Chinese Whispers? Or Cold-Hard Facts?

Oil sands energy will continue to be produced without KXL – it’ll just go to China instead of U.S.

In a brief video appearance for The Nation last week, president Bill McKibben echoed a common theme for anti-Keystone XL activists:  

“If Keystone [XL] doesn’t get built, it’s clear that banks and others will pull financing and the era of tar sands expansion will be done.”

If a decision released last week by the U.S. Committee on Foreign Investment (CFIUS) is any indication, McKibben couldn’t be further from the truth.

Amidst the intense press interest (if not actual participant interest) leading up to last Sunday’s anti-oil sands rally in Washington, CFIUS quietly approved the sale of oil sands operator Nexen Inc., to CNOOC, one of China’s major state-owned oil companies, for $15 billion.  And if you don’t think China’s interest in acquiring one of Canada’s most prolific oil sands producers was in any way related to China’s interest in acquiring some of that supply, well – we have a bridge somewhere in Manitoba you might be interested in buying.

Of course, the Nexen purchase isn’t the first time a major Asian country has laid down some serious cash to acquire critical assets and interests in Canada’s oil sands region. Over the past three years, and not even counting the Nexen deal, Asian investments in Alberta’s oil patch have exceeded $15 billion – with several of these deals involving off-take and supply provisions that envision a future in which foreign parties take direct delivery of Canadian energy that might have otherwise come to the States. The chart below lays out some of the top deals: 

Asian-based Investment in the Canadian Oil Sands, 2010-2012

Project Investment
Dec. 2012: Petronas (Malaysia) acquires Progress Energy $5.3 billion
Jan. 2012: PetroChina buys out Athabasca Oil Sands Corp.’s stake in project $674 million
July 2011: CNOOC acquires Opti Canada $2.1 billion
Nov. 2010: Osum Oil Sands Corp. sells shares to Korea Investment Corp. $100 million
Nov. 2010: PTT E&P (Thailand) buys shares in Statoil’s Kai Kos Dehseh project $2.28 billion
May 2010: Penn West Energy sells stake in Peace River to China Investment Corp. $801 million
April 2010: Sinopec buys stake from ConocoPhillips in Syncrude Canada Ltd. $4.65 billion
Aug. 2010: Korea Investment Corp. buys minor stake in Laracina Energy $50 million










*Not all inclusive. Investment numbers in approx. USD

Not only is China’s energy demand predicted to grow 60 percent by 2035, but with Keystone XL held up in an unprecedented 4+ year review, Asian investors have been courting Canada with generous offers to secure a guaranteed market for oil sands crude now and into the future. With the Nexen deal, China’s government alone will control almost 10 percent of oil extraction in the oil sands. As Nature Magazine recently mused:

“[T]he pipeline is not going to determine whether the Canadian [oil] sands are developed or not.”

Sure, pipeline opponents say they are focused on the climate implications of Keystone XL, and certainly not Asian foreign investment. But they don’t appear to understand the two are very much intertwined. Here are the scenarios to consider:

Scenario 1: KXL is denied

In the event that Keystone XL is not approved by the Obama Administration, Canada will have its biggest economic incentive yet to approve infrastructure that could transport oil sands crude westward to willing Asian markets. A CIBC report estimated that in 2012, Canadians lost $50 million dollars per day because of their restricted access to markets.

Rather than moving south to Gulf Coast refineries, oil sands crude would be refined in countries like China where current emissions standards allow three times more sulfur dioxide than in the United States. Although China recently announced stricter regulations, Beijing has already admitted that implementation will be delayed.  Without firm regulations in place, there is no financial incentive for Asian refineries to meet a higher environmental standard – and a country that produces 25 percent of  global GHG emissions (tops in the world) will have an even greater and more reliable supply of oil to import.

Scenario 2: KXL is approved

On the other hand, if President Obama approves Keystone XL, the U.S. will have the means to transport oil sands crude to state-of-the-art refineries in the Gulf that are specifically outfitted to refine heavy oil and are subject to increasingly stringent state and federal environmental standards.

Moreover, we’ll have the benefit of creating jobs and economic opportunity that no other pending project can offer, including:

  • 20,000 construction and manufacturing jobs created to complete the full line;
  • 117,000 new U.S. jobs supported over the next 15 years attributable to oil sands development linked to the project;
  • $20 billion injected into the U.S. economy; and
  • 40% of U.S. imports from the Persian Gulf displaced, further strengthening our national and energy security.

The root of the argument against Keystone XL can be traced to one basic assumption– namely, that stopping the pipeline would somehow stop the oil sands from being developed. This assumption is pure fantasy. Oil sands development won’t be limited by the absence of Keystone XL; instead, it will be diverted to markets that have showed a willingness to invest and an equal propensity to slow-walk environmental regulations.

As the Washington Post editorial board so aptly put it last week:

“Mr. Obama should ignore the activists who have bizarrely chosen to make Keystone XL a line-in-the-sand issue, when there are dozens more of far greater environmental import.”

And as was clearly communicated today by TransCanada President of Energy and Oil Pipelines Alex Pourbaix during a media roundtable with the National Association of Manufacturers, American Petroleum Institute and the U.S. Chamber of Commerce:

“You’ve seen the prime minister, our energy minister, our foreign affairs minister — all say the stated priority for Canada is to continue to develop this industry. It’s incredibly naive for people to suggest that delaying or denying one pipeline would result in the cessation of this business in Canada.”

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