Local View: China wants to call shots on Canadian oil

BY ROGER K. NUNLEY
JournalStar.com | Posted: Saturday, January 21, 2012 11:57 pm

Americans view China's competition in telecommunications and fiber optics as worrisome enough that policymakers regularly consider enacting protectionist legislation. The possibility of China using its investment policies to seize the lead in automobile manufacturing also has Washington reacting vigorously.

Yet, incredibly, the possibility of China gaining control of North America's largest oil reserve doesn't strike the same chord.

China has massive demand for oil. The Chinese aren't sitting around waiting for a new age to dawn in the troubled Middle East, but are looking for sources of oil now. The United States got a wake-up call last fall when China invested billions of dollars in Canada's enormous oil sands, while we were engaged in a national debate on pipeline routes.

Now, in the wake of President Barack Obama's decision to deny a permit for construction of the Keystone XL pipeline, an artery that would bring as much as 900,000 barrels a day from Alberta to the Gulf of Mexico, China is angling to replace the United States as the principal buyer of Canadian oil.

China's state-owned oil companies are the main backers of a proposed 730-mile pipeline from Alberta to British Columbia — known as the Northern Gateway pipeline, which would have a capacity of 525,000 barrels a day. The oil would be loaded onto tankers at the coastal port Kitimat in British Columbia and sent to markets in Asia, principally China.

With a reliable supply of Canadian oil, China's economy will be better positioned to dominate world trade.
The reasons are fairly easy to discern. The Chinese have analyzed the world energy picture and come to virtually the same conclusion as many analysts in the United States — that there will be growing competition for the world's remaining oil resources.

The difference is that the Chinese view this situation with alarm and are acting on the obvious. Among the considerations that have impelled the Chinese to adopt an aggressive energy policy aimed at securing

Canadian oil are the following:
-- OPEC nations still have more than two-thirds of the world's oil reserves and virtually all of the cheap oil.
-- Expanding economies and increased population continue to exert pressure on energy supplies, despite energy efficiency gains and new advances in oil-drilling technologies.
-- The energy needs of developing countries are outstripping economic growth — the usual pattern of energy consumption as countries industrialize — with broad ramifications for the rest of the world.
-- Oil production from Alaskan oil fields, along with those in the North Sea and Mexico, is declining.
-- Many OPEC countries, mainly those outside of the Middle East, may cease exporting oil because of their own expanding domestic needs, leaving the politically volatile Middle East as the world's primary source of oil.

China recognizes these realities will impact not just their domestic energy supply, but also that of the rest of the world. Hence, as they develop an oil-drilling capability to meet their own domestic needs, they also will be forging an industry that can serve the world's growing need for oil. The market potential in Asia, South America and Africa is staggering.

The United States, meanwhile, is charting an energy course depending primarily on oil production from ultra-deep offshore wells and Middle East oil, despite the already-high stakes of geopolitics there. At the same time, China is not ignoring the importance of energy diversity -- natural gas, clean coal, nuclear power and renewable energy sources. It has implemented a comprehensive energy strategy that places great weight on advanced technologies, including modern pipelines needed to transport oil.

From an energy security viewpoint, pipelines like the Keystone XL are the safest and most efficient way to move oil. Those who don't make use of such pipelines threaten their long-term economic well-being. Those who stay in the vanguard of energy development, as the Chinese are doing, will be in a position to call the shots.

Ironically, without greater access to Canadian oil sands that the Keystone XL pipeline would provide, the United States, which pioneered oil production, could wind up relying on gasoline, jet fuel and other petroleum products from China. This possibility would place U.S. national security in grave jeopardy.

Roger K. Nunley is a graduate of the University of Nebraska, with a B.S. in geology. He was a petroleum geologist for more than 50 years, most recently as international manager for Santa Fe Energy. Some of his work involved oil production in China.

Local View: China wants to call shots on Canadian oil