How the massive China-Russia natural gas agreement could impact Canada’s economy and the environment
Earlier this month China agreed to purchase approximately $400 billion of natural gas from Russia over 30 years.
Keith Head, a professor at the Sauder School of Business who specializes in international trade and economic geography, explains the implications of this deal for Canadian energy exports, geopolitics and even climate change.
What does the China-Russia deal mean for Canada’s natural gas sector?
The cost of $400 billion seems high but it needs to be kept in perspective. This amount is for 30 years and the contracts are back-loaded. Starting in 2018, China will import 38 billion cubic metres of gas as a result of the new deal. This is less than half of the natural gas Canada exported to the U.S. in 2011.
Natural gas currently constitutes just four per cent of China’s total energy consumption. The deal will increase this percentage somewhat but the major source of energy for China will still be coal, which currently accounts for over two-thirds of China’s energy needs. If China were to move away from coal in a big way, it would create a huge market for alternative fuels, including liquid natural gas (LNG) from Canada. But our future LNG exports face competition from Australia, Russia, and later from China itself, which has the potential to produce large amounts of its own natural gas.
Is this deal between Russia and China a game-changer?
No. Even after this deal, three facts remain: 1) Russia is still heavily oriented towards western Europe as a market. Currently 76 per cent of Russia’s natural gas exports are destined to western European nations. 2) China still relies heavily on coal. 3) Canada still has a potentially huge market to sell to but also a large number of competitive threats on the horizon.
Reinforcing cooperation between China and Russia has potential geopolitical consequences. It is just very hard to anticipate in any reliable way what those might be.
How could this deal impact climate change?
Coal is very bad for the local environment and a major contributor to global warming. China produces and consumes almost as much coal as the rest of the world combined. A significant reduction in China’s coal consumption is of critical importance in terms of slowing CO2 accumulation in the atmosphere.
If methane leakages can be avoided, natural gas contributes less than half as much C02 as coal. But the fracking process does release methane, which is a potent greenhouse gas, so the massive gains from switching from coal to natural gas are not automatic.
A more exciting–or terrifying, depending on how safety issues are handled–prospect from the point of view of reducing climate change would be if China moved towards nuclear power in a big way. Currently 27 nuclear reactors are under construction in China, more than in any other country.