Energy delays frustrate Chinese investors
Two years ago, China’s ambassador to Canada spoke at a conference in Calgary hosted by the University of Alberta’s China Institute.
During his remarks, Ambassador Zhang Junsai made some key points, including this one:
“Energy exports to Asia are very much welcomed. But we will see when you will start to export because you are still building your infrastructures.
“Still there is a debate with these two pipelines — some with your good neighbours, some internally … What I want to stress is that China won’t always wait until you solve all these issues,” he said.
Fast forward two years to the fourth annual forum addressing Chinese investment in Canada, which took place last Friday in Calgary, and it’s fair to ask what’s changed in the last two years? Unfortunately, not much. The only positive development with respect to Chinese investment in Canada since Zhang was in Calgary was the approval by the Canadian government for the takeover of Nexen by
CNOOC in December 2012. Otherwise it’s a bit like Groundhog Day.
There remains uncertainty regarding the approval of Trans-Canada’s Keystone XL pipeline, nor are there any assurances as to whether Enbridge’s Northern Gateway pipeline to the West Coast will be built to allow Canadian exports of crude oil to the burgeoning Asian market.
It might come as a surprise to some that China is watching the KXL situation very carefully.
Not necessarily because it feels badly for Canada, but because the companies who have invested in the oilsands are just as interested in getting a fair price for their barrels as are their Canadian peers.
As Canada’s ambassador to China, Guy Saint-Jacques, pointed out Friday to a roomful of business, government and industry officials at the Fairmont Palliser hotel, Chinese energy players make investments overseas as a way to diversify their assets — not necessarily with the intent of shipping production overseas.
“They don’t buy the assets necessarily for export to China. They want to export to the U.S., so they are looking at rail but understand the limitations of that option,” said Saint-Jacques.
Given that the Chinese stateowned enterprises have been given the mandate to demonstrate profitability from investments, which took place coincidently with the slowdown in Chinese investment in Canada’s energy sector, the continued stalling around KXL is anything but welcome news.
But the lack of progress on the infrastructure issue is only one on a list of items that are frustrating Chinese companies with respect to investment in Canada.
To inadequate infrastructure can be added strained relations with First Nations and the environmental regulations and an inflating cost matrix. And one can’t forget the opacity surrounding the Investment Canada Act — that some have referred to as a nothing more than a political safety valve because there is no ability to challenge a ruling by going to court — which makes it easy to see why there has not been as much interest by the Chinese companies in Canada’s energy sector since the CNOOC/ Nexen deal, particularly in the context of oilsands investment.
Where Chinese companies do continue to see opportunity in Canada, says Saint-Jacques, is with respect to liquefied natural gas, where there is a sense in China that “… it will be somewhat easier to export LNG from British Columbia,” which is arguably why Sinopec bought a 15 per cent interest in the Petronas-led LNG project last week.
One of the points made by Saint-Jacques during his remarks and in an interview that followed links back to Zhang’s remarks two years ago; that being the fact the window of opportunity for Canada to secure energy exports to China will not stay open indefinitely.
“There is a window of opportunity that we should not miss. I think it’s very important to underline this because China is busy finding contracts with all the countries it can … and we cannot be complacent.”
In other words, there are other players ready to fill in the gap. Such as Russia. According to Saint-Jacques, President Vladimir Putin is set to visit China in the coming weeks, with the purpose being the inking of a deal for the annual export of as much as 60 billion cubic feet of natural gas from Russia to China. The sticking point, apparently, is price.
This far outstrips anything Canada could hope to supply but the point is the company or country that is “first to market” is the one that gains the first-mover advantage, making it harder for others to capture market share. And when the terms of supply span decades, it’s even harder for new entrants to gain access to these markets.
For Canada to achieve “energy superpower” status, it must cross several items off its to-do list — and soon.
On a micro level, it must show progress on the transportation infrastructure file — beyond the expected approval of the Northern Gateway pipeline by the federal cabinet that is expected next month. There must also be progress with respect to addressing unresolved First Nations issues.
But on a macro level, the government needs to be thinking — and acting — more broadly regarding trade development with Asia.
As the Harvard historian Niall Ferguson has long said, the new world economic order is no longer oriented toward the U.S. and the developed world but toward Asia.
As other countries move to capitalize on growing demand in that region, including in China, Canada cannot afford to be complacent because that road ends with Canada as a warehouse for the world’s natural resources, not a player.
This year’s event hosted by the China Institute served as an important reminder of that.