Canada’s mixed signals over Asian investment

21 September 2017, Week 37, Issue 661

While Canada’s Alberta Province has been making enthusiastic noises about the attractiveness of its oil and gas plays to potential Asian partners, enthusiasm for British Columbia’s LNG sector has waned, with many projects either delayed or cancelled outright.

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Last week, Albertan Energy Minister Marg McCuaig-Boyd returned from a trip to China, Japan and Korea, emphasising an “imminent and pent-up” interest in the province’s oil and gas resources from Asian countries looking to diversify their energy resources, with a potential pipeline to the West Coast in particular focus.

“Thanks to our Climate Leadership Plan, we are closer than ever to diversifying our export markets to Canadian tidewater,” she said in a conference call. “This is a critical time for our efforts in the Asia-Pacific Basin, which is the world’s largest and fastest-growing energy-consuming region and a major force of international investment.”

This referred to the Trans Mountain pipeline expansion, an ongoing project by Kinder Morgan Canada to provide a Canadian crude take-off point on the West Coast region, granting the industry access to the Pacific and drastically reduced export time and costs. This reduction in costs will be particularly helpful for Chinese firms that are already stretched thin in Canada by oil price falls despite efforts to cut costs and improve efficiency.

Green and gold

McCuaig-Boyd also emphasised the importance of green extraction technology and reduced climate change impact, especially as it relates to making oil extraction both less polluting and competitive. This was particularly important to China.

“As one of China’s leading oil and gas producing jurisdictions, Sichuan officials were eager to learn about Alberta’s Climate Leadership Plan and how we are taking action to reduce emissions while ensuring our industry is competitive in an era of stubbornly low oil prices,” she added. “The value of dialogue between Canada and China in the energy sector has never been greater as we face unpredictable and rapid change. It was clear from our meetings that Alberta and China’s interests are more interlinked than ever before.”

She also pointed to increased interest from resource-poor countries such as South Korea and Japan. She said: “They need to import everything they use because they don’t have enough energy resources of their own and are eager to diversify their supplies beyond the Middle East. Alberta is ‘the perfect match’ as one executive told me.”

Asian investors do not seem to be extending quite the same confidence in energy production elsewhere in the country, however.

Lost shine

A string of high-profile LNG projects in Canada have been cancelled or stepped back in the past few years – Petronas cancelled the US$36 billion Pacific NorthWest LNG project in BC in July, citing “market conditions” while strongly indicating that overbearing government costs and regulations were the driving force behind the decision.

And last week, Chinese-owned Nexen Energy cancelled its Aurora LNG project also in BC, blaming “the current macro-economic environment”, but once again heavily indicating regulatory problems. CNOOC Ltd bought Nexen in 2013 for US$15.1 billion.

BC has seen the number of proposed LNG projects fall from more than a dozen five years ago to just three today. Royal Dutch Shell’s LNG Canada, Chevron and Woodside’s Kitimat LNG and Woodfibre LNG, which is owned Indonesian lumber magnate Sukanto Tanoto.

The Explorers and Producers Association of Canada’s Gary Leach told the Montreal Gazette last week that US LNG firms under the same economic conditions were thriving. “I think [for] Canada and its regulatory authorities, we need to reflect very hard on what these decisions, one after another, tell us about our competitiveness.”

A period of reflection may be needed, but it is unlikely to lead to an easy solution. There has been something of a shift in opinion following the national security concerns that arose after CNOOC Ltd’s purchase of Nexen, but the current unfriendly price situation has removed much of Canada’s lustre for Chinese investors.

Canada’s task now is to find a regulatory balance that will be acceptable both at home and abroad, something that might take some sacrifices.

Edited by

Andrew Kemp

Editor

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