Japan’s Prime Minister Shinzo Abe, left, visiting Canadian Prime Minister Stephen Harper
Canada has stepped up its diplomatic efforts to sell LNG to Japan and other Asian countries, as mounting tensions and the threat of further sanctions cast a shadow over Russia’s flagship Far Eastern LNG projects.
Following a Canadian government-sponsored LNG seminar in Tokyo in July, the country’s Foreign Minister John Baird has been touring the region in the latest diplomatic push to drum up business for the country’s west coast liquefaction projects.
“In a time of global concern about risks to energy supply, the world is looking to Canada as a stable, reliable, resource-rich partner. In particular, I know that Japan relies heavily on LNG. I saw one of your impressive LNG terminals for myself on Friday,” said Baird after visiting the Sodegaura terminal in Tokyo.
Blessed with plentiful gas resources, low prices and comparatively short shipping distances to premium Asian markets, British Columbia has become a hub for proposed LNG investments, with more than a dozen plants on the drawing board. However, expensive greenfield projects, labour shortages and challenging local politics could still unravel Canada’s plans to become a major LNG exporter.
Speaking on Sunday at the International Institute of Strategic Studies in Singapore, Baird highlighted Canada’s advantages and noted instability in Russia and the Middle East as a threat to Asian energy security.
“This coincides with increased energy self-sufficiency in the United States, Canada’s primary destination for current oil and gas exports. So there is a natural and mutually beneficial potential to significantly deepen the Canada-Asia energy partnership.”
Permanent fixtures
Canadian politicians have become a common fixture in Japan and Asia in recent years, as have the sales pitches for Canadian energy exports to the region.
Eager to source additional LNG supplies and cut energy costs, Japan’s Prime Minister Shinzo Abe has also crossed the Pacific to talk about shale gas exports.
“Canada, endowed with rich energy resources – including gas – has a very high potential in the context of energy cooperation. With a view to securing a stable supply of LNG at a competitive price, we look to the progress of the ministerial level consultations,” said Abe after meeting Canada’s Prime Minister Stephen Harper in 2013.
While several Japanese LNG-focused companies – including Japan Petroleum Exploration, Inpex and Mitsubishi – are already on the ground in Canada, the country’s LNG projects are lagging behind their peers in the US, where surging shale gas production has underpinned Gulf Coast liquefaction plants that have already signed up Japanese customers.
The Kitimat LNG plant – one of British Columbia’s top contenders – was dealt a damaging blow last week as US independent Apache retired from the project because of high costs and investor pressure. The two most promising projects are Pacific NorthWest LNG, led by Malaysia’s state-owned Petronas, and Shell’s LNG Canada plant – both of which have Asian buyers on board.
But Canada’s renewed push to secure Asian buyers also comes as the future of Russia’s far eastern LNG plants looks increasingly shaky. Gazprom and Rosneft are both planning liquefaction projects in East Asia, one on Sakhalin Island and the other on the outskirts of Vladivostok.
Meanwhile, Shell and Gazprom are planning to expand the Sakhalin 2 plant with an additional 5 mtpa train, and Novatek is building the Yamal LNG plant in Russia’s northwest.
However, doubts are beginning to emerge about the timetables for these projects after the US and EU levied sanctions on Rosneft, Novatek and Gazprombank – in addition to imposing wide-ranging financial measures that have locked Russian borrowers out of Western capital markets.
Last week, France’s Total – which owns 18% of Novatek – said it had suspended its share-purchasing programme in the company, citing the downing of Malaysia Airlines’ flight MH17 and the ongoing conflict in Ukraine as a factor.
Later, Yamal LNG’s partners said they could be forced to increase shareholder financing if they experience difficulty as a result of the sanctions. The partners originally planned to fund the project with 70% of the capital loaned from money markets, but it remains unclear whether this will be possible given the sanctions on Novatek.
“Additional sanctions on Russian companies imposed last week have raised the country’s risk profile with increased uncertainty around the capital expenditure plans and growth potential of all Russian companies,” said Barclays in a research note on Friday.
While Russia’s gas and LNG projects have not been directly targeted by the US and Europe, the threat of further sanctions and the fear of being caught by existing measures could keep Japanese investors away from projects such as Gazprom’s Vladivostok LNG.
Looming in the background is the $9 billion fine BNP Paribas was forced to pay in July for violating sanctions on Iran. “Our Russian financing activities will be affected by the sanctions. Bankers hate risks,” said a source at a Japanese financial institution that has previously financed Russian LNG projects.
Asian animosity
Meanwhile, after a brief period of optimism, hopes are fading that Japan and Russia can solve their long-running territorial dispute and finalise a peace treaty still outstanding since the end of the Second World War.
Following the announcement of a second round of Japanese sanctions, Russia’s foreign ministry decided on Tuesday to postpone consultations between the Russian and Japanese deputy foreign ministers, which were initially set for August.
“Russian-Japanese consultations at the level of deputy [foreign] ministers were supposed to be held in Moscow over this period. However, in light of the introduction of new anti-Russian sanctions by Tokyo, we believe that holding such a meeting would be inappropriate,” Russian Foreign Ministry spokesperson Maria Zakharova said.
Canada courts Japan as Russian tensions heighten - Natural Gas Daily - Interfax Global Energy
