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Vol. 15, No. 17 Week of April 25, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Furor over Chinese deal

Legislator accuses Harper of flip-flopping on pledge to limit bitumen exports

Gary Park

For Petroleum News

Call it a tempest in a teapot, or perhaps a brouhaha in the bitumen.

The C$4.65 billion bid by China’s Sinopec to acquire 9.03 percent of Syncrude Canada — a deal that still faces exhaustive scrutiny by Canadian government regulators — has set off a firestorm of misguided political reaction.

An Opposition legislator in the Canadian parliament has accused Prime Minister Stephen Harper — even before the foreign investment review has gotten under way — of ducking a 2008 election campaign pledge to prevent any company from exporting raw bitumen from the oil sands for offshore upgrading to take advantage of softer greenhouse gas emission rules in Asia.

A spokesman for Harper said the government is committed to standing by its campaign promise, but that hasn’t deterred the political opportunists.

Nathan Cullen, from the left-wing New Democratic Party, accused Harper of “breaking his own fundamental promise not to export raw bitumen to countries with lower environmental standards. He is exporting raw resources and Canadian jobs.”

Although Harper has declared he is open to foreign investment in Canada’s resource sector, he has said Sinopec will face the full review process, which will determine whether it meets Canada’s basic criteria of a demonstrable benefit to the national economy without posing any risks to national security.

Field day for critics

But none of that has stopped the critics from having a field day, claiming that Sinopec could have a veto right over whether Syncrude should turn more bitumen into synthetic crude or refined products in Alberta, or simply give carte blanche to bitumen exports.

Taking a more measured approach, Marcel Coutu, chief executive officer of Canadian Oil Sands Trust, the 36.49 percent largest owner of Syncrude, said the size and nature of the assets might cause the government to further clarify its foreign investment policy.

Beyond that, he speculated that some COST shareholders might welcome the entry of Sinopec because of the premium attached to its offer.

Otherwise, if the deal is ratified, Sinopec will have only a minority stake among Syncrude’s six other partners, three of whom — COST, Imperial Oil and Suncor Energy — have larger stakes.

Currently, Sinopec’s 9.03 percent equity position would represent net production from Syncrude of less than 33,000 barrels per day, not enough to make more than a dent in the market in North America or overseas.

Transport an issue

And, for now, there is no effective way to transport raw bitumen to Chinese refineries other than through periodic and small shipments on a Kinder Morgan pipeline to a tanker terminal in Vancouver.

That will change if Enbridge proceeds and gets approval for its proposed 525,000 bpd Northern Gateway pipeline from the oil sands to a deepwater port at Kitimat, on the British Columbia coast — a project that faces an uncertain reception from regulators, landowners, aboriginals and environmentalists if it becomes a formal application.

However, Sinopec does have other options as part of diversifying its global supply portfolio.

Robert Johnston, of the Washington, D.C.-based Eurasia Group, said in a note that Asian players can market their oil output in the North American market, while using their presence in the oil sands to develop “expertise in heavy oil extraction (an increasing need in China) and upgrading that can be applied elsewhere.”

Wentran Jiang, head of the China Institute at the University of Alberta, said Sinopec and other state-run Chinese companies are making similar worldwide deals, sometimes in partnership with ExxonMobil, BP or Royal Dutch Shell.

Paul Ting, an independent U.S. analyst and former analyst at UBS Securities, sided with those who have some misgivings about the push by China’s state companies to enhance the development of the Chinese economy, saying they “want to get oil any way they can,” whether it is crude or refined.

Jiang said that, depending on the Canadian government’s response, he would not be surprised to see even larger Chinese investments in Canada.

He said any notion that China is aiming to ship the raw bitumen overseas is “laughable. … It doesn’t make economic sense to ship the bitumen to China.”

Jiang said the more important question could be the prospect of expanded investments in Canadian-based upgraders and refineries, especially given the presence of other Chinese firms in startup oil sands operations and the desire of the Alberta government to keep more of the value-added end of bitumen production within the province.

NEB decision appealed

In other oil sands developments:

• The Communications, Energy and Paperworkers Union of Canada has appealed a decision by the National Energy Board allowing TransCanada to build and operate the Keystone XL pipeline to deliver oil sands production to U.S. Gulf Coast refineries within three years.

The union said the industry has apparently decided the “enormous economic development associated with upgrading and refining oil sands resources will take place in Texas, not Canada,” while the NEB has “astonishingly” concluded Keystone is in the Canadian public interest, abandoning its mandate “to the entirely ill-founded notion that a deregulated export market” is what best serves Canada.

A decision from the Canadian Federal Court of Appeal on whether an appeal will be heard is expected in May.

• BP shareholders voted down a resolution at their annual meeting on April 15 seeking a review of the risks posed to the company by its role in the C$2.5 billion Sunrise oil sands project, a joint-venture with Husky Energy.

The shareholders voted 93.9 percent against the resolution supported by 140 shareholders, led by a United Kingdom investment charity FairPensions.

Carl-Henric Svanberg, BP’s new chairman, said the vote did not necessarily mean the resolution was wrong and “we are right. It only means that we think we have the concerns raised well in hand.”

BP believes the thermal-recovery Sunrise project will have a smaller carbon and resource footprint than other developments when it comes on stream at 60,000 bpd in 2014.

Royal Dutch Shell faces a similar challenge from FairPensions at its May annual meeting.



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