By Jessica Lobo (New York University)
Canada’s and Russia’s energy relationship is not typically understood as geopolitically significant relative to other big players in global energy markets. However, as two of the largest exporters of oil and gas, how they interact with each other in regards to energy markets is important. Their energy relationship is, for the most part, competitive in nature. They not only compete for resources in the Arctic but they also both have opportunities to sell their energy to the same markets, namely Europe and Asia. While Russia is actively pursuing a clear energy dominance strategy, Canada has never had any widespread consensus on what kind of player they want to be in the global energy market. This has led to Canada consistently losing out potential market shares to Russia putting their current position as a global energy player in question. At the moment, the current Coronavirus pandemic has put all global energy players’ future in question—including Russia. Therefore, the pandemic offers Canada an opportunity to properly evaluate how they want their energy sector to look in the future. This way they can either start actively pursuing a more global energy portfolio like Russia, start to slowly rearrange their energy portfolio to be more regional or slowly transition to a green economy phasing out their oil and gas industries. In other words, Russia and Canada are competitors in global energy markets, but given the current circumstance, Canada now has a chance to become a more fierce competitor or withdraw themselves from the competition.
One region, Canada and Russia compete in, is the Arctic. In January, the Russian government committed $300 billion in incentives for oil and gas developments on the shores and in the waters of the Arctic Ocean (Last 2020). The incentives are the biggest for developments and projects planned for the east Arctic, close to Canada’s Beaufort sea (Ibid.). This is part of Russia’s broader strategy to make their state energy companies, such as Gazprom, Lukoil and Rosneft, bigger players in global energy markets (Ibid.). This is on top of all their current projects in the Arctic which already generate close to 20 percent of their gross domestic product (Morgan 2018). Canada used to be a pioneer for Arctic energy developments back in the 70s and 80s; nevertheless, after their oil projects in the Beaufort sea shut down, they lost this lead (Last 2020). Since then, Canada has yet to put forth a clear Arctic energy strategy (Weber 2019). In fact, Canada’s Arctic energy projects have come to a complete halt in the past few years due to declining oil prices and abundant supplies in regions with cheaper production costs such as Alberta and British Colombia (Morgan 2018). Now, it appears as if Russia is attempting to pick up that slack in the Arctic. While environmentalists view Canada’s inaction in the Arctic as the moral high-ground, Russia continues on with their developments despite mounting environmental concerns because “Arctic dominance would give Russia a potent card to play” geopolitically (Ibid.).
China is another area where Russia is currently overtaking Canada in a global energy context. Canada is developing gas projects in western British Colombia with the goal of selling energy to Asia (Boyden n.d). These projects, however, are taking a long time to develop, and in this time Russia has been able to make a massive deal with China (Ferreira 2019). The Power of Siberia pipeline is supposed to transport five billion cubic meters of natural gas into China starting this year (Ferreira 2019). “Russia is very clearly trying to take more of the global LNG market share” (Ibid.). There is still market share for Canada to seize if they so desire. Although, the Coastal GasLink, a pipeline that would allow Canada to export their LNG to China, has been in the works since 2012; eight years have passed, and there is still an expected four or more years to go until it is complete (Ibid.). Contrastingly, the Power of Siberia was built in just over five years and is 10 times the size than what the Coastal GasLink will end up being if it is ever completed (Ibid.). While natural gas demand in China is still significant, the longer Canada takes to develop their infrastructure, the less market share there will be for them to take (Ibid.). When little market share is left, their infrastructure planned for global exports runs the risk of becoming stranded.
Similar to China, Europe is another market that Russia is acting fast on while Canada lags behind. Europe is reliant on Russia for much of their energy supply (Kolga 2019). This has serious implications for Europe’s energy security. Putin is known to use a state’s dependence on Russian oil or gas as leverage in their geopolitical games (Ibid.). He will sometimes cut off supplies of Russian energy to certain states or inflate prices in order to get what he wants (Ibid.). Canada, though, has an opportunity to help Europe diversify and secure their energy supplies (Ibid.). Unlike Russia, Canada is unlikely to ever use their supply of oil and gas as leverage for geopolitical gains (Ibid.). Canada’s government is one of the most stable in the world (Findlay 2019, 18). Transparency International ranks Canada as having one of the lowest perceptions of corruption while Russia has one of the world’s highest (Ibid., 19). In other words, Canada is the more dependable country to rely on for energy. If Canada were to act quickly on the pipeline infrastructure, Alberta gas could be shipped to Europe from eastern Canada as liquefied natural gas (Kolga 2019; Boyden n.d.). However, with the possible development of the Nord Stream 2, a pipeline that will further entrench Europe’s dependency on Russian gas, Canada will need to move quickly.
There is a clear pattern of Canada’s delayed action in contrast with Russia’s prompt action in oil and gas markets; Canada’s oil and gas producers do not seem as aggressive as Russia’s for good reasons though. Even before the steep fall in demand associated with the Coronavirus pandemic, climate change policies, increased decarbonization and fossil fuel divestment were all reasons why Canada’s oil and gas industry was struggling before the pandemic (Bennet 2020). There are many regulations surrounding the growth of Canada’s oil and gas industry (Findlay 2019, 2). Additionally, the government is not the only actor closely overseeing the industry; environmental organizations and Indigenous peoples are constantly holding the industry accountable to these regulations (Ibid.). In this regard, Canada itself “is frustrating, if not, undermining” its own LNG and oil growth prospects (Ibid.). This is not to say that these regulations and organizations are not important and doing good work, but, in part, because of them, Canada is losing opportunities for economic growth. There are potentially trillions of dollars worth of revenue in the market shares that Russia is quickly overtaking (Ibid.). Moreover, Canada’s LNG is actually cleaner. According to a report by the Oxford Institute for Energy Studies, the less Canadian LNG there is in the global LNG market in comparison to Russian LNG, the more greenhouse gas emissions there will be in the global LNG market (Ibid.). Therefore, it may be better for the world for Canada to reduce its regulatory oversight and start acting quickly to take some of the global market shares before Russia takes any more, but Canada needs to be unified if they were to take such action for this to happen.
Since this pandemic has put many of the world’s oil producers in positions of uncertainty, including Russia, this is Canada’s opportunity to decide on an energy strategy to pursue following the pandemic. Nevertheless, “Canada has never had a simultaneously coherent and successful energy strategy” (Findlay 2019, 21). Since Canada is a diverse democracy, there are many different ideas as to the direction the Canadian oil and gas sector should go in a post-pandemic world. On one hand, there are the different provincial and regional factions that remain loyal to their close energy sources (Ibid.). There are also contrasting views on whether Canada should be a global producer, whether they should integrate more closely with the US and Mexico or whether they should give up on fossil fuels altogether. This is on top of what was described in terms of differing levels of environmental and Indigenous land rights concerns (Ibid.). In other words, for Canada to move forward with a successful energy strategy following the pandemic—it requires a collaborative effort. If Canada’s energy strategy remains disjointed post-pandemic, oil and gas producers hoping to break into global markets will likely continue to lose market share to Russia with little choice in the matter. Canada should either pursue a global strategy more aggressively as a united front or forgo the idea of being a global energy exporter.
Canada and Russia are competitors within the global energy market. However, due to regulatory oversight and contrasting views over Canada’s role in global energy, Canada, at its own fault, is consistently losing this competition to Russia in the Arctic, Asia and Europe. Canada’s oil and gas market is stalling for good reason; many Canadians are concerned with environmental impacts. That being said, Canada should consider their geopolitical impact as a potential global energy producer as well. If their LNG is preferable to Russia’s both environmentally and geopolitically, they may end up helping climate change causes by expanding their LNG market. In order for this to happen, Canada needs to act as quickly as possible and as united as possible. However, Canada may decide that it is economically and environmentally safer and smarter for them, and their Indigenous groups, to remain more regional or slowly phase out their fossil fuels industry post-pandemic. Regardless, even if Canada decides to remain regional or transition their economy to clean energy, they need to make that decision soon. If they wait too long on either decision, they run the risk of stranding the infrastructure that was meant to help them become a global player because either Russia will continue to take their market share or the infrastructure will be obsolete in their efforts to integrate regionally or phase the industry out.
Bennet, Nelson. “Canada’s oil and gas sector at a crossroads – again.” Richmond News (April 7, 2020): https://www.richmond-news.com/canada-s-oil-and-gas-sector-at-a-crossroads-again-1.24114323
Boyden. “Russian gas flows into Asia, shuffling the deck for Canada.” (n.d.): https://www.boyden.com/media/russian-gas-flows-into-asia-shuffling-the-deck-for-canada-169828/index.html
Ferreira, Victor. “While Canada hesitates, Russia buildings 3000 km gas pipeline to China in just five years.” Financial Post (December 3, 2019): https://business.financialpost.com/commodities/while-canada-hesitates-russia-builds-3000-km-gas-pipeline-to-china-in-just-five-years
Findlay, Peter. “Canadian LNG Competitiveness.” Oxford Institute for Energy Studies (December 2019): https://www.oxfordenergy.org/wpcms/wp-content/uploads/2019/12/Canadian-LNG-Competitiveness-NG-156.pdf?v=7516fd43adaa
Kolga, Marcus. “Canada Could Help Europe Diversify Its Energy Supplies From Russia.” MacDonald Laurier Institute (2019): https://www.macdonaldlaurier.ca/canada-europe-diversify-energy-from-russia-kolga/
Last, John. “What Russia’s $300B investment in Arctic oil and gas means for Canada.” Canadian Broadcasting Company (February 15, 2020): https://www.cbc.ca/news/ canada/north/russian-arctic-oil-and-gas-explained-1.5462754
Morgan, Geoffrey. “Canada puts Arctic ‘in a snow globe’ as it freezes oil and gas development—just as Norway, Russia accelerate.” Financial Post (December 20, 2018): https://business.financialpost.com/commodities/energy/canada-puts-arctic-in-a-snow-globe-as-it-freezes-oil-and-gas-development-just-as-norway-russia-accelerate
Weber, Bob. “Russia is beefing up its presence in the North Pole – and Canada has little to compare.” Global News (February 10, 2019): https://globalnews.ca/news/4945298/russia-north-pole-canada/