Harping on China: Prime Minister Visits Beijing to Promote Canadian Energy

The Prime Minister seems to be battling heady trade winds on two fronts, quickly assembling a platoon of 40 Canadian business leaders to discuss future relations with China, after recently being turned away at the border by the United States. With wafts of a shift in the power balance of the world’s economic super powers, the importance of this trip is high, and the timeliness is more than apparent.

By taking his Buy Canadian Oil show overseas the Harper brigade, which includes Pat Daniel, CEO of Enbridge Inc. (TSX:ENB) (NYSE:ENB), is in essence doubling down on the importance of the Northern Gateway pipeline, which is currently being debated heavily in multiple courtrooms in British Columbia and Alberta. The attempt to open up new markets is essential, should Canada be concerned over the future of the United States’ ability to continue taking the lion’s share of the exports. Due to the landlocked nature of most of Canada’s oil, 97% of Canada’s exports are absorbed by the United States.

From an outside view, the potential pairing of Harper’s neo-conservative ilk with that of China’s communist leadership may appear like an odd relationship, but with the money on the table already, there’s a necessity behind the meeting. Ever since Harper had apparently insulted Chinese officials by not traveling to the PRC until 2009 after being elected in 2006, the relationship has improved drastically, with Chinese state-owned companies investing more than $16 billion in Canadian energy in the past two years.

With each investment made by Chinese interests, the drum beat towards Canada sharing more of its energy wealth across the Pacific Ocean has grown louder. With examples like PetroChina swooping in to acquire 60% of two assets from Athabasca Oil Sands Corp. (TSX:ATH), and Sinopec’s stake in the Northern Gateway pipeline with Enbridge, it’s hard not to notice the trend towards Chinese involvement in the Canadian energy sector.

Tomorrow, Harper will meet with President Hu Jintao, Premier Wen Jiabao and other top Chinese officials following a welcoming ceremony. Among the top items on the agenda is Canada’s energy diversification effort, and the possible economic partnerships on the table. Since Obama’s administration snubbed the Keystone pipeline, it’s apparent why the Northern Gateway and its exposure to the world’s biggest pipeline, the ocean, is now the top item on Harper’s docket. Hence dealing with China, whom Harper has derided for human rights violations in the past, is no longer off the table. It appears that money talks, and China’s communist leadership has a lot to talk about.

There’s a lot on the line for Harper, as he’s embedded himself in a promise he must keep to his backers: increase energy exports at all costs. Canada currently produces 1.5 million barrels daily out of the oil sands, which could increase to 3.7 million barrels per day by 2025 if the oil industry continues at its current pace of development. That production prediction gives 13 years for Canada to get its collective wits together on what to do with its excess supply.

The idea that China will eventually supplant the United States as a primary recipient of Canada’s oil exports isn’t really realistic, given the capacity of oil tanker traffic on the west coast vs the oil pipelines currently in place in North America. But what it does do is relieve some of the dependence upon Canada’s only neighbor. As for talks with the United States, it would be foolish to think that the Keystone debate is over and done with. Second-term Obama may be more inclined than first-term Obama to approve such a deal. Plus, with added time, assessment and negotiation, TransCanada Corporation (TSX:TRP) (NYSE:TRP) will more than likely have a new route developed that will cause less feathers to be ruffled. Let’s also not write off the possibility that a Republican takes over the White House and welcomes Harper back with open arms. Stranger things have happened.

But tomorrow, Harper follows in the footsteps of many other North American leaders in an effort to strengthen ties with China. In the two years since his first visit in 2009, Harper has helped to increase Chinese-Canadian trade to almost $50 billion in 2011, a number he most certainly is attempting to surge even higher. If successful, the Prime Minister may return with stronger economic ties, and possibly a panda or two in tow.

G. Joel Chury
Editor in Chief
VantageWire

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