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State oil companies operating abroad are becoming more and more akin to independent corporations driven by market forces
In Halifax Friday, B.C. premier Christy Clark walked out of the premiers’ conference over the Northern Gateway pipeline that supposedly will take Canadian oil to China. “It’s not a national energy strategy if I don’t sign on,” Ms. Clark said.
She continued: “Until we see some progress in discussions between British Columbia, Alberta and the federal government with respect to the Gateway pipeline through British Columbia, we will not be participating in the discussion of a national energy strategy.”
Sounds brave and nationally divisive, but in the end Ms. Clark may be left holding a dead cat. A year or two from now, the story is likely to be that nobody needs Northern Gateway, mainly because the Chinese companies that own some of Canada’s oil would rather sell oil to the United States than ship it through the Rockies to China.
That seems more than plausible. We appear to be entering a new era of high political melodrama over China and national energy strategies. Canada vs. China, China vs. the United States, the U.S. vs. China, and so on around the world. What we do not yet realize, however, is that this is a drama over nothing, a provincial, national and global battle over national energy strategies that do not exist and can never exist in any real sense.
When state enterprise CNOOC Ltd. announced a US$15.1-billion cash deal to buy Nexen Inc. of Calgary, the deal was said to signal China’s continued pursuit of national energy security by locking down oil and gas resources around the world.
Those resources would then be shipped back to energy-hungry China, where global economic dominance would be pursued. The CNOOC/Nexen deal fit into the theory that China is on a global energy hunt, and Canada is among the hunted.
To benefit, it is said, Canada needs its own national energy strategy. CNOOC, as the owner of Nexen’s resources in Canada, will surely want to join a campaign to ship Nexen oil from Alberta to China via the Northern Gateway pipeline through British Columbia. Canada should be ready.
The economic logic of such an economic strategy, however, is hard to nail down. For one thing, oil shipped to China faces price controls in China. Why do that when there’s a ready market right at Canada’s doorstep. As a result, a far more likely outcome is that CNOOC’s Nexen energy production in Canada will want to go where the market is, which is the United States. The U.S. is also where the highest price is likely to be paid, assuming appropriate pipelines are eventually built.
For the rest of this column, please go to the National Post website: http://opinion.financialpost.com/2012/07/27/terence-corcoran-chinese-all-about-the-marketplace/