Home » News » Oilsands: China’s $7-billion gamble
News
Oilsands: China’s $7-billion gamble
News Articles | Candian Business | Michael McCullough | May 11, 2010
Read the full article on the originating site
The purchase by China Petroleum & Chemical Corp. (Sinopec) of a 9% stake in Syncrude Canada from ConocoPhillips in April showed nothing if not re solve. There were several other bidders, word on the streets of Calgary had it, and Sinopec’s price — an eye-popping $4.65 billion that values the whole enterprise at more than $50 billion — demonstrated the staying power of a state-owned firm backed by a mountain of foreign-ex change reserves.
This latest and largest foray into the oilsands by the People’s Republic poses the question, though, of whether it intends to import Canadian oil to China, as it has done with other resources around the world. Canada’s oil and gas industry, threatened as it is by carbon tariffs and stiffer fuel standards in its sole export market, the U.S., largely welcomes the prospect. However, recent events suggest that the unstoppable force of Chinese resource demand may run up against the immovable object of Canadian Aboriginal opposition.
Two weeks prior to the Sinopec purchase, on the 21st anniversary of the Exxon Valdezoil spill, a consortium of First Nations from British Columbia and Alberta, along with environmental organizations, came out with an agreement to jointly oppose the Northern Gateway project, Enbridge Inc.‘s proposed pipeline from the Edmonton area to the northern B.C. port of Kitimat. They came armed with a scientific study funded by the Raincoast Conservation Foundation showing an oil spill on B.C.‘s north coast would have disastrous ecological and economic consequences. And given the uncertainty of land title over much of the pipeline’s route, the natives have the law on their side.
There already exists pipeline capacity capable of carrying Alberta crude to the coast. Kinder Morgan’s recently expanded Trans-Mountain pipeline connects Edmonton with refineries in the Vancouver area and Washington state via the Yellowhead Pass. However Kinder’s Westridge marine terminal in Vancouver, in service since 1957, is only capable of handl ing “Aframax” size tankers (less than 100,000 tonnes), not the VLCCs (very large crude carriers) preferred by ocean-going shippers.
Like Enbridge, Kinder Morgan has plans to build a pipeline, running a spur 769 kilometres west from its Trans-Mountain line to Kitimat, where it would build a VLCC terminal. At this stage, though, the 1,170-km Gateway pipeline is leading the race to the Pacific and attracting most of the opposition. It would take a more remote, northerly route, bypassing the Yellowhead corridor that includes Jasper National Park and the city of Prince George.
Enbridge first proposed Gateway in 2005 when energy prices and investment in the oilsands were skyrocketing. China National Petroleum Corp. (CNPC) backed out of a tentative agreement for 200,000 barrels per day in 2007, blaming Canada’s hostility to Chinese investment, and the project was put on hold.
Interest in Northern Gateway resumed in 2008, though, despite the plunge in energy prices, and last Aug ust, a subsidiary of PetroChina (itself owned by CNPC) bought a 60% interest in two oilsands projects being developed by Athabasca Oil Sands for $1.9 billion. The Syncrude purchase brings Chinese state investment in the oilsands to date to more than $7 billion.
While some commentators have speculated that the Chinese are simply reinvesting a mounting pile of foreign exchange while seeking a way to hedge against their country’s own dependence on oil — all the while honing their expertise in heavy-oil extraction — others point out that these are arms of the Chinese state, not Chinese private-sector players like Husky Energy, already a large oilsands producer.
Sinopec’s move on the oilsands is all about energy security, noted Paul Ting, a New Jersey–based energy analyst. Sinopec, PetroChina and other state-owned entities have all embarked on a huge expansion of their refining capacity and are searching the world for new sources of supply.
“As a rule, their mandate is to secure resources for the home market,” agrees Vincent Lauerman, president of the Calgary energy advisory firm Geopolitics Central. “Sinopec is a massive refining company. They are the original refining monopoly in China.”
While he concedes an internal competition among the Chinese firms to increase oil reserves overseas, Asia Pacific Foundation of Canada president Yuen Pau Woo believes they are waiting to see if the federal government approves the acquisition. He does not see the ability to export overseas as a deal-breaker. What is highly likely, in his mind, is still greater investment in the oilsands should this deal go ahead unhindered.
Expecting an application from Enbridge at any time, the National Energy Board and the Canadian Environmental Review Agency have already appointed a joint review panel for Gateway. The company, meanwhile, has been building bridges with native communities such as the Saddle Lake Cree. But it will need agreement from all the First Nations through whose territories the pipeline passes for the project to go ahead as planned and begin service in 2018.
That could be difficult to obtain. “This is where Enbridge hits a wall,” vowed Gerald Amos, director of the nine-member Coastal First Nations, in March. The Carrier Sekani, an interior tribal council through whose ancestral lands the pipeline would pass, endorsed the declaration.
Says Lauerman: “Whether it’s Enbridge or Kinder Morgan deciding to run a spur, it will take a lot of effort and a lot of fighting” to get the pipeline built. But the Chinese, who he suspects are already helping fund Enbridge’s application process through advance shipping agreements, are now in for the long haul.
