector. Already, oil producers worldwide are benefiting from higher prices. But the longer-term impact is more likely to be felt on the natural gas side, where Russia happens to be the world’s largest exporter and Canada, No. 2.
Unlike oil, natural gas prices vary enormously from place to place, and right now all of Canada’s gas exports go to the United States by pipeline. But the potential for instability, international sanctions and arbitrary political decisions affecting Russia’s exports bolsters the case for more than a dozen liquefied natural gas terminals proposed for the British Columbia coast. Energy utilities—not just in Europe, but also in South Korea, Japan and China—will be re-weighting the risk factors involved in their Russian gas supply about now. Looking forward, they will likely seek to further diversify their sources of supply.
It was no coincidence that the last surge of foreign investment in Canada’s oilpatch followed the Arab Spring and came from China. The instability saw Chinese companies having to rescue 30,000 stranded workers in Libya alone, and the new regime established there was disinclined to deal with those who’d worked with Ghaddafi. Chinese oil companies thereafter directed more of their capital into stabler countries like Canada and Australia, notably with the $15-billion acquisition of Nexen Inc. in late 2012.
The budding LNG business here could certainly use some good news about now. Last week Japan, still the world’s biggest LNG market, announced it would restart its nuclear program, reducing the gas demand for electrical generation going forward. Project proponents are also redrawing their spreadsheets in response to the export tax guidance laid out in B.C.’s 2014-15 budget and the gyrations of the Canadian dollar. But security of supply ranks right up there with price as a deal-breaker in the energy business, and the world’s No. 1 gas supplier is looking less reliable all the time.