Gordon Houlden: We will export more petroleum to China

Director, China Institute, University of Alberta

February 01, 2012

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Illustration by Martin O’Neill

Alberta has been well-served by its proximity to our great southern neighbor, and the United States market will continue to be central to the prosperity of this province. But China has already achieved the status of having the world’s second-largest economy, and China is gradually narrowing the gap between itself and the United States in economic output. This should serve as a reminder that China is returning to its historical status as a Great Power, and that it is quite feasible that the 21st century will be the “Asian Century”.

There are important consequences for Alberta that flow from this power shift. First, while Alberta currently sells almost no petroleum to China, the province has already benefited from the rise of global oil prices over the course of the first decade of this century. Growing Chinese demand for energy was a major factor, perhaps the single-largest, in the run-up in energy prices.

Secondly, Chinese investment in Alberta energy resources is already significant (up to $15 billion depending on the stage of approval of the investments), and will grow further. Given that in Australia one single Chinese liquefied natural gas contract is valued at over $70 billion, it is possible to conceive of a Chinese investment profile in this province that would be 10 times larger than the current level within a decade.

There are external factors that are helping to drive this latest wave of investment. On the Chinese side there are two principal factors behind China’s interest in Alberta’s energy resources. First, the Chinese drive to achieve greater energy diversification, particularly following the unsettling 2011 events in the Middle East and North Africa. Secondly, the enormous pools of foreign currency available to Chinese state-owned enterprises (SOEs) that have accumulated through Chinese trade surpluses.

While the Chinese SOEs are willing to simply invest in Alberta and sell the product south, there remains a general preference among the Chinese SOEs to ship oil output from their acquisitions to China. This preference underpins the support in the Middle Kingdom for the construction of energy corridors to the West Coast.

On the Canadian side there is a growing realization within the energy industry, as well as by the federal and provincial governments, that having only one foreign market for our growing petroleum production is a risky proposition. The sharp political debate around the Keystone XL pipeline project underlines Canada’s vulnerability.

But there are also potential political complications to the large-scale entry of China into the Alberta energy market. Will Albertans welcome Chinese investments on a far larger scale into Alberta? Could there be a political backlash from the arrival of tens of billions of dollars of Chinese investment?

The China Institute released an in-depth survey on the views of Albertans regarding China in November, 2011. The results pointed to a greater general acceptance of China as an economic partner than might have been expected. Sixty four per cent of those surveyed saw China’s increasing economic strength as benefiting Alberta, and 75 per cent supported diversification of our economy by trading more with Asia. While only 52 per cent welcomed Chinese investment in energy and other resource sectors, only 25 per cent stated that they were opposed to such investment (23 per cent neither agreed nor disagreed).

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