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Canadian PM Shills Alberta Oil Sands in China

By John Daly | Mon, 13 February 2012 02:01 | 7

Canadian Conservative Prime Minister Stephen Harper is in the midst of an official visit to China.

His mission?

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.

Northwards?

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?

Not likely.

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

About the author

Contributor
John Daly
Company: U.S.-Central Asia Biofuels Ltd
Position: CEO

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  • Martin on February 14 2012 said:
    One easier option may well be for Canada to simply build enough refinery capacity in Alberta to refine the tar sands oil itself and then send the refined products into the US. This would pose much less risk of leakage than attempting to ship tar sands crude, which is highly sour, acidic and corrosive due to a high sulfur content. The US cannot very easily say no to products derived from tar sands due to the NAFTA Treaty. And products can be everything from gasoline to plastics resin, which could also be shipped by road and rail to West Coast Canadian or Alaskan ports to China.
    With or without this alternative, one alternate route to the West Coast might well be via the routing for the Alaska Natural Gas Pipeline following either the Alaska Highway as planned or modified with offsets to route along the Mackenzie and Liard Highways into the District of Mackenzie then west with offsets to avoid British Columbia if BC turns out to be hostile to oil exports and thus reach Alaska and the underused Alaska Pipeline to Valdez. A third alternative might involve Alberta annexing the District of Mackenzie (which might be possible now given Stephen Harper's strong Parliamentary majority) which would make construction of the Mackenzie Gas Pipeline to Tuktoyatuk an Alberta matter and perhaps enable Alberta to overrule First Nations objections to it. , Again, gas would flow South and oil North to the Arctic Ocean, where the oil could be tankered to China at least during the Summer months when the Arctic Ocean is now open for shipping. Again, oil could be shipped or petroleum distillates could be shipped from Tuk. And the infrastructure could be used to open up the now inaccesible oil deposit off Ellen Rignes Island in the Canadian Arctic Islands. One thing is certain. China is likely to be patient when it comes to these pipelines as it was with the oil pipeline across Kazakhstan.
  • Archie1954 on February 14 2012 said:
    There is no persuasion required! China will become a major purchaser of Canadian oil from the tar sands. The government of Canada must now ensure that the pipeline to the West Coast is built as quickly as possible. The tar sands themselves are undergoing a huge change due to technology. The new methods of extraction, while still upsetting the land as it must be removed like a mining operation, will not use polluting chemicals to free the bitumen from the soil but will be processed in a much more environmentally safe manner.
  • economite21 on February 15 2012 said:
    The Republican Congress is doing all it can to push Keystone through. Obama killed it to pander to the environmentalists.
  • CapR on February 17 2012 said:
    Republican Congressional overreach? Are we supposed to be stupid or something? The Republicans wanted to get the Keystone Pipline deal done this year! But Obama axed it to because its and election year and he needs to appease his environmental whacko base.
  • Christine Wolanski on February 17 2012 said:
    One thing Harper is not getting is that most Canadians put more value on health and the environment then they do in money.
    This pipeline and the increased traffic off the shores of B.C. is a disaster waiting to happen. Why would anyone in their right mind want this?
    If he had his head on his shoulders instead of up his azz he would be concentrating on preserving the natural beauty of Canada by investing in the energy that can be derived from the power above and below the ocean as well as promoting eco tourism.
    That being said, Harper and his cronies will do whatever they want, including getting the oil to the coast and down to the U.S.

    I do not believe for an instant that the gateway is off the books,(Harper and Obama are just waiting until after the election)or that oil will not reach the coast. (Watch him put the rail back to use for shipping this). He knows where the money is for this... the U.S. bankers. China is using the delay as a negotiating tactic, and this is what really annoys Harper about the environmentalists expressions of concern. He does not care that their concerns are legitimate. He sees nothing but numbers, including the numbers that someone will pay him for his next job after Canada kicks him out of office. Knowing this he'll do whatever he wants without the people of Canada's input. He's sees a future for him outside politics. Meanwhile he's selling out Canada by the barrel.
  • Lee on January 01 2013 said:
    I for one hope the west and southern routes fail. My reasoning for this is to force the development of the artic which is long overdue. The Russians now have a year round shipping route through the artic and are 2500 miles from the Bearing strait. I want to be able to get on a high speed train in Edmonton and travel to Moscow in my lifetime. We must collaborate with all nations around the world for this kind of development because it will raise the living standards of all people around the world and has the potential to green the entire planet.

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