Chinese deals make Canada seem like junior partner
According to Prime Minister Stephen Harper, his recent trip to China was about advancing and protecting the “national interest.”
But after taking a look at the likely outcomes of Harper’s vision for trade with China – especially his goal of making it easier for China to gobble up an increasing share of bitumen from Alberta’s oilsands – it’s fair to ask, whose national interest is our prime minister really advancing: Canada’s or China’s?
While non-resident, foreign control of Canada’s oil industry is not a new phenomenon, what’s different this time is the role being played by the Chinese government. State-owned oil companies such as Sinopec, the Chinese National Offshore Oil Company (CNOOC) and Petro China are not “free-market players” – they are owned by the Communist Party of China and are responsible for implementing Chinese national interests.
China has long recognized the importance of securing safe and affordable crude oil to feed the dragon that is the Chinese economy. That’s why they and have invested nearly $20 billion in Canadian oil in the past few years.
The Chinese have not been shy about using their growing ownership clout to advance their national interests. In 2011, for example, Sinopec bought Conoco Phillips’ share in Canada’s largest oilsands producer, Syncrude, and quickly used its new seat on the company’s board to veto moves toward increased Canadian-based upgrading.
More recently, the Chinese have turned their attention to securing control of the pipeline infrastructure that would take Canadian bitumen to refineries in China.
Perhaps you thought the Northern Gateway pipeline was solely a project of Canadian pipe-line company Enbridge Inc. Think again.
Enbridge offered a limited group of investors the right to equity ownership in the project in return for financing the National Energy Board regulatory approval process and predevelopment of the project. For $10 million each, these funding participants receive preferred access and toll rates as shippers on the pipeline.
Only six of the funding participants have identified themselves. This means there might be four others, or, perhaps some of the six participants hold more than one partnership right. The six companies are Sinopec, MEG Energy Corp., Nexen Inc., Cenovus Energy, Suncor Energy Marketing Inc., and Total E&P Canada.
With these funding partners, almost all roads lead to Chinese state control. Sinopec, which also owns a fleet of tanker ships, has direct participation and indirect links through its 50-per-cent joint venture partnership in the Northern Lights heavy crude project with Total E&P Canada. CNOOC owns 17 per cent of MEG and is a joint venture partner with Nexen in a number of ventures, including a 35-per-cent working interest in the Long Lake oilsands project. Three of the funding participants are joint venture partners in Syncrude – Sinopec at nine per cent, Suncor at 12 per cent and Nexen at seven per cent.
Canadians are being told by the oil industry and federal and provincial government leaders that the Northern Gateway pipeline and increasing Chinese involvement in the oilsands will be good for Canada because they will open new doors for demand and drive up prices of Canadian resources. But while higher oil prices may be good news for some producers, they will be harmful to Canadian consumers and Canadian businesses outside the energy sector. Increasing profits for a handful of energy companies will come at the expense of increased energy costs for everyone else.
Moreover, Enbridge documents filed with the National Energy Board confirm that, once the Northern Gateway pipeline is built, oil producers plan to restrict supply of conventional and heavy crude oil flowing to Ontario refineries. The pipeline will be used to redirect 20 per cent of the supply currently going to refineries in Ontario to refineries in northeast Asia. Reduced access to reasonably priced feedstock will threaten the economics of Canadian refineries and many will struggle to survive.
All of this raises serious questions about the Harper government’s decision to champion a “rip-it-and-ship-it” export strategy over a value-added strategy for Canadian resources.
It’s not a surprise, nor is it inappropriate, for the Chinese to look after Chinese national interests. That’s why they want the Northern Gateway pipeline.
Nor is it inappropriate for the Americans to look after American national interests. That’s why many Americans want the Keystone XL pipeline that would transport Alberta bitumen to refineries on the Gulf Coast of Texas.
But the resources in question are not owned by the Chinese or the Americans. They’re not owned by oil companies. They’re owned by the citizens of Canada.
Who, we ask, is looking after the Canadian interest?
Why do we always have to accept the role of junior partners in some other nation’s energy security strategy?
In the case of China, why do we want to get in bed with a country with low environmental standards and even lower employment and human-rights standards?
The good news is there is an alternative. In-stead of looking for new markets in the Far East, Alberta’s oil producers should look for markets in the Canadian east.
Eastern Canada relies on imports for most of the oil it consumes. Although all Western Canada’s needs, and some of Ontario’s needs, are met by domestic crude, Quebec and the Atlantic provinces are completely dependent upon unpredictable and volatile markets in the Middle East and declining production in Norway and Mexico – exactly the kind of vulnerabilities that the U.S. and China are desperately trying to protect against by locking in access to Alberta bitumen.
The government of Canada must stop allowing itself to be used by other countries as a tool to meet their energy security goals and, instead, implement a national energy security plan for Canadians.
By maintaining and enhancing upgrading and refining activities in Canada, with high environmental and labour standards, we can make sure that Canadians keep much more of the value created from resource development within the country. And by developing markets in Eastern Canada instead of Asia, we can ensure that Eastern Canada has stable and secure crude oil and petroleum product access, thereby insulating our economy from excessively high oil prices that are the undesirable fallout of impending international oil market turmoil.
Robyn Allan is an economist and former president and CEO of the Insurance Corporation of British Columbia. Gil McGowan is president of the Alberta Federation of Labour.
Edmonton Journal, Feb 20 2012
Byline: Robyn Allan and Gil McGowan