FORT McMURRAY, Alberta – As U.S. companies look toward oil riches in northern Canada, they’re encountering increasing competition – as well as some much-needed cash infusions – from the Far East.
U.S. and Canadian companies have dominated Alberta’s oil sands for decades. Now, though, Chinese firms are rushing to snap up Canadian oil sands resources and invest in ongoing projects – to the tune of $15 billion in the past 18 months in Alberta alone.
They are motivated by a desire to jump into one of the world’s lowest-risk oil investments and to quench the exploding energy demands of Asian markets – even though getting the product from Canada to Asia is just a pipe dream now.
The foreign funding can help pay for what research firm IHS CERA estimates will be $100 billion in spending on oil sands projects over the next decade.
And for a growing number of U.S. oil companies, many based in Houston, the infusion of Chinese cash in Canadian projects is welcome funding for some capital-intensive oil sands projects.
“Many of the actual oil companies – no matter where they are from – are very interested in partnering,” said Jackie Forrest, the Calgary, Alberta-based head of oil sands research for IHS CERA. “That can help raise capital and, in some cases, also bring expertise and knowledge to the partnership.”
Most of the recent deals have been by Chinese companies buying shares in existing projects. For instance, Sinopec spent $4.65 billion last year buying ConocoPhillips’ 9 percent stake in Syncrude Canada Ltd., the world’s biggest oil sands producer. And earlier this summer, state-owned CNOOC spent $2.1 billion acquiring the bankrupt OPTI Canada, whose main asset was a 35 percent working interest in Nexen’s Long Lake oil sands project in Alberta.
Plants want to expand
That influx of capital can help companies ramp up production and expand operations at existing projects, said Alberta Minister of Energy Ronald Liepert.
“Plants that are currently 25,000 barrels a day, they want to expand to 100,000 barrels a day, and they don’t have the capital to do that,” he said. “So they’re actually on the prowl for investment – and there’s real money in China.”
China isn’t the only country getting into the oil sands game from across the Pacific. Companies based in Thailand and Australia also have made plays recently for Canadian oil sands projects and portfolios.
Major draws are the low geological risks of Canada’s well-explored oil sands, and the nation’s political stability.
“You know the oil is there, so the risk is more in executing the project, getting it online and getting the capital associated with building the project,” Forrest said.
The Canadian market offers fewer barriers, said Nick Olds, the senior vice president of oil sands for ConocoPhillips Canada.
“With the oil sands, you’ve got a significant resource – 173 billion barrels of oil recoverable with current technology, and that’s only going to get better,” Olds said.
“If you look at other areas of the world,” he said, “it is very difficult to get access to (the) resource.” By contrast, the oil sands in Canada are “not state-controlled and they’re not government-owned.”
The “oil” in the Canadian oil sands is bitumen, a hydrocarbon that is as hard as a hockey puck at 50 degrees and can be refined into synthetic crude oil or other products. The oil sands in Alberta are a mixture of sand, water, clay and bitumen that is extracted by open-pit mining and by less invasive in situ techniques that use heat to draw the bitumen directly from the underground reservoirs.
Canada’s oil sands bounty makes it second only to Saudi Arabia in its reserve base. Its recoverable oil is estimated to be more than 10 times U.S. reserves.
Since China doesn’t have similar oil sands deposits, the Asian companies investing in Canadian crude aren’t so concerned with getting technology and know-how out of their deals. Instead, they are getting the promise of strong returns and the chance of eventually sending some of that oil home.
“There is a long-term plan to get oil to the East, and it will happen,” said Liepert, the Alberta energy minister.
Right now, the only real export market for Canada’s crude is the United States. But the Midwest refineries that are served by existing border-crossing pipelines are expected to reach their maximum capacity for processing the northern oil supply by 2015, according to IHS CERA.
Plans for pipeline
Asian markets loom as a new and promising opportunity for oil sands developers eager to command global prices for the product, but there is no immediate avenue to deliver the crude to Asia. The most likely corridor – the Northern Gateway pipeline proposed by Calgary-based Enbridge – has been ensnared in disputes with environmentalists and indigenous communities worried about damage from oil spills.
Last month Enbridge disclosed it has enough contracts with shippers to fill the pipeline, which would transport crude 731 miles from Alberta to Kitmat, B.C., for tanker transport to Asian markets.
Although Enbridge isn’t saying what companies have signed up to use the pipeline, China’s Sinopec has confirmed it is helping to finance the $5.5 billion project.
A new avenue to Asian markets also would benefit U.S. oil companies with big Canadian crude reserves, including Exxon Mobil, ConocoPhillips and Shell.
If it gets past regulatory hurdles, the pipeline could be completed as early as 2017.
Some lawmakers and American oil industry leaders have seized on the prospect of Canadian crude being delivered to Chinese markets to push for U.S. government approval of another proposed pipeline — TransCanada’s planned Keystone XL pipeline that would send the product from Alberta to Gulf Coast refineries. Congressional supporters have warned that if the U.S. turns down the project, Asian markets will snap up the crude.
If the Obama administration rejects the Keystone XL pipeline, that would make the Chinese market all the more attractive to oil developers, Forrest said.
“If there is potential that (the Gulf Coast) market isn’t as open to oil sands producers, then it’s even more important not only for the U.S. companies but for the investors from Asia that there is another market that develops,” Forrest said.
Whatever the fate of that project — which has drawn bitter protests from environmentalists and some landowners in the states where the pipeline would run — Canadian officials support expanded markets for oil sands crude.
“We want to become a global energy superpower,” said Liepert. “And you’re not going to become a global superpower of anything with one customer.”
So… everybody knows the current post-recession economy is a manipulation of global economics by China… right? Like good drug dealers building a base of American junkies, they turned on the taps for ten straight years, and then BAM shut it off. So they could chide American legislators over the inevitable credit rating retrograde. Hmmm…. and most of them learned their business in Europe and America. Know what? I tried to learn Chinese as a doctoral candidate at UH but the department made me stop. I think it was a stupid mistake – the white (wo)man is going to need something Chinese in his/her background within ten to twenty years to be globally successful. Remember, I said it first! (Or second or something like that).
Looks to me, that the recent KeystoneXL protests in front of the White House, should’ve been held in Canada in front of their Prime Minister’s residence.
They think, that by blocking the tar sand oil from US refineries, that would block tar sand development.
Yeah ………
Any investment from a Communist govt should be hightly suspect … ultimately because their political motivations will eventually outweigh the monetary … and this will be a problem.
China is the lender and the US and other countries are going to be a consumer or borrower and that is the way the current administration wants it. I feel sorry for my children’s future in the US and all the reason to leave them as much as I can save, which is slowly being consumed as well with future tax increases, thanks Washington!
So this is why Obama and the EPA have been stalling the Trans-Canadian pipeline for ongoing, “Enviromental impact” studies. China doesn’t want that oil going to US consumers.
Robert Redford, Jane Fonda, and the rest of the American energy sabot tossers, where are you when your country needs you?
What profiteth a man/woman who maketh his own nation economically and financially bankrupt from uncompetitive energy when his nation is in peril for its defense and security from a powerful and vengeful foe?
P.S. First of many capitulations to come: Obama will not sell modern fighter aircraft to Taiwan since such sale would be against the wishes of the Chicoms who have warned against such overt defiance by the once powerful U.S.
Oh now this news seems to have raised some eyebrows! The Chinese have been investing billions in Latin America recently and that did not raise much headlines. They are filling the void left by all the attention the US has given the Middle East and no country is going to turn away big $$$ investments.
If anyone is under the illusion that one person is going to change the current situation then you are really out of touch. It will take years to get the US back into a position of leadership thanks to those “leaders” we have elected over the past 20 years (all parties). In the mean time we are in a free fall into 2nd country status.
This oil is the most foul stuff on earth and costs more to bring from the ground to the refinery than it puts out in finished refined oil! Just the natural gas used to extract and upgrade this crude is equal to 25% of the energy content in a barrel of crude. On top of that, you still have to pipe this product to a refinery and separate it into various products. You would get the same usable energy (or ability to do equivalent work) by burning the natural gas in an ICCGT power plant and charging an electric car with the output. This way, you’d save millions of gallons of clean water, prevent accumulation of toxic tailings ponds around the mining operations and the need to tear up whole swaths of boreal forest to access the sand in the first place.
Furthermore there is no guarantee that any of the refined product will be kept in the USA, in fact most of it will be shipped abroad. The only ones to profit will be the big oil companies and refinery workers!
If the situation is reversed, would any Americans object? For years, you guys are “investing” in the Far East and South America and robbed them blind and no one say anything, did they?
Now the Chinese is following the same rules that you laid down and you cry foul? Come on, grow up. If you are losing, don’t be a cry baby. You guys should your own foot. You elected leaders who wanted to go to war and fall into Bin Laden trap of bleeding you dry. In addition, y at the home front, you elect a Congress that do not want to have everyone to have shared sacrifices, sucking the poor to reward the rich and you device schemes (hedge funds, housing boom, and bankers’ greed) to bankrupt your country.
So now that’s where you are. In the meantime for 30 years the China is building their economy and steadfastly build their wealth and now they are in the position to “invest” in your resources and you bitch like hell. Come on, you deserved what you elected for. You have no one to blame except yourself. Youe education is down the drain, your politician decry science and frankly you management of your economy sucks. Until you realize this simple fact, you as a country is sliding fast like the British Empire….going…going…gone.
Mr. Stretchy, please do yourself a favor and read the remarks offered by the Canadian official in charge of looking out for Canada’s environmental interests in industry efforts to develop this resource. In sum he concludes nothing detrimental to environment and if the U.S. doesn’t participate in this development there are plenty of other nations who will be glad to take our place.
Stretching things a bit, aren’t we Mr. Like your claim for the NG used to produce & process bitumen crude, and if it was used for generating electricity for cars instead. EV’s are maybe twice as efficient overall (not four times) as the best pistoned cars of the same weight & performance, counting CCGT’s of 55% efficiency, transmission losses, etc.
How can you foretell that most of the bitumen crude or products refined from it will be shipped outside the US (the world’s biggest consumer)? One thing makes sense…if there’s more oil production in Canada than can be shipped to the US (i.e., if XL isn’t built), it WILL be sold elsewhere.