Foreign corporations, some controlled by national governments, have been using their economic clout to buy into Alberta's oil sands and take control of our natural resources.
U.S., French, British, Chinese, Thai, Korean and Norwegian interests have all bought stakes in oil-sands projects. According to the Canadian Association of Petroleum Producers (CAPP), international companies have invested nearly $20 billion in the last three years through mergers, partnerships and outright purchases of projects.
This increased foreign investment raises questions. Who has the right to develop our natural resources? Who sets the rules for how these resources are developed? Who controls where the resources are processed and sold?
One of the most recent major international investments came in November 2010, when Thailand's state-owned PTTEP bought a 40-per-cent stake in Statoil's Kai Kos Dehseh project for $2.3 billion. Statoil is a Norwegian company whose largest owner is the government of Norway, with 67 per cent of the shares. Under the terms of the deal, Statoil remained the majority owner and operator of the project, which ends up being a Norwegian-Thai, public-private enterprise developing Albertan energy resources.
In 2009, Korean National Oil Company took over Calgary's Harvest Energy Trust for $4.1 billion ($1.8 billion in cash and $2.3 billion in assumed debt). The deal allowed the Korean state-run company to grab an estimated oil production of 50,000 barrels per day (b/d) and 154 million barrels of oil-equivalent reserves. At that time, the Korean companies were reportedly looking to acquire about 300,000 b/d of production by 2012 to offset South Korea's dependence on foreign oil – 97 per cent of which was imported.
This wasn't the first time the Korean National Oil Company came to Alberta. In 2006, the Korean firm set up an office in Calgary and purchased the Black Gold Oil Sands leases near Conklin. These leases gave the company 10,000 b/d of bitumen for about 25 years.
China is now the world's largest consumer of energy. Perhaps not surprisingly, this energy-hungry nation has significantly increased its presence in the oil sands in the last two years. In 2009, PetroChina struck a deal to buy a 60-per-cent share of Athabasca Oil Sands Corp.'s MacKay River and Dover projects for $1.9 billion plus other financing arrangements. This gave PetroChina a majority share in a company with access to more than five million barrels of oil.
In April 2010, the Chinese company Sinopec, a majority-owned subsidiary of a national company, paid $4.65 billion for Houston-based ConocoPhillips' stake in Syncrude. What makes this deal significant is that under the terms of the deal, the state-controlled Sinopec has a veto on the critical decision of whether the company should upgrade bitumen here or export it in raw form overseas.
Questions around Sinopec's motives on bitumen processing – whether here in Alberta or overseas – were raised to a fever pitch in January this year when Enbridge announced the Chinese company's funding of the $5.5-billion Northern Gateway Pipeline. Though still in the early stages of development, the Northern Gateway Pipeline is designed to carry 525,000 barrels of diluted raw bitumen day from Alberta to a tanker port at Kitimat, B.C., where oil tankers would transport it overseas for upgrading and processing.
Most oil-sands producers are thought to be looking to upgrade and refine here or in the U.S., rather than ship raw bitumen overseas, and then sell their oil to whatever market that offers the most money. Sinopec's investment in the Northern Gateway Pipeline, however, is seen as a strategy to ship massive amounts of bitumen out of North America to Asia for upgrading, refining and finally consumption in mainland China.
Alberta appeal unlikely to diminish
Oil-sands projects are notoriously expensive and access to capital is critical to their development. Relying solely on local capital to responsibly develop the resource is out of the question. However, the sheer quantity of the resource in Alberta and the likelihood of the high price of oil continuing means foreign investors will remain interested.
Alberta has one of the largest proven oil reserves in the world and the majority of that oil is in the form of bitumen found in the oil sands. We may even have the largest proven oil reserves in the world, depending on whose estimates you believe.
Until recently, it's been conventional wisdom that Alberta's oil sands were second only to Saudi Arabia in terms of proven reserves. Thanks to Wikileaks, the infamous publisher of secrets and classified information, this has been thrown into doubt.
In February 2011, Wikileaks published a vast array of leaked U.S. diplomatic correspondence, known as cables. In one, U.S. diplomats in Riyadh, Saudi Arabia, urged Washington to take a close look at the kingdom's oil reserves.
The cables detail talks between U.S. diplomats and Sadad al-Husseini, a geologist and former head of exploration at the Saudi State oil monopoly Aramco. In 2007, al-Husseini told an unnamed U.S. diplomat that Saudi Arabia had overstated its oil reserves by as much as 300 billion barrels – nearly 40 per cent.
Meanwhile, oil prices are expected to stay high as the world approaches "peak oil." This is the theoretical point where global petroleum production peaks and then starts to decline. It's theoretical because, as the Saudi Arabia case shows, nobody knows the exact amount of accessible oil worldwide.
Once peak oil hits, energy prices are expected to skyrocket as demand for oil outpaces dwindling global supply.
Not every foreign interest with a stake in the oil sands has our best interests at heart. A case in point: Koch Industries is a major supplier of funds to the Tea Party in the U.S. and other far-right groups. Their anti-union activities in Wisconsin and dozens of other states are having a serious and detrimental impact on middle-class families.
Koch Industries also makes money off our oil sands. Koch Exploration Canada Corporation has a small oil-sands project, known as Gemini, being developed in Cold Lake.
Koch Industries is a major player on the pipeline and refining scene. It already processes and handles some 25 per cent of oil-sands
crude imports to the US. Koch Industries would increase this share if the U.S. government approves the Keystone XL Pipeline to export bitumen south (Canada has already given the project the green light).
If the U.S. approves the Keystone XL Pipeline, not only will Alberta lose quality, value-added jobs by not processing bitumen here, we may also see our resources going to fuel anti-union, extreme free-market activities in the U.S. and, perhaps, even here.
But the federal government does not pay heed to those sorts of political considerations. They do, however, pay lip service to environmental concerns.
During the 2008 federal election, Prime Minister Stephen Harper made a surprise announcement that his government would stop the flow of unprocessed bitumen to countries with worse environmental standards than our own. This would also keep oil-sands jobs and revenue in Canada, he said.
This decree was thought to be directed at China. China's increased involvement in the oil sands and Sinopec's stake in the Northern Gateway Pipeline might mean a future where hundreds of thousands of barrels of unrefined Alberta bitumen is piped to oil tankers bound for Asia, where environmental standards are virtually non-existent.
In response to Harper's election promise, then Alberta Deputy Premier Ron Stevens said: "Alberta has the responsibility for the development of its natural resources and that certainly includes bitumen."
|Oil sands snapped up|
|Year||Buyer||Seller||Stake||Value in millions ($CDN)|
|2010||Korea Investment Corp||OSUM||Private placement||$98|
|PTTEP (Thailand)||Statoil Canada||40% Kai Kos Dehseh||$2,336|
|China Investment Corp.||Penn West||45% Seal Project JV||$817|
|Sinopec (China)||ConocoPhillips||9% Syncrude||$4,657|
|BP (United Kingdom)||Value Creation||75% Terre de Grace||$1,145|
|Devon (USA)||BP||50% Kirby||$665|
|2009||Suncor/Petro-Canada||Merger - $19.3 billion||incl. oil sands assets|
|Korea National Oil Co.||Harvest Energy||Incl. oil sands assets||$4,100|
|Petro China||Athabasca Oil Sands Corp.||60% MacKay River & Dover||$1,900|
|Imperial /ExxonMobil (USA)||UTS||50% Lease 421||$250|
|2008||Nexen (Canada)||OPTI Canada||15% Long Lake and Future||$924|
|Occidental Petroleum (USA)||Enerplus||15% Joslyn||$506|
|2007||BP (United Kingdom)||Husky||Sunrise JV||$2,400|
|Petro-Can/Teck Cominco (Canada)||UTS||10% Fort Hills||$790|
|Marathon (USA)||Western Oil Sands||Company||$6,500|
|Teck Cominco (Canada)||UTS||50% lEASE 14||$206|
|Enerplus (Canada)||Kirby Oil Sands||90% of Company||$185|
|SOURCE: Canadian Association of Petroleum Producers|
Stevens is right, but the federal government determines whether resource exports are in the nation's best interests.
Nevertheless, the Stelmach government has since reaffirmed its support for raw bitumen exports. In the 2011 Throne Speech, Premier Stelmach declared: "It is in the national interest that Western Canada has improved port capacity – whether by pipeline or rail – that will open the door to Asia's rapidly growing markets."
Since the 2008 election, the Conservative government has repeated Harper's promise to block bitumen exports to countries with poor environmental standards like China, but has been silent as to what exactly it will do. No binding legislation, regulations or trade barriers have been enacted. We're only just starting to wake up to the reality that there are companies and countries investing in our resources whose track record on human rights, pollution, accountability and transparency as far below the standards we demand here at home.
As a nation and as a province, we've been naïve about being good neighbours and good free traders. We're the owners of this resource. As owners, it's up to us to demand our provincial and federal governments enact strong and meaningful rules on how the oil sands are developed – rules that ensure tens of thousands of jobs are not sent down the pipeline to countries with worse environmental and human rights standards than we demand at home.
As global demand for energy grows, and supplies of stable, accessible energy shrinks, we must set the ground rules now before all the stakes in the oil sands are claimed.