globeandmail.com

China's appetite for energy puts pressure on Canada

Thursday, June 14, 2012

Besides the oil sands' resources, a stable Western partner could be a training ground as China works to become a global player

CAROLYNNE WHEELER
Special to The Globe and Mail

BEIJING -- With China pouring $16-billion into Canada's oil and gas industry in the last two years alone, the pressure is on for Canada to develop the pipelines that will move oil and liquefied natural gas to the West Coast for shipping to Asia.

Prime Minister Stephen Harper has pledged to streamline the environmental review process required for projects like the contentious Northern Gateway championed by Enbridge Inc., and recently upped the review threshold for foreign investment to $1-billion from $330-million to better accommodate growing Chinese investment.

But China's unquenchable thirst for energy is not the whole story. The world's second-largest economy is also trying to learn how to be a world player in the oil market, on the level of a BHP Billiton Ltd., or Exxon Mobil Corp.

Canada has provided a useful training ground in those efforts.

"If Canada can supply some additional oil through the pipeline, or LNG, to Asia, this could be an additional source to the Chinese market. But it is not the mainstay, not the priority for Chinese investors and stakeholders," said Xu Xiaojie, head of the international energy program with the Chinese Academy of Social Sciences, a policy adviser to the government.

"Investment in Canada may be aimed at some benefit, or technical know-how, at gaining a better understanding of working with Western counterparts and companies," said Mr. Xu, author of a new book about China's energy ambitions, Energy Black Swan.

"We now realize investment in Canada may act as a bridge for China and the developed world."

As a stable country with both rule of law and proven oil reserves, Canada provides a safe alternative to countries like Libya and Sudan, where political turmoil served as a rude awakening to Chinese state-owned oil majors trying to play in the big leagues.

Not only did China lose billions in Libya during that country's civil war, it is facing the repercussions of currying favour with the wrong dictator now that Moammar Gadhafi is dead.

But Canada is not the only stable democracy with rich energy assets.

"China is not desperate for our oil," said Wenran Jiang, a senior fellow at the Asia-Pacific Foundation and special adviser on China to the U.S.- and Canada-based Energy Council.

China has shown "serious concerns about whether they will have access to it in the future because they have put so much money into it," he said.

"China can learn from us. They can also learn from the U.S., where they are now investing ... Canada is not the only player when it comes to learning Western technology, management and know-how," Mr. Jiang said.

Small quantities of Canadian oil are already going to China. In February, Cenovus Energy Inc. announced it had delivered 250,000 barrels, or half a shipload, of oil to a Chinese customer - an announcement likely designed to help ease China's worries about whether Canadian oil would ever land in China's refineries.

The company hasn't revealed further numbers, but has confirmed that it is continuing to use its 11,500 barrels per day of service capacity on Kinder Morgan Inc.'s Trans Mountain pipeline to the Westridge Marine Terminal in Vancouver to sell oil at the dock to markets that include Asia.

"We are definitely looking to maximize the amount of oil that we transport to the west coast," said Cenovus media relations adviser Jessica Wilkinson.

What China's oil majors, all state-owned enterprises, are really thinking is unclear. PetroChina Co. Ltd., China Petroleum & Chemical Corp., and CNOOC Ltd. declined media interviews. Last fall, during the Canada-China Business Council's annual general meeting in Beijing, an executive from Sinopec, Geng Xianliang, insisted that media be removed from the room before speaking about Chinese demand for Canadian commodities.

There are signs that these firms are changing the way they do business. CNOOC, often praised as the most private-like of the state-owned oil enterprises, has an English-speaking section for media and investor relations. PetroChina has retained the Hong Kong-based office of PR firm Hill and Knowlton Strategies to handle some of its public affairs.

"Unconventional oil and gas resources are becoming one of the important sources to support the oil and gas production increase. ... CNOOC Limited has been keeping a close eye on the latest development trends of upstream of global oil and gas industry including oil sands and shale oil/gas development," said a statement from CNOOC's Beijing offices.

"Canada is regarded as an attractive investment destination by international oil companies including us, given its prolific resource potential, political stability and its strong commercial, legal, regulatory and fiscal framework," it said.

Yet CNOOC's president, like those of China's other oil majors, is a Communist Party member and appointed by the government. What Canada needs to remember, observers warn, is that even if China does gain the access it wants to Canada's oil, the results may not be all the lobbyists hoped.

"I am inclined to think perhaps Canada is too confident that Chinese government state agencies are prepared to go to great lengths to get access to Canadian oil sands," said former diplomat Charles Burton, a specialist in Canada-China relations at Brock University.

"I don't think we should be so confident and simply say we'd like to sell our oil and wait for China to do all the work."

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COURTING INVESTMENT

Since Prime Minister Stephen Harper's visit to China in February, Canadian executives have continued their full-court press to draw Chinese investment to the Canadian oil sands, shale gas and pipeline projects.

This month, Alberta Premier Alison Redford returns to China for a Canada-China Investors Forum that will also feature executives from Cenovus Energy Inc., Suncor Energy Inc., Sunshine Oilsands Ltd, Birchcliff Energy and major Canadian and Chinese banks.

"We are cash-strapped," said Wenran Jiang, a senior fellow at the Asia-Pacific Foundation. "Many of our gas companies would not survive the summer, many of our oil sands companies would be struggling [without Chinese investment]."

He has heard from Chinese government and oil officials that they are approached weekly by power brokers trying to court Chinese investment.

Carolynne Wheeler

SPCL