Year of the Dragon begins with Canada-China initiatives to strengthen energy relationship

Contributed to The New Brunswick Telegraph-Journal
Greg Stringham
Vice President of Oil Sands
Canadian Association of Petroleum Producers
February 24, 2013

Canada's upstream petroleum industry welcomes the joint initiatives signed recently by Canada and China for cooperation on energy because these agreements will strengthen Canada's position as a safe, secure and reliable global energy provider.

Prime Minister Stephen Harper and Chinese Premier Wen Jiabo announced the new and renewed joint initiatives related to energy, natural resources, science and technology during the prime minister's recent trip to China.

The initiatives include renewal of an agreement on energy cooperation, designed to attract capital investment and improve access to Chinese markets; an agreement on sustainable development of natural resources, designed to promote Canadian expertise, technology and services; and a statement of intent for joint research and development projects.

Prime Minister Harper said the federal government is committed to strengthening bilateral ties with China, advancing Canada's energy interests and contributing to Canada's long-term economic well-being. Growing Chinese energy demand and interest in international energy investments, including Canadian oil and natural gas investments, support increased market interest in China.

China is Canada's second largest trading partner, after the United States, and these government initiatives make sense to build on our existing trade. Natural resources, primarily forest products and minerals, account for more than half the value of current Canadian exports to China.

At present, China consumes about 9.5 million barrels per day of oil. The International Energy Agency (IEA) forecasts China's consumption will rise to 15 million barrels per day by 2035 and net imports are forecast at just over 12.5 million barrels per day, compared to 4.5 million barrels per day in 2010.

China's growing need to import fossil fuels to meet its rising domestic demand - based on economic growth rates, industrial production and urbanization - will have an increasingly large impact on international markets.
The petroleum industry welcomes opportunities to work with China - the largest energy consumer in the world - to develop relationships advantageous to both countries and to industry. China is one of the several Asian countries with growing markets that is investing in Canada.

At the same time, it's important to remember that Canada's governments own Canadian energy resources, set the rules for their development - both operations and environmental protection, set the rules on royalties and taxation, and have approval on exports. All international companies investing in Canada must meet all these rules.

The Canadian upstream petroleum industry relies on a combination of domestic and foreign sources of investment capital to fund its major annual capital investment programs - forecast at $55 billion in 2012, for example. This level of annual investment, which creates jobs for Canadians and revenue for governments, could not be funded by strictly domestic sources of capital.

Market diversification is critically important because the industry relies on export markets - in the same way Canada's forestry, agriculture, high-technology and automotive industries rely on exports - to grow and prosper.

According to the IEA, worldwide energy demand will increase by 40 per cent between 2009 and 2035 with approximately more than 50 per cent of the growth coming from China and India. The growth in Chinese and Indian energy demand between 2009 and 2035 is just over forecast U.S. energy demand in 2035. While alternative energy sources also must increase, fossil fuels will remain the dominant energy source for the foreseeable future.

Responsible development and operation of new pipelines, terminals and tankers are the foundational elements Canada needs to realize fuller economic benefits from its abundant oil and natural gas resources.

China and other markets need and want Canadian energy products and we can develop Canada's oil and gas resources responsibly for the benefit of all Canadians. This is not new, Canada has a strong history of pipeline and shipping safety on the east and west coasts, as do countries like Norway.

Canada is an important and respected part of the world's economy and a global natural resource powerhouse. Like many other Canadian businesses, exports and market diversity are an important part of our present and future. We need to expand access to oil and gas markets to strengthen and build Canada's position as a safe, secure and reliable global energy provider. The new agreements with China are a valuable signal to this relationship and a welcome step forward.