OTTAWA (Reuters) - Prime Minister Stephen Harper may still be smarting from Canada’s failed bid to ramp up oil exports to the United States, but his plan B could prove to be even tougher.
Harper heads across the Pacific next week in a bid to convince China to satisfy its growing energy appetite with Canada’s vast oil reserves.
Though it appears a classic supply-demand match on the surface, the plan faces hurdles that range from how long it will take to build the pipeline to environmental dangers and questions about China’s human rights record.
China imports no oil from Canada at present, and the infrastructure is not in place in Canada to get the crude from the massive tar sands of Alberta to the Pacific coast, forcing a long-term view of a partnership.
“China as an energy market directly for the delivery of (Canadian) oil is medium to long term. Five years is too short, 10 years is perhaps doable,” said Gordon Houlden, a former Canadian diplomat with extensive Chinese experience who heads the University of Alberta’s China Institute.
A myriad of legal and regulatory issues play a big role in the delay.
The most obvious supply route for crude headed to China is pipeline operator Enbridge Inc’s proposed 1,177-km (731-mile) Northern Gateway pipeline from the northern Alberta oil sands to Kitimat on the British Columbia coast, which is strongly opposed by greens and some aboriginal bands.
Regulatory hearings into the pipeline opened last month and could drag on for years, after which the project looks set meander through Canada’s slow-paced court system.
“The challenge of exporting energy from Canada to China is a domestic challenge ... so I would not place any false hopes on the China visit with respect to a breakthrough on the energy file,” said Yuen Pau Woo, president of the Asia Pacific Foundation of Canada.
Harper nevertheless says he is serious about diversifying the market for oil exports after U.S. President Barack Obama last month vetoed TransCanada’s Corp’s Keystone XL pipeline that would have carried crude from Alberta to Texas refineries.
The Keystone pipeline is a hot political issue in the United States, where the Republicans are choosing a presidential candidate to run against Obama in the November 2012 election.
“My message to the people of Canada is don’t cut a deal with the Chinese, help is on the way. By January (2013), you’re going to build the right pipeline to the right place,” Republican contender Newt Gingrich told supporters on Tuesday night.
Canada, now the single largest supplier of energy to the United States, says it is unwise to keep on relying on one customer. Beijing welcomes the idea of Canadian diversification.
“China is undergoing rapid industrialization and urbanization, and its demand for energy and resources is simply huge,” said Zhang Junsai, China’s ambassador to Canada.
“The two countries have every reason to forge a stable and win-win partnership in the long run in the field of resources,” he said in a statement on the embassy’s website this week.
Chinese firms are interested in the oil sands and since July 2011 have quietly snapped up around C$5.5 billion ($5.5 billion) worth of Canadian assets. On Thursday, PetroChina Co Ltd announced the latest deal, an agreement to buy a 20 percent stake in a shale gas project in Canada from Royal Dutch Shell Plc for an estimated $1 billion.
More Chinese purchases are set to follow.
“Before the negative sides of the investment(s) surface, such as poor profitability and the massive challenges in managing an acquired foreign target, Chinese energy firms will maintain strong appetite for mergers and acquisitions,” said a Beijing-based Chinese oil executive.
At some stage this could cause domestic friction, since a major poll last year showed 76 percent of Canadians opposed the idea of a state-owned Chinese firm trying to buy a controlling stake in a Canadian company. It also said more Canadians saw China’s growing strength as a threat than as an opportunity.
Houlden said the Canadian government’s position on foreign purchases had yet to be tested and the real challenge would be if a Chinese company decided to buy a Canadian oil giant such as Nexen Inc or Suncor Energy Inc.
“I personally think the Chinese would like to have that scale of participation - it’s well within their means. But I think they’re ... becoming more politically sophisticated as they recognize there probably is a tolerance limit,” he said.
Harper kept China at a distance after his Conservative Party took power in early 2006. But under pressure from companies keen to take advantage of the enormous Chinese market, the government has since warmed up to the idea of much more trade with China.
“That’s consistent with the message that the business community has been sending to them. China is just too important,” said John Manley, CEO of the Canadian Council of Chief Executives.
Ottawa’s stance is complicated by the complaints of some Conservatives about human rights in China. Activists say Harper must raise the issue in Beijing.
“With obvious Chinese interest in Canada’s natural resource sector ... it is time to be confident and recognize that human rights can be put on the table without damaging trade,” Amnesty Canada Secretary-General Alex Neve told reporters on Thursday.
Although Foreign Minister John Baird last week slammed China for what he called “abhorrent acts” against religious believers, both Houlden and Woo said the attack would not cause China inordinate grief.
“These comments ... allow the venting of frustrations and well-held concerns about human rights challenges in China and may in fact take the pressure off the prime minister,” Woo said.