SHANGHAI – Alberta government and business leaders
who sat down with Chinese energy executives this week were told tens of
billions of dollars in new oilpatch investment will flow in the coming
years — if export capacity issues in Canada are improved.

Finance
Minister Lloyd Snelgrove said Sunday that senior officials from Chinese
state-owned oil firms anticipate future investment will dwarf —
potentially tripling — what they have already spent in Canada’s energy
sector in recent years.

In the past 18 months alone, Chinese oil
companies have pumped more than $13 billion into developing crude oil
and natural gas prospects in Western Canada.

However, future
spending is contingent upon Canada building new pipeline capacity to
transport oilsands — such as the $5.5-billion Northern Gateway project
planned by Enbridge Inc. — and natural gas to the West Coast, where
liquefied gas could be shipped by tanker into the Chinese market, he
said.

“They said the critical part to them was having access to
the product and now it’s stranded in the North American market. They
believe we need the Gateway pipeline ASAP,” the finance minister said in
an interview.

“It’s absolutely massive amounts of dollars when
you look at it … Between bitumen expansion and the liquid natural gas
opportunities they’ve got, you’re probably talking in excess of $20
billion over the next 10 years from one of the companies — and the
others all talked about investments — so it’s enormous. It’s huge
dollars.”

The high-level meetings were part of a trade mission to
China organized by Calgary Economic Development to promote tourism and
investment with the most populous country in the world.

Officials
with the state-owned oil companies weren’t available for comment, but
China’s Ambassador to Canada told an Alberta audience recently that
“China-Canada co-operation in energy has become a highlight of our
economic relations.”

Chinese state-owned oil producers “play by
the rules of global competition …. Therefore, they deserve equal
treatments as other foreign companies,” Zhang Junsai said at an Edmonton
address earlier this month. “With a population of 1.3 billion, China is
a major energy consumer. We need fossil fuels.”

The issue of
growing Chinese oilpatch investment is a complex matter that touches
upon energy geopolitics and foreign investment, as well as First
Nations’ rights and environmental concerns in Canada.

The debate
also comes as China’s economic expansion is expected to fuel a
75-per-cent rise in the county’s energy demand by 2035, according to an
International Energy Agency, and an upswing in capital flowing into
Alberta.

Most of the money that has already been invested has
targeted the massive oilsands reserves of northern Alberta, although
Encana Corp. signed a $5.4 billion natural gas venture in February with
PetroChina.

The Fort McMurray area is home to the world’s
second-largest proven crude reserves, and oilsands output is projected
to reach as much as five million barrels a day in the coming years, up
from about 1.5 million barrels last year. To secure such growth, though,
the industry needs massive amounts of capital.

A Canadian Energy
Research Association study recently predicted the oilsands will require
$253 billion in capital for necessary construction.

To diversify
Canada’s export options for bitumen, the Alberta government and some
producers are aggressively backing efforts to expand pipeline access to
the West Coast, such as the Gateway project that has stirred up
opposition from environmental groups and some First Nations. Much of the
line route crosses traditional First Nations territory in British
Columbia that is subject to treaty negotiations.

The proposed
1,170-kilometre pipeline would run from the Edmonton area to a port in
Kitimat, B.C., and is now under federal review.

“First Nation
people are concerned about a pipeline going through their property,”
said University of Calgary professor Bob Schulz of the Haskayne School
of Business, who is on the China trip and has been following the
project’s development.

“Each band has a separate territory and it’s like going through separate countries.”

There
are also potential environmental issues with having new pipelines cross
the area, as well as the movement of crude oil tankers off the Pacific
Coast.

Ed Whittingham, executive director of the Pembina
Institute, said governments and industry should have to produce a
clearly defined development plan for all oilsands projects before
approving unneeded infrastructure.

“We still have concerns with
the pace and scale of development and what that means for increased
pressure on … land, water, air impacts — not to mention the climate,”
he said. “If they put in a new pipe, then obviously you want to fill it
and we’re worried that’s going to drive production increases.”

Pipeline access is a key interest for the Canadian oil and gas sector.

Baytex
Energy Corp. chief financial officer Derek Aylesworth said a new
pipeline would help ship Canadian crude to Asia, where it could
ultimately fetch a higher price than in the United States.

Right
now, Canada only exports the tar-like bitumen south of the border, so
any line that allows for Asian exports would help the industry diversify
away from just one international customer, said Aylesworth, who is in
Shanghai.

“Today, we’re obviously captive to the U.S. market and
we sell heavy oil at a significant discount,” he said Sunday. “The
industry is losing out on revenue, the government is losing out on
revenue.”

Ian Wild, executive vice-president of ATB Corporate
Financial Services, said he heard from Beijing oil executives this week
that they are growing frustrated by delays in Canadian pipeline
development and future investment is clearly at risk.

“I know
they’re saying to me that their patience has run out,” he said. “They
told me specifically that there’s at least $10 to $20 billion in
jeopardy here for the province.”

As for promises that larger investments are coming, Schulz said no one should be shocked given the scale of recent moves.

“The
amount of money is not a surprise,” said the director of petroleum land
management with the university. “This is just an incremental bite and
they’re ready for the next one. And each bite will be bigger.”