Canada, China: A Pipeline to Oil Sands Expertise
July 16, 2007 19 03 GMT
http://www.stratfor.com/products/premium/read_article.php?id=292359
Summary
PetroChina announced July 12 that it is quitting a pipeline project that would transport oil derived from Alberta's oil sands to British Columbia. China never intended to build the pipeline, since what it really sought was the know-how Canadian oil sand producers have acquired over the years.
Analysis
PetroChina announced July 12 that it is removing itself from the Gateway pipeline project in Canada, which would have transported oil derived from oil sands in Strathcona County, Alberta, to the port at Kitimat, British Columbia.
Yiwu Song, vice president of China National Petroleum Corp., PetroChina's parent company, said PetroChina is pulling out of the project due to insufficient Canadian government and producer support. But China never intended to build Gateway in the first place; rather, it sought the know-how Canadian oil sands producers have obtained over the years.
Gateway was projected to cost roughly $4 billion and extend more than 700 miles. Tankers would have shipped the oil from Kitimat to China and other Asia-Pacific markets, as well as to California. The oil itself would have come from oil sands, which are deposits of the heavy black viscous oil known as bitumen. Bitumen must be thoroughly refined in order to be converted into an upgraded crude oil, which traditional refineries can use to produce gasoline or diesel fuels. Alberta produces roughly 1 million barrels per day (bpd) of oil from oil sands, and is expected to produce as much as 4 million bpd by 2020.
While Canada is one of the most favorable countries to invest in by most standards, building infrastructure across the Rocky Mountains, which lie between Alberta and British Columbia, made the feasibility of Gateway questionable. The daunting nature of this challenge suggests PetroChina's offer to help build the pipeline was never serious.
By entering into Gateway with Canadian firm Enbridge, Chinese companies could cloak their real goal, which was to gain the skills to tap unconventional energy resources. The Gateway pipeline might have led China's partners in Canadian unconventional resource projects to relax their defenses regarding their expertise. Chinese firms have equity stakes in various unconventional natural resource projects in Canada, including a 40 percent interest in the Northern Lights project with Calgary-based firm Synenco Energy. Chinese companies also simply are buying foreign knowledge by acquiring stakes in companies, such as China's purchase of a 16.69 percent stake in privately held company MEG Energy Corp. And even though one unconventional energy project is likely to be quite different from another, China's purchased know-how still will prove helpful.
According to the U.S. Energy Information Administration, the world crude oil mix has become increasingly sour and heavy. Although unconventional oil currently comprises less than 10 percent of total worldwide production, that figure should increase to at least 20 percent by 2020. International petroleum companies with long-term growth strategies thus need to assure they are positioned to enter the unconventional arena soon. And with an estimated 3.6 trillion barrels of unconventional energy resources worldwide, China also cannot afford to ignore these resources.
