Canada looks to China to exploit oil sands rejected by US


Whole Foods, the high-end organic grocery chain, and retailer Bed Bath & Beyond last week both signed up to a campaign by ForestEthics to stop US firms using oil from Canadian tar sands. The Pentagon is also scaling down its use of tar sands oil to meet a 2007 law requiring the US government to source fuels with lower greenhouse gas emissions.

Major oil companies such as Shell are also coming under shareholder pressure to pull out of the Canadian projects. Earlier this year, Shell announced it was scaling back its expansion plans for the tar sands after a revolt by shareholders. Producing oil from the Alberta tar sands causes up to five times more greenhouse gas emissions than conventional crude oil, according to the campaign group Greenpeace.

In the most significant deal to date, the Canadian government recently approved a C$1.9bn (£1.5bn) investment giving the Chinese state-owned oil company Petro­China a majority share in two projects. Prime minister Stephen Harper said: “Expect more Chinese investment in the resource and energy sectors … there will definitely be more.” China’s growing investment in the tar sands is seen in Canada as a useful counter to waning demand for tar sands oil from the US, its biggest customer. The moves, which have largely gone unnoticed outside north America, could add further tension to efforts to try to reach a global action plan on climate change.

The state department envoy, Todd Stern, on Tuesday accused China of being “a bit ambiguous” in its commitments to reducing greenhouse gas emissions. Efforts to impose national carbon limits in the US have stalled in Congress, but a number of leading US firms are moving to reduce their carbon footprint by moving away from abandoning tar sands oil.

Canada is the biggest source of US oil imports, with 65% of tar sands production going to refineries in the midwest. “Companies have been hitting the pause button on projects,” said Simon Dyer, of the Pembina Institute oil sands watch project.

But not China. PetroChina has taken a 60% stake in two new tar sands projects due to get under way in the MacKay River and Dover areas next year, with plans to produce up to 35,000 barrels a day by 2014, and eventually up to 500,000 a day.

China made its first investment in the tar sands in 2005, with state-owned China National Offshore Oil Corporation spending C$150m for a 17% stake in a startup MEG Energy Corp. Another Chinese state-owned firm, Sinopec, last year increased its interest in the Northern Lights oil project to 50%. China’s National Petroleum Corp has also bought oil sands leases that it has not yet developed.

The projects, which will begin coming on line over the next decade, are seen as crucial to a long term strategy of finding new sources of energy as China’s economy continues to expand. “Right now I would characterise it as a token toehold,” said Peter Tertzakian, chief energy economist at ARC Financial Corporation, an energy-focused private equity firm in Calgary, Alberta.

But he said the move by China could also represent the beginnings of a major shift in control of the tar sands. “Hitherto we were very accustomed to have western countries coming here, particularly American companies or companies from the UK, taking an interest in oil and gas companies and we were OK with that,” he said. “From a continental energy security perspective of course, there is a little more hesitation when emerging powers come here, but the Canadian government has over the last year indicated more willingness to do business with China.”

Japanese and South Korean companies have also begun moving in, opening up potential new markets for Canada at a time when forecasts show a fall in global demand for oil. India’s Reliance Industries is also reportedly bidding on a project. The move by China has also crystalised increased concerns among conservationists and First Nation groups about a proposed 1,200 kilometre pipeline that would carry tar sands oil from northern Alberta, across British Columbia to oil tankers off the Pacific coast.

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