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Who will hold, who will fold? Canada ups trade stakes by predicting 400,000 barrels a day of oil exports to China, while Martin takes case to U.S. people Gary Park Petroleum News Canadian Contributing Writer
Canada may have played the energy card in its trade showdown with the United States.
The overriding question now is whether Washington will respond — and in what fashion.
In a rapid-fire sequence of events, Natural Resources Minister John McCallum said Oct. 15 that China could be importing 450,000 barrels per day of Canadian crude within six years, raising the bar from the projection he made two days earlier of 400,000 bpd within seven years.
Also on Oct. 14 Prime Minister Paul Martin said he delivered an “unvarnished” message to President George W. Bush that the U.S. refusal to abide by free trade rulings could undermine the North American Free Trade Agreement, affecting a wide range of goods and services, including natural resources and energy.
He said Canada might seek a U.S. court ruling compelling Washington to honor NAFTA decisions.
British Columbia Premier Gordon Campbell joined the chorus by telling the editorial board of The Globe and Mail newspaper that it is “totally legit” for Martin to warn Bush that Canada could export its oil to markets other than the U.S.
He said that was not a “punitive strategy,” it was telling the United States that “we can’t count on your word on NAFTA.” U.S.: softwood less than 3% of exports U.S. Ambassador David Wilkins quietly urged Canada to keep in mind that softwood constitutes less than 3 percent of Canada’s exports to the United States and suggested Ottawa might tone down its hard line.
Canada’s Industry Minister David Emerson apparently wasn’t buying that line, arguing that ignoring the dispute-resolution section of NAFTA was “essentially killing” the pact.
He predicted Martin’s discussion with Bush was an essential part of elevating the dispute “to the highest level if you want a resolution.”
But the fall-back position for Canada has included federal officials insisting U.S. access to Canadian oil will not be restricted even if the United States refuses to abide by rulings on softwood lumber. NAFTA limits reduction In fact, NAFTA provisions limit the extent to which Canada can reduce oil and gas exports without lowering its own consumption, increasing its imports or increasing its own production by several-fold to maintain the current 70 percent share of domestic production that is shipped to the United States.
The New York Times has described Canada’s campaign as a “series of subtle threats.”
What McCallum had to say in Beijing after meetings Oct. 13-14 with senior Chinese government and oil industry officials was less than subtle, in the eyes of most observers.
Following sessions with the presidents of PetroChina and CNOOC, two of China’s state-owned oil giants, he concluded that 400,000 bpd of Canadian crude shipments — roughly one-quarter of current exports to the United States — was a “realistic target” for 2012, then shortened the timeframe to 2011, while adding 50,000 bpd to the total.
McCallum said the two companies showed “strong interest” in expanding China’s stake in the Alberta oil sands. Chinese minister invited to visit He is also confident Chinese Vice-Premier Zeng Peiyan, the senior minister with responsibility for energy, will soon accept an invitation to visit the oil sands and deepwater port facilities in northern British Columbia that would serve the Chinese market.
PetroChina is the potential anchor shipper for Enbridge’s planned 400,000 bpd Gateway pipeline from Alberta to Kitimat, British Columbia.
It and Enbridge are attempting to aggregate 200,000 bpd of oil sands production for delivery to China. Of the rest, Enbridge has indicated another 100,000 bpd could be exported to Asian markets and 100,000 bpd to California.
CNOOC has a C$105 million one-sixth stake in MEG Energy, a small company with proprietary oil sands technology, while Sinopec has paid C$105 million for a 40 percent share of the Northern Lights oil sands project by Calgary-based Synenco. Softwood link sidestepped Amid these rapidly unfolding events, McCallum carefully sidestepped questions about linking energy and softwood, but he urged the Chinese to waste no time in moving ahead with a series of “strategic” partnerships signed last month by Martin and Chinese President Hu Jintao.
He said Canada is “keen” to build its economic relations with China — two-way trade last year was C$30.8 billion — by attracting Chinese investment to the energy sector and opening the door to energy exports.
McCallum said China indicated a desire to import Canadian oil by taking equity positions through takeovers or as a partner in greenfield projects and not merely acting as a customer. He said that interest extends to joint venture, minority holdings or strategic alliances with Canadian companies and not limited to oil production that is destined for China.
China’s urgent need of foreign crude is reflected in the government’s latest figures, putting September imports at 2.64 million bpd, up 4.8 percent from a year earlier and a staggering 23.9 percent from August. Oil products were 590,000 bpd, 16.9 percent above August and 10.6 percent higher than September 2004.
For the first nine months of 205, crude imports were 2.3 million bpd, 4 percent more than the same 2004 period, while products imports dropped 16.4 percent to 567,000 bpd. Martin and Bush have talked Meanwhile, Martin and Bush held their long-awaited phone conversation since the fourth NAFTA panel ruling that U.S. countervailing duties, now totaling about C$5 billion, on softwood are illegal and should be returned to Canadian lumber companies.
The United States has spurned those decisions, arguing that the dispute will only be settled through negotiation.
Martin, characterizing the discussion as “cordial, but very frank,” said he told Bush that years of negotiations have never succeeded and Canada will now take the issue to U.S. courts and start a public relations offensive telling Americans that the lumber tariffs add $1,000 to the cost of new homes.
Campbell said the Bush administration seems “paralyzed by politics” and a prisoner of protectionist lumber interests. Alberta critical of federal tactics But the more energy is used, directly or indirectly, as leverage, the more critical the Alberta government becomes of federal tactics.
Premier Ralph Klein reminded Martin that under the Canadian Constitution the provinces own their natural resources and they are not the federal government’s to sell.
Martin said that although the private sector sells oil, his government has a role to play in opening new markets “and we will continue to do that,” while ensuring that the U.S. border remains open.
Alberta Energy Minister Greg Melchin urged the United States to settle the softwood dispute during an Oct. 15 meeting with Energy Secretary Samuel Bodman in Washington.
He also warned Ottawa against singling out energy for linkage, while ignoring other export items from Eastern Canada.
Thomas d’Aquino, president of the Canadian Council of Chief Executives, said the government was engaged in a risky game by suggesting it might give preference to China and India over the United States in its oil exports.
One chance of averting a nasty collision might have surfaced Oct. 15 when the premiers of Canada’s three largest provinces — Campbell of British Columbia, Dalton McGuinty of Ontario and Jean Charest of Quebec — said they would be willing to resume softwood negotiations if there was an assurance from Washington that it would live up to the terms of any agreement.
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