Providing coverage of Alaska and northern Canada's oil and gas industry
January 2019

Vol. 24, No 3 Week of January 20, 2019

China, Canada feuding

Under treaty with US, Canada intercepts top Huawei exec; China seizes 2 Canadians, posing threat to Chinese petroleum investment

Gary Park

for Petroleum News

From the most eager buyer of Canadian oil and natural gas assets (mostly in the oil sands) until 2015, the Chinese government, operating through its stable of state-owned energy giants, is now rapidly winding down its spending binge and pulling back from its presence in Western Canada.

That retreat is likely to be accelerated unless there is quick resolution of a diplomatic spat between Canada and Beijing that flared up on Dec. 1 when Canada, under the terms of an extradition treaty with the United States, arrested Meng Wanzhou, chief financial officer of Huawei, the Chinese maker of telecoms equipment.

The daughter of Ren Zhengfei, Huawei`s founder, Meng was making a stopover in Vancouver on her way to Mexico.

A U.S. judge had sought her arrest, alleging that Meng committed fraud in order to violate U.S. sanctions against Iran. She has currently been released in Vancouver on bail of C$10 million.

Dispute could be lengthy

The tangled issue was compounded when China retaliated by detaining two Canadians, citing national security concerns.

If the dispute over Meng makes its way to the Supreme Court of Canada it could last for years, with untold spin off damage to Canada`s petroleum sector, notably the C$40 billion LNG Canada project, whose five Asian partners include PetroChina (with a 15 percent stake).

Just as disturbing is whether Canadian plans to open a route to China for its oil sands crude, especially if the Trans Mountain pipeline expansion goes ahead, could be dashed.

That comes at a time when observers have estimated that exports of crude through the Port of Vancouver exceeded 4 million barrels in 2018, the most since 2012, although that is largely due to a maintenance shutdown at U.S. West Coast refineries.

But that minor surge in shipments to China is unlikely to last, Jennifer Rowland, an analyst at Edward Jones & Co., told Bloomberg News.

She said it “makes sense right now for Asian buyers to step in while U.S. buyers aren’t buying as much.”

Trouble looming in 2012

Even before the latest political tensions ramped up between Beijing and Ottawa, bilateral trouble had surfaced in 2012 after CNOOC, China’s state-owned oil giant, made a US$15.1 billion bid for Nexen, setting off deepening opposition to Chinese investment in the oil patch.

That, given Beijing’s rush to lock up Alberta assets, effectively meant the Chinese government would control 10 percent of extraction in the oil sands.

The Harper administration, despite a growing anti-Chinese sentiment within Canada, approved the deal, while imposing greater scrutiny on future acquisitions by foreign government-controlled companies.

“When we say that Canada is open for business, we do not mean that Canada is for sale to foreign governments,” Harper said.

Unless there is a speedy resolution of the tit-for-tat arrests, Canada and China could see a 50-year-old bilateral accord start to unravel, with consequences no-one can see.

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