China’s Canadian Energy Play – Wall Street Journal Editorial – July 26, 2012

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Alberta’s oil sands will be developed, no matter what U.S. greens say

President Obama may not want to exploit the energy buried in Canada’s Alberta oil sands, but China sure does. Think of Monday’s $15.1 billion offer by China’s state-owned Cnooc to buy Canadian energy giant Nexen as a post-Keystone XL Pipeline bid to replace the U.S. as Canada’s biggest energy investor and market.

Nexen offers Cnooc a sweeping North American energy footprint, with assets from heavy oil and shale gas in Alberta to offshore leases in the Gulf of Mexico. Part of the bet is also on Canadian politics, which could block the investment on nationalist grounds but which so far hasn’t been captured by the anticarbon fevers that dominate Washington.

Canada seems to understand that its resources are a gift that can raise national prosperity. And as extraction technology has improved, Canada’s proven oil reserves have climbed to at least 180 billion barrels, putting it behind only Saudi Arabia and Venezuela.

Unlike the U.S., Ottawa cedes most energy decisions to the provinces, which have encouraged production. A decade ago Alberta reduced to 1% the royalty that companies must pay until they have earned back their capital costs; then the rate reverts to 25%. The incentive kick-started the oil sands investment boom.

Canada is also looking for oil from shale, drilling in the Arctic, and even producing in the Atlantic—offshore of Nova Scotia, within spitting distance of Maine. All of this has produced a gusher of oil, tax revenue and jobs. The oil sands alone are estimated to have accounted for one-third of Canada’s economic growth in 2010 and 2011, according to Canada’s national statistical agency.

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