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CIBC’s Prentice Decries Canada Lagging Asian Trade

07 Sep 2012

Canadian companies such as natural gas producer Encana Corp. (ECA) risk being left behind in the race to supply Asian markets as Australia and other countries get there first.

“Canada needs to get in the game, stay in the game and play the game hard,” Jim Prentice, vice chairman of Canadian Imperial Bank of Commerce, told the Bloomberg Canada-Asia Conference in Vancouver yesterday. “We are a minor player in these growing Asian markets. We’re barely on the radar.”

The world’s 11-largest economy is playing catch-up with other export-driven nations as Prime Minister Stephen Harperpushes for greater access to Chinese markets at the Asia Pacific Economic Cooperation summit in Vladivostok this weekend.

Canada’s share of world export markets has dropped to 2.5 percent from 4.5 percent, while Australia has doubled its share of world trade over the past 10 years, Prentice said. Less than 10 percent of Canada’s exports and less than 4 percent of its outward investments go to Asia, he said.

“Economies we spent years ignoring are now competing with us – and winning,” the former industry minister said.

LNG Terminals

Royal Dutch Shell Plc (RDSA) and Encana, both involved in developing separate LNG export terminals on Canada’s west coast, highlight the risks Canada faces. While demand for gas is growing faster in China than any other large market and prices for the fuel are as much as seven times higher than in Canada, it may be take another half decade before either company can profit from their proposals.

“There is open demand and there is space to do that, but obviously you have to turn up for the show within that time window and be competitive,” said Victor Ojeda, who heads Shell’s Canadian LNG efforts, at the Bloomberg conference.“Going back to the competition, it is Australia, it is Qatar, it is Russia, it is East Africa.”

Canada has many ingredients that make it attractive to buyers of Canadian gas, including flexible and stable supplies, as well as providing confidence that companies will deliver their product, said Shinya Miyazaki, who heads a Mitsubishi Corp. (8058) division that oversees the Japanese company’s Canadian gas assets and LNG project.

Still, Canada may only manage to build one or two LNG terminals compared to the half dozen being proposed, said Asish Mohanty, a senior research analyst at resource consultancy Wood Mackenzie in Houston, in a phone interview.

Lumber Market

“The Canadian projects are greenfield projects and there is greater deliverability risk associated with them,” he said.“There is no existing LNG infrastructure unlike the operating re-gasification terminals in the U.S.,” technical challenges building a pipeline across the Canadian Rockies and a lack of skilled labor.

To be sure, some Canadian companies are making inroads in to Asia. China is Canfor Corp.’s fastest-growing export market for high-quality lumber, Wayne Guthrie, the Vancouver-based company’s senior vice-president of sales and marketing, said yesterday.

“It wasn’t very many years ago that we were completely reliant -- 80 percent of our shipments went to the United States,” said Guthrie.

Prentice said Canada’s traditional reliance on the U.S. may have distracted it from opportunities abroad.

“The United States has long been, and will always be, a core trading partner,” he said. “But we are too dependent on them. Name me a single, great trading nation that has only one customer. Quite simply, there aren’t any.”

Comprehensive Strategy

Canada needs a comprehensive strategy on trade with Asia to be successful in capitalizing on the continent’s rising demand for energy, food and minerals, according to a report on Canada-Asia trade released by the Asia Pacific Foundation of Canada yesterday. Resource competition in Asia is “urgent,” driving a surge in investment particularly by state-owned companies, in global resource development.

Economic opportunities in China may be a one-time chance for Canada, said Ian Telfer, chairman of Vancouver-basedGoldcorp Inc. (G), the world’s second-largest gold producer by market value.

“I expect that economy to grow as far as the eye can see,” he said yesterday at the Bloomberg conference. “They have many people moving from poverty levels to almost middle-class levels and that is when your economy grows the fastest and that is when you use the most commodities. The wealth creation that’s occurring in China has never occurred before and may never occur again.”

For Harper, who will discuss trade with leaders including Chinese President Hu Jintao, Asian exports may help Canada cement its aspirations to be an “energy superpower” and maintain its role as one of the world’s largest economies.

“The big possibilities in terms of trade growth really are in Asia,” said Harper at the Bloomberg Conference. “I believe that we’re going to see extended sluggish growth in much of the world, including many of the places that are the traditional markets for Canadian products.”

Prentice said Canada “must” achieve west coast access for oil and natural gas. “This is for many a topic of intense sensitivity but it is also a matter of extreme economic importance,” he said.