China National Petroleum abandons Canadian Energy Strategy

Usually Canada welcomes investment and in this case it would provide diversification and access to Chinese markets. It doesn't seem to matter. Perhaps the US is encouraging Canada to discourage China. It would be best for Canada to diversity its sales and not simply become a US client.

China National Petroleum abandons Canadian energy strategy
Jon Harding, Financial Post
Published: Thursday, July 12, 2007
CALGARY -- China has abandoned its Canadian energy strategy out of frustration with federal policy and with the country's oilsands producers, turning its attention instead to "friendly Venezuela" as a way to feed new Chinese refineries.

A senior executive with state-owned China National Petroleum Corp. (CNPC), Asia's largest company, said CNPC has scrapped its involvement in a $4-billion Gateway pipeline project with Enbridge Inc. that was to move oilsands crude from Alberta to the British Columbia coast by about 2014.

Yiwu Song, vice-president CNPC International, also said China decided in January to "slow down" its involvement in the Canadian oilsands business.

We're waiting for better investment policies and political-friendly opportunities coming in the future," Mr. Song said outside a TD Newcrest oilsands forum in Calgary.

He said during the next five years, China's imports of heavy oil from Venezuela will grow to 600,000 barrels a day, volumes that will be used to feed two new upgraders, refining-like facilities that process heavy grades of oil such as those found in Venezuela and in Canada's oilsands, into refinery-ready feedstock.

CNPC had hoped Canada would some day account for half those volumes, although Mr. Song voiced frustration at the same investor event a year ago about his company's lack of success in executing any significant deals.

The integrated oil company wanted to exchange access to its refining capacity and Chinese markets for reserves and upstream production.

Canada's loss -- its chance to develop new oil markets outside of the United States -- is Venezuela's gain, Mr. Song said yesterday.

"Fortunately, Venezuelan President [Hugo] Chavez is so warm-hearted -- there's a difference in attitude," he said of the political strongman in Venezuela, a country from which oil companies are now fleeing.

"Yes, there are some ideological issues here, and if your people don't change your minds and be more inviting to us ...

"China will always open its door for Canada."

He said China tipped its hand about a growing wariness of Canada in January, surprisingly via CNPC's purchase of 258.6 square kilometres of oilsands acreage, land CNPC said could hold two-billion barrels of resource.

"The media here said it was the Chinese coming. But actually, that was the turning point of our policy," he said, adding those lands would not produce oil for at least 10 years .

He blamed the Stephen Harper government for not doing more to facilitate Chinese-Canada trade in energy and also said the Liberal government of Paul Martin was more inviting to the Chinese.

Canada's Natural Resources Minister Gary Lunn, a speaker at the same oilsands forum, said Ottawa is doing its bit to encourage trade between in energy between the two countries.

Mr. Song was also critical of how long it takes getting approvals for major projects in Canada, suggesting that is why CNPC has decided it will not pursue the Gateway pipeline project with Enbridge, which at one point said it wanted equity partners to share up to 50% of the project.

PetroChina -- a CNPC subsidiary -- was going to be the primary customer for oil shipped on the line and Enbridge was going to facilitate supply deals between it and Canadian producers.

Canadian producers have so far done deals in the United States and last year Enbridge deferred building the project so it could focus on ways to move growing output from the oilsands south.

Enbridge spokesman Glenn Herchak said the Calgary-based pipeline company had not heard before yesterday that CNPC was no longer interested in pursing Gateway.

"The memorandum of understanding we signed with PetroChina did lay the groundwork for further discussions to move the project forward, but we've always said the details were confidential," Mr. Herchak said.

"While China could be a market for Gateway volumes, other Asia Pacific markets and California are other potential markets. We're in discussions with other, including Canadian oilsands producers and refiners in California and offshore."