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Fence-mending trip to D.C. eases tensions between U.S., Canada No lasting damage to energy flow, but Canada urged to help rebuild Iraq Gary Park Petroleum News Calgary Correspondent
A high-powered delegation of Canada’s most influential business leaders, including a heavy sprinkling of oilpatch executives, has scurried back home from a fence-mending trip to Washington, D.C., hoping they won’t suffer too much from U.S.-Canada tensions over Iraq.
But their optimism is tempered by warnings from political and corporate leaders on both sides of the border that Canada would be well-advised to cooperate in efforts to rebuild Iraq and to curb some of the gratuitous insults directed at President George W. Bush by senior members of Prime Minister Jean Chretien’s government.
Following a two-day summit April 7 and 8 that included 100 Canadian chief executive officers, Deputy Prime Minister John Manley, U.S. Secretary of Homeland Security Tom Ridge and White House Chief of Staff Andrew Card, there was a general view that the immediate crisis is over, without any lasting damage to the most lucrative two-way trade in the world valued at C$1.4 billion a day.
Gwyn Morgan, CEO of EnCana and vice chairman of the Canadian Council of Chief Executives, said the “longstanding friendship” between the two countries will survive current strains provided Canada understands that its dealings with the United States must be handled differently during a period when the United States is more concerned about security than economics.
“We have the opportunity to do fence-mending, and if we don’t, that impact could be more severe,” he said.
Morgan acknowledged that Canada’s refusal to participate directly in the U.S.-led invasion of Iraq “is an issue ... obviously, there’s some disappointment. Security has become paramount, and economic relationships have to work within that new security world.”
Tim Faithful, CEO of Shell Canada, agreed there has been no indication of any punitive U.S. actions affecting Canada’s oil, natural gas and electricity exports that are worth about C$50 billion a year. He said the fact that there is an integrated North American energy market embracing the United States, Canada and Mexico means there is a “strong common interest” in achieving seamless trade. Interdependent economies Other trade experts also have argued it is not in the interests of the United States to use anti-dumping or cross-border security measures to impede the flow of any Canadian products across the 49th parallel, especially energy. Even if Washington did retaliate, the North American Free Trade Agreement should prevent conflict or overt protectionist measures, they said.
Manley, in a luncheon speech, said the extent to which the U.S. and Canadian economies are intertwined makes “it pretty hard to figure out exactly how to target Canadian businesses and not affect U.S. interests as well.”
James Blanchard, a former Michigan governor and U.S. ambassador to Canada, said any lingering concerns that Canada’s corporate sector might be punished for the actions of its government were dispelled at the meetings.
“I don’t think there’s anybody suggesting that there will be any kind of trade retaliation,” he said.
However, other prominent Washington insiders suggested the real test is yet to come.
Richard Perle, former U.S. assistant secretary of defense, bluntly warned that Canadian companies could miss out on contracts if the Canadian government does not contribute financially to the reconstruction of post-war Iraq, a project that some have estimated carries a price tag of US$100 billion.
“When reconstruction flows from government contributions, the money is likely to be spent with national companies,” he told reporters. Perle also hinted the next Iraqi government may be reluctant to award business to companies from countries that refused to join the military coalition.
“You can forgive the Iraqis for distinguishing between countries that helped in their liberation and those that opposed their liberation,” he said. “I would not want to be a French entrepreneur in Baghdad with the next administration.”
Thomas Niles, also a former U.S. ambassador to Canada, said there “might well be a problem” if Canada decides it will only participate in a reconstruction effort led by the United Nations. Eyeing reconstruction The prospect of landing work in the multibillion-dollar restoration of Iraq’s dilapidated oil industry is a matter of special interest to several Canadian E&P and service companies.
Oilexco Inc., a tiny Calgary-based outfit, was the first Canadian company to market Iraqi crude, including some destined for North American refineries, under the United Nations Oil-for-Food program. It also has dabbled in some exploration projects in Iraq.
Oilexco CEO Arthur Milholland, who once described the sanctions imposed on Iraq as a “terrible burden,” is hopeful the rebuilding of oil infrastructure will be a major prize to many companies.
Nexen, which produces almost 120,000 barrels of oil equivalent per day in Yemen, close to half its total output, is certain its almost trouble-free relationships through tumultuous times in the Middle East leave it “well positioned” to take advantage of Iraqi opportunities.
President and CEO Charlie Fischer said Nexen has “knowledge, experience and reputation that will allow us to do business in the region.
“Will we be interested in doing something? Absolutely,” he told the Canadian Press news agency.
Petro-Canada also has a chance of landing some Iraqi business because of its joint venture in Syria with ChevronTexaco, which is rated as one of the leading contenders to dominate Iraq’s rebuilt oil industry along with TotalFinaElf, BP, Royal Dutch/Shell and ExxonMobil.
Other Calgary-based E&P companies with strong global operations — EnCana, Talisman Energy and Canadian Natural Resources — are seen as contenders, although all are taking a measured view of their ability to get involved. Huge prize The scope of the potential riches has many companies salivating. Iraq is estimated to have oil reserves of 112 billion barrels, although only 15 of its 73 known fields have been developed with a mere 2,000 wells. Iraqi crude can be pumped for less than US$1 per barrel, a far better proposition than any conventional oil in North America and well ahead of the US$7-$10-per-barrel range being pursued by Alberta’s oil sands operators.
U.S. Vice President Dick Cheney indicated earlier this month that Iraq could be producing 3 million barrels per day by late 2003, almost three times its output under Oil-for-Food.
If the largest slice of that vast crude resource ended up in the United States, it could quickly upset Canada’s hopes of remaining a long-term supplier to the U.S. through expansion of Alberta’s oil sands deposits, despite a 90 percent rise in Canadian crude exports from 1991 to 2001 and a doubling of gas exports over the same period.
However, many analysts think it’s unlikely the United States will flood its market with Iraqi crude, driving prices through the floor, pounding high-cost producers and actually endangering efforts to improve North American energy security.
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