Canadian Trade Minister Ed Fast, visiting Beijing, has officially confirmed that Ottawa will welcome further continued investment from Chinese energy companies. "Chinese investors looking for stability, innovation, low taxes and an excellent North American platform and gateway need look no further than Canada," he said, as quoted by the Globe and Mail. CNOOC recently bought the oil-sands operator Nexen for $15.1 billion, the largest single foreign acquisition by any Chinese company year. Despite Prime Minister Stephen Harper's statement that further foreign state investment in oil sands would be restricted, Fast's statement makes clear that Chinese investment in other energy sectors will not encounter such restrictions. "Whether it's oil, whether it's gas, whether it's uranium, coal, hydro or clean energy like solar and wind power, we've got it," he is reported to have said.
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Canada thus remains open to Chinese energy investment regardless of the U.S. Administration's final decision on the Keystone XL pipeline. The American ambassador to Canada David Jacobson told the press earlier this month that Canada's project to build liquefied natural gas (LNG) facilities in British Columbia for shipping to Asia was an economic and not a political competition between his country and China; if China won, the U.S. would not object so as long as the economic competition was fair.
A State Department report last month concluded that Canada's development of its oil sands would continue at more or less the same rate, regardless whether the Keystone XL is built or not. However, this report assumed that the heavy crude produced from bituminous sand would move by rail if it did not by pipeline, despite the fact that the quantities would be diminished. But recent data from the U.S. Energy Information Administration indicate that in January, three-quarters of heavy Canadian crude was being processed in the Midwest, and only 7% was reaching destinations further south. Refiners on the U.S. Gulf Coast already receive enough heavy crude from Mexico, Saudi Arabia, and Venezuela. The State Department report's projection of a minimum 200,000 barrels per day by rail from Canada assumes that this product would go to the U.S., despite new Canadian plans to ship to Eastern Canada for refining through a current east-to-west pipeline inside the country that will be reversed to flow west-to-east. In addition, the Bakken shale formation in North Dakota is nearly a thousand miles closer than the Athabasca sands. Over the past year, since Washington first postponed a decision on Keystone XL, Canada has been developing its own energy strategy to diversify away from U.S. markets. This trend will clearly be further accentuated, regardless of any final decision on that pipeline.
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TransCanada Corp (TRP), which would own and operate the Keystone XL, closed at 47.08 on the New York Stock Exchange on Wednesday, up 9.2% over the past year but in a trading range between 46 and 49 since mid-December after breaking through a resistance at 45, a previous all-time high, eight months ago. Currently TRP is yielding a 3.8% dividend and trades at a 25.1 price-to-earnings ratio with a market capitalization of slightly over $33 billion.
By. Robert Cutler