China invests millions into Canada's oil sands

 

 
 
 
 
A refinery in the Alberta oilsands, north of Fort McMurray.
 

A refinery in the Alberta oilsands, north of Fort McMurray.

Photograph by: CNS files, .

BEIJING - Energy-hungry China, once stung in its efforts to secure access to resources in North America, is making a more subtle push into Canada's oil sands, and the new approach is paying off, experts say.

Chinese firms seeking a toehold in the largest known crude deposit outside the Middle East have opted for joint ventures and partial stakes to avoid the kind of political uproar sparked when CNOOC tried to take over U.S. oil group Unocal in 2005.

"They are tiptoeing around the edge, not challenging anybody, not getting in any American Senators' faces -- just very quietly taking a position," said David Hewitt, regional head of oil and gas research at CLSA in Hong Kong.

"You haven't seen an aggressive attempt to buy whole companies, to own management or have dominant control."

Since the failed bid for Unocal, Chinese firms have pumped billions of dollars into the Alberta oil sands region in western Canada, which has estimated reserves of 175 billion barrels.

That compares with the more than 260 billion barrels in Saudi Arabia.

"Taking a partial stake is a lot more palatable," said Victor Shum, a Singapore-based analyst at energy consultancy Purvin and Gertz.

In the latest deal, China's 300-billion-dollar sovereign wealth fund agreed in May to invest 1.25 billion Canadian dollars (1.17 billion U.S.) in Canadian oil sands giant Penn West to help develop its "vast oil sands resources".

Sinopec Corp., China's second-largest oil producer and top refiner, sealed a deal in April to buy U.S. oil firm ConocoPhillips' nine per cent stake in Syncrude Canada Ltd., the biggest oil sands producer, for 4.65 billion U.S. dollars.

In August last year, PetroChina -- the country's top oil producer -- agreed to invest 1.9 billion Canadian dollars for a 60 per cent stake in two projects held by Athabasca Oil Sands Corp.

The cost of extracting the heavy oil, or bitumen, from sand and clay has not deterred Chinese companies which are also scouring Africa, South America and Central Asia for energy resources needed to power the fast-growing economy.

China, the world's second largest consumer of oil after the United States, uses about eight million barrels of crude a day and imports about four million barrels, according to the U.S. Department of Energy's statistics agency.

"Canada has some of the largest crude oil reserves in the world," said Tom Grieder, Asia Pacific energy analyst at IHS Global Insight.

Chinese state-run firms "are keen to use their financial clout to take positions in these areas to boost their reserve replacement ratios and future production streams," he said.

Concerns over state-owned companies buying key resources -- the main reason for the failure of the Unocal bid -- have been set aside by Canadian lawmakers eager to attract investment in the wake of the global financial crisis.

After the PetroChina deal was approved, Canadian Prime Minister Stephen Harper was quoted as saying: "Expect more Chinese investment in the resource and energy sectors . . . there will definitely be more."

Purvin and Gertz's Shum said the market environment was "completely different from 2005", with some oil majors halting projects due to the economic downturn.

"Following the financial crisis, Chinese companies are the ones with a lot of financial resources backed by the Chinese government," he said.

The massive Chinese investment also comes as U.S. firms Conoco, Chevron and Shell face growing pressure from shareholders and green groups concerned about the impact of oil sands mining on the environment.

Environmentalists say oil sands extraction produces three to five times more carbon emissions than conventional oil production and requires tailing ponds that leak cyanide, oil, arsenic, copper and iron into local waterways.

While conventional crude oil is pumped from the ground, the sticky oil must be extracted from underneath the region's coniferous forest, separated from the sand and water, then upgraded and refined.

Despite the growing unpopularity of oil sands, further Chinese investment in the controversial fuel is in the pipeline, analysts say.

"At the moment national oil companies are targeting minority stakes to downplay political opposition and to acquire technical experience in oil sands," said Grieder.

"I think they will start to build on these deals and secure new ones in future years as opportunities arise."

With China's oil imports expected to more than double to nine million barrels per day by 2020, energy security will remain the key concern for top leaders in Beijing, said CLSA's Hewitt.

"Security of supply is absolutely essential to the Chinese," he said.

 
 
 
 
 
 

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A refinery in the Alberta oilsands, north of Fort McMurray.
 

A refinery in the Alberta oilsands, north of Fort McMurray.

Photograph by: CNS files, .

 
 
 
 
 
 
 

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