Lawrence Solomon: Russia-China gas deal a good deal for the world

(May 29, 2014) The $400-billion sale of gas by Russia to China serves the West too, helping our economies while lessening geopolitical tensions.

This article by Lawrence Solomon appeared in the National Post on May 29, 2014

Russia’s record-setting $400-billion natural gas deal with China last week was followed by a lot of hand-wringing in the West. It’s a blow to our industry, proclaimed business pundits in Canada, the U.S., and Australia, lamenting the loss of their countries’ export market for LNG, or liquefied natural gas. It’s a blow to the free world, chimed in political pundits, lamenting the challenge to the Free World by an unfree Russia-China alliance.

The pundits, business and politicos alike, have it backwards. Not only is this deal no economic or geopolitcal disaster, this deal is all to the good for the West, almost any which way we look at it.

Economics first. Rather than seeing the Russian-Chinese deal as a cost to the West’s energy producers, it should be seen as a lifesaver for them, and for Western economies and consumers, too. Developers in the West today are pushing numerous proposals to build export facilities for LNG — British Columbia alone has a dozen of them. These proposals are mostly fantasies — LNG is inherently uneconomic because of the huge losses involved in liquefying and then re-gasifying natural gas. LNG is useful as a stopgap and in niche situations but, from the point of view of importing nations, wholly unsustainable as a long-term basis of development.

Had the Russian-Chinese deal been signed a few years from now, many millions, maybe billions, would have been wasted by the West in a suicidal stampede to develop LNG. As it is, many of the West’s LNG lemmings have been stopped in their tracks, saved by strokes of the pen on the contract signed last week in Beijing.

More will be saved from themselves if a long-proposed deal for Russian gas is inked in Tokyo. Japan is currently the world’s largest importer of LNG by far, an unplanned consequence of the shutdown of Japan’s fleet of nuclear reactors following the Fukushima accident. Even if the Japanese decide against signing a deal to pipe gas from Russia, it wouldn’t signal a continuing embrace of LNG. The Japanese are likelier to go back to nuclear, and/or to coal, and/or to develop their own gas offshore, than to relegate their economy to slow growth burdened by needless reliance on premium-priced LNG.

Likewise, it will be anything-but-LNG in most parts of the world. Every single continent has endless gas in the ground, waiting only to be exploited and economically transported via pipeline. With every continent ultimately self-sufficient via land transport, none will rely for long on sea-based imports of LNG. The investments by government and industry that might have gone into wasteful LNG terminals can now be put to more productive uses at home. As an economic and environmental bonus, because the gas stays at home and avoids LNG’s enormous production losses, our store of usable gas increases, increasing domestic supply and keeping prices low for industrial and personal uses alike.

Geopolitical angst over a Russian-Chinese alliance is likewise wrong headed — the Russia-China deal makes the world safer for the West. China has been under immense pressure to assure itself the natural resources needed to keep up its rapid economic growth, which in turn is needed to keep its dictators in power. Its feverish search for resources not only led it to make untoward deals with African despots but also to become increasingly belligerent in claiming rights to islands, shoals and reefs — and the offshore energy resources attached to them — in the South and East China Seas. With Russian gas now secured, China will be under less pressure to push its case for these properties, lessening the chance of war with Japan, South Korea, Taiwan, the Philippines, Vietnam, Malaysia and Brunei, and lessening the chance that the U.S. and other Western powers might get drawn in.

Russia, too, will be more relaxed, and thus less prone to overreact against real or perceived provocations, as a result of having secured a large new market in China. Russia has been far more dependent on Europe than vice versa. While Europe’s economy would be hurt if its energy trade with Russia ended, needing to scramble for a while, Russia would be devastated, thrown into depression at the loss of its largest customer by far — Europe’s energy purchases account for half of Russia’s total budget revenue.

To avoid the risk of Western sanctions and boycotts of the kind threatened during the Crimean crisis, Russia needs to diversify its customers. Its stakes in Europe will then lessen, along with the West’s leverage and ability to make threats or take liberties, lessening the chance of future disputes and lowering the temperature when future disputes do arise.

In truth, the Russia-China gas deal is just a trade deal that, like any good trade deal, furthers the interests of both parties. These two countries are not ideologically attuned — unlike North America and Western Europe, which have common cultural heritages, Russia and China are worlds apart, having no more in common with each other than with the West. They are natural others to us, but not our natural enemies, and do not become fearsome when they come together in trade.

Lawrence Solomon is executive director of Energy Probe.

About Lawrence Solomon

Lawrence Solomon is one of Canada's leading environmentalists. His book, The Conserver Solution (Doubleday) popularized the Conserver Society concept in the late 1970s and became the manual for those interested in incorporating environmental factors into economic life. An advisor to President Jimmy Carter's Task Force on the Global Environment (the Global 2000 Report) in the late 1970's, he has since been at the forefront of movements to reform foreign aid, stop nuclear power expansion and adopt toll roads. Mr. Solomon is a founder and managing director of Energy Probe Research Foundation and the executive director of its Energy Probe and Urban Renaissance Institute divisions. He has been a columnist for The Globe and Mail, a contributor to the Wall Street Journal, the editor and publisher of the award-winning The Next City magazine, and the author or co-author of seven books, most recently The Deniers, a #1 environmental best-seller in both Canada and the U.S. .
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