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Canada must act before Asia finds energy supply

Lynch, Kevin; Yuen, Pau Woo. Calgary Herald; Calgary, Alta. [Calgary, Alta] 20 Mar 2013: A.11.

Our world is pervasively global and changing profoundly, whether we like it or not. Structural trends are reshaping economies, living standards and expectations around the world. One such trend, with incredible potential for Canada, is the rapid growth of Asia's emerging economies and their impact on global demand for energy and natural resources. By 2035, according to the International Energy Agency, three developments will remake global energy markets.

First, world energy demand will increase by one-third, but most of this (more than 90 per cent) will occur in non-OECD countries. China alone by 2035 will consume substantially more energy than the United States. Second, the U.S. will approach energy self-sufficiency as domestic energy demand ceases to grow, due in part to energy efficiency measures, and as new un-conventional gas and oil projects cause domestic energy supply to surge. Third, the advent of shale gas and its widespread geographic distribution suggest the potential for global gas trade rather than the series of regional markets that exist today in Asia, North America and Europe.

Competition in this burgeoning global energy trade will be formidable. In the case of liquefied natural gas (LNG), the number of exporting countries has doubled since 1997 and is only expected to increase. The United States may itself emerge as a major LNG exporter with the first project slated to ship gas to Asia in 2016 and other producers lined up for permission to export more than 30 billion cubic feet of LNG daily.

How is Canada positioned for this global energy revolution? The answer is mixed. We rely on a single customer for all our oil and gas exports, the United States, which appears to be an increasingly unreliable future buyer and which may even emerge as one of Canada's major competitors for export markets. At the same time, we also have a capacity to dramatically increase our supply of unconventional oil and gas, provided we secure new customers and do so before our competitors.

Asia is similarly wedged between an increasingly risky reliance on a predominant energy supplier, the Middle East, and rapidly increasing energy demands to fuel growth and consumer needs. Herein lies the seeds for a mutually beneficial energy partnership between Canada and Asia. Canada needs greater security of energy demand to develop its vast unconventional oil and gas potential and Asia needs greater security of energy supply to better mitigate the geopolitical risks in the Middle East today.

So, how do we turn this potential into reality? To start, we need to encourage dialogue in order to establish common understanding and relationships. One forum for this type of discussion is the April 2013 Pacific Energy Summit, co-sponsored by the Asia Pacific Foundation of Canada (APF Canada) and the U.S.-based National Bureau of Asian Research, that will bring together private sector, government and policy leaders from a number of Asian countries, as well as the United States and Canada, to discuss how to forge trans-Pacific co-operation for this new energy era.

Another building block is strong investment and commercial ties. The recent CNOOC-Nexen deal is an example of Asian investment that fosters stronger energy partnerships between Canada and Asia. However, Asian interest in developing investment ties with Canada is not limited to China: Companies from Japan, Korea, Malaysia and Thailand have invested capital in Canadian oil and gas assets, and other Asia-based companies are looking at investment opportunities.

Most importantly, Canadian energy producers must be able to access new energy markets in Asia, and this will require massive new energy transportation infrastructure. Without the ability to reach these Asian energy markets through new oil and gas pipelines, rail capacity and port facilities, our potential will remain unrealized. We must recognize that the need for Canadian energy in Asia is an opportunity that may disappear if we do not act decisively to capture markets in the face of stiff competition. Without markets and the transportation infrastructure linking to those markets, resources have limited economic value.

A recent task force report from APF Canada and the Canada West Foundation points to the importance of export diversification for the Canadian economy and how trans-Pacific energy trade can provide the vanguard of a broader effort to develop new Asian markets for Canadian products and services to service growing middle class demands in Asia. By helping energy security needs in Asia through oil and gas exports, Canada will be in a better position to work with Asian partners on other energy challenges, including energy efficiency, renewables and clean technology.

As we face a global future that will be profoundly different from the present, both Canada and Asia need more energy partners. Canada has many advantages to bring to such a partnership. However, the full potential of this partnership cannot be realized on a project-by-project, enterprise-by-enterprise basis. Given its scope and impact, there is a national interest in pursuing a broad-based, strategic Canada-Asia energy partnership that encompasses government, industry and community stakeholders. It will require concerted leadership from across the country.

Kevin Lynch is the Vice-Chair of BMO Financial Group and Yuen Pau Woo is President and CEO of the Asia Pacific
Foundation of Canada.