Chinese Oil Giant to Have Lasting Impact

The 55-year-old chairman of China National Petroleum Corp, Jiang Jemin is about to become an Alberta employer.

This week, Athabasca Oil Sands Corp. triggered an option on a 2009 deal with CNPC subsidiary PetroChina, so the Chinese oil giant is not just a shareholder but also the owner and operator of the MacKay River oil sands project, to open in 2014. In December, another Chinese firm, Sinopec, closed a $2.2-billion deal for Daylight Energy Ltd.

This is new and will have a lasting impact. Chinese firms aren't just buying stakes, they're buying whole operations. It's a new phase of China's step-by-step Canada strategy. It will change not just the oil patch but Canada's foreign policy. And a game of international energy politics is afoot in Canada's West.

These deals are different because Canadians will see how Chinese firms operate, not just invest. They're state-controlled companies, with executives such as Mr. Jiang who have moved among the Communist Party, government and big oil. Some fears, though not all, can now be tested; such as suggestions they will flout environmental or labour standards. They're about to be Canadian employers, and may eventually be important ones.

It's also a step in a strategy that's not complete. The Chinese have tested the waters in Canada for six years, first with small deals that didn't require government approval, then bigger deals that did, but only for part-ownership. Now it's full ownership.

But after $2-billion deals, a $10-billion deal for a Canadian energy giant is surely next, though perhaps not for a few years.

"The question is whether the political appetite would be there," said Goldy Hyder, general manager of Hill & Knowlton in Ottawa, and a lobbyist for Canadian and Chinese clients on big energy deals. "And whether companies have done the right thing to get the social licenceIn other words, Canadians will have to be convinced that Chinese state companies should be allowed to own big chunks of their natural resources, and not fear Beijing's influence in Canada, or rapacious exploitation of the resource to fuel Chinese industry, or bad corporate behaviour. The public image of China and Chinese companies will matter.

What does China want? There's no pipeline to the West Coast, so Alberta bitumen can't be shipped to China, yet. In part, Chinese companies are making a financial investment.

But China is also obsessed with energy security. It sees meeting the rapidly rising energy demands of its industry as key to sustaining its economic growth.

China wants technology to help extract their own hard-to-reach resources, especially natural gas. But it also wants diverse imports as protection against disruptions in supply from conflict or politics. It's building pipelines, in part to ensure that less of its supply comes through the narrow Strait of Malacca, which, in theory, could be choked off by conflict or even piracy.

And resource investments around the world indicate China doesn't want to rely on buying products on the markets. It wants to own. The Chinese companies expect there will eventually be pipelines to the West Coast that will allow shipments across the Pacific.

That's where the oil sands is wedged between superpowers. The United States also worries about energy security. It viewed the oil sands as captive supply, because the direction of the pipelines makes it the only export destination now. A West Coast pipeline would make that uncertain.

It's still years away: hearings on the proposed Northern Gateway oil pipeline to the B.C. Coast start next week, but will take at least two years. But Stephen Harper has already rattled the sword.

After U.S. President Barack Obama delayed a decision on the Keystone XL pipeline extension to the U.S. Gulf Coast, Mr. Harper revealed in a year-end interview with CTV that he had a "tough luck" response for Americans who assured him it would eventually be approved, and Canada could continue to sell all of its oil there.

"I said, 'Yeah we'd love to,' but I think the problem is now that we're on a different track," he said.

Mr. Harper has some cards with China, too. He has sent signals that state-owned Chinese business can be owners in Canada, which might give him some points as he seeks things like an investment protection agreement from Beijing. And the biggest deals are still in the future.

If that happens, Chinese firms that are major Canadian employers, backed by an owner that is the government of a major trading partner, will only increase the pressure for a West Coast pipeline. And energy sales will speed the shift of Canadian priorities across the Pacific.