China and India Eye Western Hemisphere Energy Assets

The two BRIC nations, China and India, their treasuries stuffed with cash and seeking foreign energy assets to keep their economies humming, are increasingly eying energy assets in both North and South America.

But while U.S. congressmen fulminate about the national security implications of selling energy assets to Beijing, no such objections have been raised to India’s interest.

Not yet anyway.

And the energy assets that Beijing and New Delhi are considering range from Canada through the U.S. to Mexico and Venezuela, with the apparent epicenter of the battlefield becoming Canada.

China National Offshore Oil Corp.’s proposed $15.1 billion buyout of Canada’s Nexen Inc., an oil and gas company based in Calgary, Alberta, is encountering rising opposition in the U.S. Congress because the deal contains five leases issued under a mid-1990s federal incentive program, the Bush administration’s Deep Water Royalty Relief Act that offered royalty-free production in exchange for drilling in deep Gulf of Mexico waters. The stage is set for a battle royal over the transfer, with congressmen arguing that the sale would imperil “national security.” The deal, if completed, would mark China’s largest overseas acquisition and the first outright takeover of a large Canadian energy producer by a Chinese state-owned enterprise.

As for Indian interest in Canada, Indian Consul General Preeti Saran said that a number of Indian companies, including the private sector Reliance Group and public sector Oil & Natural Gas Corp. (ONGC) Videsh Ltd. are in “discussions” to acquire or invest in Alberta’s energy companies. Other interested Indian firms include Indian Oil Corp. Ltd. and Oil India Ltd.

Saran told reporters, “We would definitely be in need of energy and we are aware that Canada has rich resources, of particularly oil sands and oil. Discussions have been initiated. There has been a lot of interest and interaction that has taken place.” Saran added that Indian companies are exploring those possibilities at time when Canada is increasingly considered “an important partner in India’s growth story.”

Spurring India’s interest in Canada is the fact that India is the world’s fourth-biggest oil importer, buying nearly 80 percent of its oil needs overseas. With fuel demand and refining capacity rising, the government has told state firms to secure foreign energy assets to undergird the country’s surging economy.

Since 2009 Canadian-Indian bilateral relations have flourished since Prime Minister Stephen Harper visited New Delhi, when the two countries announced their intentions of increasing bilateral trade to $15 billion annually by 2015. Another ace up India’s sleeve is that the two countries are currently negotiating a free trade agreement.

And the “jewel in the crown” for Indian firms? ConocoPhillips Alberta oil sands assets.

On 24 September it was announced that a consortium of three Indian firms – ONGC Videsh, Oil India Ltd. and Indian Oil Corp. - had bid for ConocoPhillips oil sands. Nine months ago ConocoPhillips announced that it was selling a stake in six Alberta properties that produce 12,000 barrels of oil a day (bpd) from an estimated 30 billion barrels of bitumen reserves.

Reynold Tetzlaff of the Canadian division of PriceWaterhouseCoopers LLP observed, “ONGC Videsh is now concentrating on known reserves in stable jurisdictions as demand is expected to continue to increase within India,” adding that it marked a “change of strategic direction” for the firm.

In 2011 ONGC Videsh’s then managing director, Jomen Thomas announced that his company was refocusing its efforts by increasing its attempts to buy assets in politically less risky regions such as North America to cut its risk and boost output, seeking to invest $20 billion to help increase its output seven-fold by 2030.

Further underlining ONGC Videsh’s shift in emphasis to less volatile political environments, current ONGC Videsh managing director D. K. Sarraf said that oil and oil-equivalent gas output from the company’s current assets may also decline in the current fiscal year due to geopolitical problems in Sudan and Syria.

Needless to say, China is not pleased about the appearance of an Asian interloper, and analysts note that if the Nexen deal is cancelled, then China would probably freeze further investment in Canadian energy assets, with Indian fiscal resources unlikely to pick up the slack, at least in the short term. CNOOC and other Chinese companies, including Chinese state firms PetroChina and Sinopec Group have already more than $18-billion into Canadian oil sands properties.

Over the next decade Harper’s government is seeking $630 billion of foreign investment in Canada’s energy industry. But can Ottawa successfully balance the competing interests of Asia’s two leading economic superpowers?

It will be interesting, especially as the U.S. Congress weighs in on the Nexen deal, while remaining silent on India’s ConocoPhillips oil sands interest. But then, while China bashing is becoming fashionable with both parties on Capitol Hill, India currently suffers no such opprobrium.

In balancing Beijing, New Delhi and Washington, Harper had better hone his juggling skills.

By. John C.K. Daly of Oilprice.com