Canada not yet ready for China
Claudia Cattaneo, Financial Post
Published: Wednesday, June 03, 2009
China and Canada have talked about developing a mutually beneficial energy relationship for a long time. Yet China seems to have made significant oil and gas investments everywhere but Canada, while Canada seems to have seen an influx of significant foreign investment in energy from everywhere but China in recent years.
As reported in the Financial Post yesterday, China is renewing its push for an energy alliance with Canada and seeking the support of Canadian political leaders to establish a major energy corridor linking Western Canadian supplies to the Chinese market.
Deals made around the world with such countries as Iraq, Iran and Venezuela still leave China with a gap to fill, and "the opportunity now exists to unite our mutual interests; to align with our respective goals and objectives; to fill this gap with Albertan oil and gas," a spokesman for China National Petroleum Corp., China's energy giant, said in a speech in Geneva on May 4.
But getting in the way of such a pact are major stumbling blocks that may be hard to overcome:
-Despite the rhetoric, there has been a lack of commitment on the part of Canadian interests to get cozy with the Chinese. Indeed, there has been a tendency to threaten Canada/China energy ties as a bargaining chip to get the United States -- the preferred and natural market for Canadian oil and gas -- to moderate its policies. In addition, Canadian energy companies have been reluctant to enter into deals with Chinese state-controlled companies, seen as slow moving and unwilling to pay up. That view has changed since the election of Barack Obama, whose climate-change policies could disadvantage oil from the oil sands, making Asian markets a fallback position.
-The Chinese see the oil sands as expensive, largely because of high labour costs, said Wenran Jiang, associate professor and Mactaggart research chair of the China Institute at the University of Alberta. They feel they can fix the problem by supplying their own cheap workforce, as they are doing in oil projects around the world, but are frustrated by Canadian regulations and public perceptions.
Mr. Jiang said the Chinese are convinced their labour could solve the oil sands' high-cost challenge and even temper world oil prices, which to some extent are influenced by the cost of producing the most expensive barrels.
-Alberta and other provinces have been friendly, but the Chinese perceive Prime Minister Stephen Harper's Conservative government as cool to their investment.
"We are ignoring the dragon so far, under the Conservatives, while there are all sorts of people who are trying to lure them not only for energy resources but for much better resources such as conventional oil around the world," Mr. Jiang said.
-The opening of a new Chinese market requires building a new pipeline to move oil from the oil sands to the West Coast, and so far it hasn't happened. Enbridge Inc.'s long-planned Northern Gateway pipeline from Edmonton to Kitimat was delayed in 2006, but has been revived and is now getting ready for a regulatory filing later this year. The proposal is for a dual pipeline moving 525,000 barrels a day of Canadian oil to Asian markets, while importing 190,000 b/d of condensate to Edmonton. Enbridge CEO Pat Daniel has been talking up the project. In a speech in Ottawa on Monday, he said building new markets to Asia should be part of a national energy strategy. Still, it will take five to six years to lay the pipeline across the Rocky Mountains, if everything moves forward as planned, and no long-term shipping agreements have been signed so far, said spokesman Steve Greenaway.
-The Chinese want assurances that investment in Canada won't be hurt by NAFTA. They fear the trade agreement in the event of a clash with the United States over other interests, Mr. Jiang said. NAFTA also imposes a condition on Canadian energy products that buyers in North America must have equal rights to buy products destined elsewhere.
-The Americans have been seen as a stumbling block to Chinese energy investment in the past. Under George W. Bush, there was concern about the Chinese moving into their back yard. That attitude may have changed under Mr. Obama, who is building closer ties with the Chinese and doesn't seem to care about energy security based on fossil fuels.
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CHINA' S OIL PATCH INVESTMENTS COULD AFFECT THEIR ASSETS
April 1, 2009 China Petroleum & Chemical Corp. (Sinopec) buys an additional 10% interest in the Northern Lights oil sands project from Total SA. As a result of the transaction, Total and Sinopec each hold 50% of Northern Lights, a proposed mining project in northern Alberta that was once expected to cost $10.7-billion for a mine and upgrader. June 21, 2007 China National Petroleum Corp. (CNPC) reveals it purchased 258.6 square kilometers of oil sands leases at a provincial mineral rights auction. The leases have not yet been developed.
June 1, 2005 Sinopec makes its first move into Alberta, investing $105-million in the Northern Lights oil sands project in partnership with Synenco Energy Inc., a startup that was bought by Total SA.
April 15, 2005 Enbridge Inc. signs a deal to work with CNPC on a $2.5-billion pipeline to ship oil from Alberta's oil sands to China's hungry energy market. The deal did not move forward, but planning for the pipeline, called Gateway, is continuing. April 13, 2005 CNOOC Ltd., China's third-largest oil producer, made that country's first investment in Alberta's oilsands, purchasing a 16.7% stake in closely held startup MEG Energy Corp. for $150-million.
Financial Post
