To convince Beijing’s mandarins to buy Canada’s Alberta oil sands hydrocarbon production, now that Republican Congressional overreach has effectively sidelined the Keystone XL pipeline, designed to transit the oil to U.S. Gulf of Mexico refineries, for the foreseeable future.
Harper faces an uphill struggle, as China is questioning the delays in implementing the Northern Gateway pipeline, to transit Alberta’s oil to Canada’s western coast for transshipment to China.
Complicating the picture, Harper has a weak hand of cards, and both he and the Chinese know it.
Since 1967 oil sands have been under development in Alberta, and investments there now exceed $97 billion.
Where to go?
Not unreasonably, Ottawa looked southwards, as according to the U.S. Energy Administration Canada is now the leading exporter of oil to the United States, providing 2.6 million barrels per day (mbpd) of the 9.03 mbpd the U.S. imports every day.
With the Keystone XL pipeline offline for the foreseeable future, Canada hopes that China will pick up the slack, but the slow pace of development of the $5.5 billion, 730-mile Northern Gateway pipeline has raised concerns in Beijing.
Enbridge chief executive officer Pat Daniel, accompanying Harper on his visit to Beijing said, “They’re frustrated, as we are, in the length of time it takes. They’re very anxious to diversify their supply, they’re very dependent on the Middle East for crude. (Canada) seems like the perfect match that should last a long time, but if you don’t move it along, people do lose interest.
We don’t have forever. The fundamentals in the business can change and you must take advantage of opportunities if and when they present themselves.”
But Harper and Daniel are in a weak negotiating position, and they know it.
Consider geography for a moment.
Canada went full-bore on developing Alberta’s oil sands on the “Field of Dreams” principle of “build it, and they will come,” but in reality, from the outset there were only two realistic export options, south to the U.S. and westwards to potential second-string Asian market partners.
Eskimos and polar bears have yet to evince any interest.
Eastwards across Canada? A pipeline multiples more expensive to Canada’s Atlantic provinces to where… Europe?
So, with the U.S. export route blocked, at least temporarily by Republican Congressional opposition, that leaves… Asia.
Harper accordingly pursued his dog and pony show during his meetings with both Premier Wen Jiabao and Vice-Premier Li Keqiang, who is expected to succeed Wen this fall, by calling for more cooperation. Besides Daniel, Harper’s entourage includes five Canadian cabinet Ministers and three dozen industry leaders.
But Harper’s portfolio is heavy with annoying local concerns. Over the past few weeks, federal ministers have carried out a high-profile dispute with environmental groups over the proposed Northern Gateway pipeline, with the government labelling protestors “radicals” and Harper has said he is working quickly to generate new legislation to ensure a more rapid review processes that can’t be “hijacked” by such groups.
But the news from Beijing is optimistic, as yesterday Li told an audience at a Canada-China business forum, “We need to carry out cooperation in energy trade and facilitate more large scale co-operation projects for oil and gas and mineral resources. We also need to expand our co-operation in nuclear energy and energy conservation clean energy and renewable energy.”
And the tea leaves note that China has already invested about $10 billion in Canada’s energy sector and, adding to the Harper team’s optimism is the fact that it hopes that Chinese investors are expected to seek only minority ownership stakes in Canadian oil and natural gas opportunities, as such a policy is seen as both more acceptable to Canadians and less likely to trigger wider review processes.
Canada holds further appeal for Chinese investors both for its relative proximity and as a stable democracy where supply can be guaranteed more easily than in conflict-ridden states currently supplying Chinese energy needs like Iraq, Iran and Sudan, both north and south.
Still, Harper and Daniels have their work cut out for them explaining those pesky Canadian environmentalists, with Daniels informing his hosts, “I tell them it’s the Canadian way. They say they would build it faster in China. But Canada is not China” before adding that both state-owned companies China National Petroleum Corp. (CPNC) and China National Offshore Oil Corp.
(CNOOC) are “very interested” in the Northern Gateway pipeline and have expressed “strong interest” in meetings on the project.
You want money? Canaccord Financial Chief Executive Paul Reynolds said that it is setting up a $1 billion fund with the Import Export Bank of China to invest in energy companies or projects in Canada.
And things on Harper’s visit are already going swimmingly, as Chinese state news agency Xinhua is reporting that “more than 20 commercial agreements were signed between enterprises of the two countries and that twenty Chinese and Canadian companies on 9 February signed cooperative deals worth about $3 billion on the sidelines of Canadian Prime Minister Stephen Harper’s China visit.”
But Harper has undoubtedly received his marching orders in Beijing, to modify current federal legislation that governs new projects – the National Energy Board Act and the Canadian Environmental Assessment Act.
Ottawa’s two-year window allocated for hearings on the Northern Gateway project will have Harper explaining Canadian policies to his host.
And who in Canada will pay for the Northern Gateway? Alberta’s government is seeking a path for the oil sands through British Columbia by increasing the economic benefits for B.C. to support the project – including the option of Alberta paying to modernize and expand Canadian West Coast ports.
But British Columbia might not be bought off so easily – last month, British Columbia Premier Christy Clark bluntly told Alberta Premier Alison Redford’s that public opinion is against the pipeline in British Columbia, as Alberta gets the benefits while British Columbia carries the risks of environmental disaster.
And Harper’s mao tai toasts may yet carry a favor of home, as British Columbia’s Yinka Dene Alliance, a group of five First Nations that represent several thousand Aboriginals people in north-central British Columbia, have written to Chinese President Hu Jintao and to the Chinese media asking Hu to query Harper on Canada’s human rights record.
The Yinka Dene Alliance, a group of five First Nations that represents several thousand people in north-central British Columbia, has sent open letters to Chinese President Hu Jintao and to the Chinese media.
The high media ground, in the land of cuddly, photogenic pandas?
“An oil spill on the coast would destroy sources of seafood and fish, like crabs, for thousands of people,” it says. “It could destroy the extremely rare spirit bear – a bear with white fur that is as beautiful as the Chinese panda bear.”
What is Mandarin for “bringing home the high carbon content bacon while dealing with those pesky environmentalists?”
Will the “extremely rare spirit bear” win out over an orphaned $97 energy billion investment with nowhere to go?
Place your bets.
By. John C.K. Daly of Oilprice.com