Business Edge
Oilsands operators are missing out on lucrative Chinese investment opportunities because the Canadian oil and gas industry is not competitive with international rivals, says an expert on Canadian-Chinese energy relations.
Wenran Jiang, acting director of the University of Alberta's China Institute, also contends the federal government's failure to understand Chinese intentions in Canada will jeopardize future investment.
"We're facing a very uphill battle in winning Chinese investment in Canada," said Jiang, during a recent Asia-Pacific Summit held in Vancouver. "We are already in a position of needing China more than China needs us."
Oilsands producers are looking forward to securing billions of dollars worth of deals with Chinese firms on oilsands facilities, pipeline projects, and oil and gas sales as several projects come onstream in the next decade.
But Jiang said Canada's industry is not taking advantage of the needs of Chinese industry.
Federal Trade Minister David Emerson also gives Canada scathing reviews for its business-building efforts with the Asian economic giant.
In a recent speech to the Vancouver Board of Trade, Emerson said if not for energy, Canada might have suffered a decline in overall Asian trade while several other countries enjoyed large increases.
"(Chinese petroleum firms) are in the Sudan and they're in lots of places where Canadians would fear to tread," said Emerson. "But (it) is not an issue just with energy. Asia trade has suffered, probably, a decade of governmental neglect. It's not just governmental neglect. Canadian companies have been distracted elsewhere - primarily North America."
Emerson noted the issue surrounding Chinese state-owned enterprises is their lack of transparency. "It's an issue of great sensitivity to Canadians," he said.
But Jiang says Ottawa's fears of state-owned Chinese firms taking control of oilsands projects are jeopardizing China's willingness to invest here. He added this "short-sighted approach" shows a lack of understanding of China's internal economic, political and social dynamics.
Some critics, citing risks to Canadian energy security, have called on Ottawa to limit Chinese firms to minority stakes. But Jiang said Chinese firms don't plan to make large investments in the oilsands and also lack the expertise to manage Canadian companies.
"We think somehow that Chinese energy companies directed by the state are coming to take over Canadian natural resources," said Jiang. "The issue is opposite. It's not that we have too much Chinese investment, but too little."
During the past three years, Jiang has organized bilateral China-Canada energy conferences at the U of A and in Beijing. He also helped the former Liberal government secure an energy co-operation agreement with China that is still in effect, and has written extensively on Chinese-Canadian oil and gas matters for academic publications and mainstream media.
Currently, Chinese stakes in the oilsands account for $3 billion or one per cent of total investment in the oilsands, said Jiang.
PetroChina International Co. Ltd. and Calgary-based Enbridge Inc. have signed a memorandum of understanding on the proposed $2.5-billion Gateway pipeline, which plans to ship 400,000 barrels of Alberta crude per day between Edmonton and the deepwater port of Kitimat, B.C.
But Enbridge has not been able to match supply with demand for the line, which would export oil to China, other Asia-Pacific markets and California.
Coal accounts for 67 per cent of China's current energy mix, while oil represents just over 22 per cent. Energy experts say the country has a strong thirst for relatively cleaner energy sources such as natural gas, which makes up only two per cent of its energy supply.
Canada is considered one of China's most important suppliers over the next several decades, because of its abundance of conventional and alternative energy sources, its geographical proximity to Asia and its cultural ties.
But Canada's increased energy trade with China is not a sure thing, warns Jiang.
"The fact is, Canada is not competitive," he said. "We have not done any major deals in the area of energy for several (years.) We have not had a (new) pipeline built from Edmonton to the West Coast, and we have no potential - in the near future - to export (more) oil. " Canada's unilateral reliance on the U.S. market does not reflect healthy diversification, he added.
"We do so much business with the United States, and the U.S. owns so much of oilsands exploration," said Jiang. "Yet, we never seem to bother with the sovereignty issue there, even though these very big companies have very close ties with the U.S. government."
Canadian critics of Chinese investment fail to understand that Chinese oil and gas firms are being "reborn" as private, market-oriented ventures, but the process takes time, Jiang said.
Emerson, who co-hosted Chinese President Hu Jintao's visit to Vancouver last year while he was still a federal Liberal, noted the Tories have not yet taken a specific position on Chinese investment in the oilsands.
Most activities involving Chinese investment in northern Alberta are industry-driven, he added.
Natural Resources Minister Gary Lunn will attend a heavy-oil conference in Beijing staged by the Chinese and Alberta governments this month.
Indian and Northern Affairs Minister Jim Prentice is also expected to attend to discuss the pipeline matter, joined by Alberta Energy Minister Greg Melchin.
Yuen Pau Woo, president and co-chair of the Asia-Pacific Foundation - the Vancouver-based think-tank that hosted the summit - said Chinese investment in Canada is a long-term endeavour that must overcome serious obstacles related to distance, the construction of infrastructure and the public's acceptance of Chinese investment in a strategic resource.
But he believes there are several near-term opportunities in the areas of energy services, consulting and safety.
Ottawa's fears of Chinese investment are lessening and the Alberta government has been very "clear and open" in accepting it, he added.
"It would be nice if the (federal) government would come out very clearly on this issue, so that there is no ambiguity," said Woo. "We have to be prepared with the rebuttals to people who are against Chinese investment in this country - and I think that battle can be won."
(Monte Stewart can be reached at monte@businessedge.ca)