Economic cooperation of Canada with the Asia-Pacific countries in the energy sector

Filina Alexandra Dmitrievna Master's Degree, the department of International Economic Relations, Financial University under the Government of the Russian Federation 125993, Russia, g. Moscow, ul. Leningradskii Prospekt, 49 mrs.alexandra.filina@mail.ru Other publications by this author

Tretyakova Galina Viktorovna PhD in Pedagogy Docent, the department of International Economic Relations, Financial University under the Government of the Russian Federation 125993, Russia, g. Moscow, ul. Leningradskii Prospekt, 49 GVTretyakova@fa.ru Other publications by this author

Discussions about energy relations between Canada and the Asia-Pacific region (APR) are often divisive and polarized. The Indo-Pacific region is on track for the largest economic transformation and largest shift in wealth distribution in history, opening up unprecedented opportunities for increased trade with the region. That is why this work is of increased relevance since joint development within the economic area creates a stable relationship, which can later be used for external use, within the framework of building a new type of economic model. Thus, the information acquires statistical value and can be used in further research.

The purpose of this study is to analyze the current situation in the energy market, testing the hypothesis that the market will transform in the future, and its subsequent development will mean a change in the economic model at the global level. The subject of the study is the relationship between Canada and the Asia-Pacific countries in the energy sector.

Canada has a medium-sized economy that is dependent on international trade, and its prosperity is inextricably linked to external markets and the ability to access those markets. For much of the postwar period, the Canadian industry could rely on the United States as an overwhelming source of demand for its goods and services. Dependence on the US market further increased with the signing of the Free Trade Agreement between Canada and the US in 1988 and the North American Free Trade Agreement in 1994. The gravitational pull of the US economy was a major business reason for Canadian companies to focus on the US market. Over the years, the infrastructure of Canadian-American commerce, including energy, transportation, institutions, interpersonal relationships, and legal frameworks, has deepened to the point that north-south trade has become the norm ^{[4, c. 137-138]}.

The long-standing focus of the Canadian industry on North American markets until recently meant general neglect of other markets. Today, government and business leaders recognize the importance of diversifying Canada's business in order to reap the benefits of rapid growth in developing countries, especially in the so-called emerging markets.

The US market has long been the preferred destination for most of Canada's exports, with about 75 percent of Canada's total exports in 2010 going to the United States. Nowhere else has trade dependence on the United States been more evident than in energy, especially oil, natural gas, and electricity. While Canadian coal exports have long gone to Asia, and Canadian companies have built efficient supply chains in the region, the situation with oil and natural gas is radically different ^{[1, c. 10-15]}.

If there was any doubt about the importance of emerging markets before, the «great recession» of 2008 highlighted a shift in global economic weight away from the West. Canada avoided a major recession in 2009, in part due to strong demand from Asia, especially China, for its natural resources. Indeed, in the three years after the recession, emerging markets accounted for more than 75 percent of global growth. For many industries in Canada, exporting to Asia is a completely new activity, and this is true for both the commodity and manufacturing and service industries, but especially the energy sector ^{[5, c. 341]}.

The Asia-Pacific region is home to almost half of the world's population and is growing relatively faster than other regions, although growth has slowed in recent years. In terms of economic growth, it is also one of the fastest-growing regions in the world and is often considered the engine of the global economy. Economic growth has been accompanied by an increase in energy demand and has therefore become the most energy-intensive region in the world.

During the last decade, total primary energy consumption in the world has increased by about 22%, while energy consumption in this region has increased by 56%. The energy market in this region is highly fragmented and diversified from completely scarce to surplus. Its social, political, economic, and geographic location is also diverse. Among the different countries in the region, China, India, Indonesia, Japan, and South Korea are the largest energy consumers in the region. Australia, Brunei, China, and Indonesia are major energy producers.

However, in the region as a whole, energy shortages remain and are growing, which leads to an increase in demand. The region imports all types of energy: oil, gas, and coal. Since natural gas is relatively cleaner, and the latest technologies for liquefaction, transportation, and regasification can simplify international trade, special attention is paid to the production, import, and use of natural gas, although the price of LNG in the Asia-Pacific region remains much higher than in other regions. The region is trying to improve its energy security by increasing its own energy production, diversifying import sources, focusing on renewable energy sources, diversifying production, improving energy efficiency, and applying energy consumption patterns and fuel substitution. Despite all these efforts, the region is expected to remain energy-deficient and dependent on energy imports ^{[3, c. 189]}.

Canada, with its reserves and production of natural gas, is trying to capture a portion of this market. Canada's ability to capture the Asia-Pacific natural gas market is relatively low due to smaller reserves, intense competition with other suppliers with a clear advantage, physical distance, strict regulatory requirements, and high production costs. Canada should try to produce natural gas, liquefy it in order to sell it in markets with lower expectations.

The US, China, India, Japan, and Indonesia were found to be projected to be the largest markets in the world in 2030, measured by GDP. The fastest-growing economies will be China, India, Bangladesh, Pakistan, Cambodia, Indonesia, Vietnam. By 2030, two out of three middle-class consumers in the world will be in Asia. As the economies of these countries recover and incomes rise, the demand for all types of goods and services will sharply increase, and with it the prospects for expanding trade. In terms of energy specifically, the International Energy Agency predicts that the Indo-Pacific region will be the leader in global energy demand for at least the next several decades.

Another feature that should be paid attention to and which is typical for the region's economy is the dominance of national energy companies. In the Asia-Pacific region, the energy sector in many countries is so regulated that it is almost entirely controlled by national governments or national companies. By 2040, demand for crude oil will grow by nine million barrels per day, while 70 percent of the world's crude oil supply will come from this region. China's dependence on imported oil will grow from about 65 percent today to 80 percent within a decade. China will replace the United States as the largest consumer of oil by about 2030, and its net imports are projected to reach 13 million barrels per day by 2040. China will also account for 25 percent of the projected growth in global gas demand and will import about 280 billion cubic meters in 2040, making China the center of the world gas trade. India's oil demand is expected to rise by nearly 30 percent, and its share of global energy demand is expected to rise to 11 percent by 2040. In fact, most of the 80 percent projected growth in gas demand will come from the Indo-Pacific region, led by China and India. Meanwhile, global demand for coal is expected to fall steadily and China is expected to cut coal consumption by about 15 percent by 2040 ^{[6, c. 83]}.

These shifts have serious implications for Canada. The countries of the Indo-Pacific region will represent the zone of the greatest economic growth and demand for goods and services, including energy. For Canada, much will depend on whether the country can build and maintain the necessary pipelines and export terminals to deliver energy resources to international markets. However, good prospects on the economic and trade front must be mitigated by growing concerns over a range of security concerns in the Indo-Pacific that threaten the region's continued prosperity and security.

Canada has taken a number of important steps towards diversifying export markets, opening up new opportunities for Canadian exporters through several trade agreements with Indo-Pacific countries. This includes the CPTPP (The Comprehensive and Progressive Agreement for Trans-Pacific Partnership) in 2018 and the Canada-South Korea Free Trade Agreement, which was signed in 2014. Besides, Canada has signed agreements to encourage and protect foreign investment with China, Thailand, and the Philippines ^{[2, c. 184-189]}.

The CPTPP is a «high standard agreement» that includes the terms of the original Trans-Pacific Partnership (TPP) agreement, with the exception of a few clauses primarily dealing with intellectual property and investor-government dispute resolution. Like the original TPP, CPTPP can be seen as a reaction to China's growing economic dominance in Asia, which is a subtext for the Canadian government's statement that «CPTPP will strategically define the terms of trade in the Asia-Pacific region».

Thus, the study has clearly demonstrated that Canadian energy markets need to expand their borders, and as for the Asia-Pacific region, it shows an increased demand for energy, which continues to grow in all the countries.