From: The Times of India
Published December 24, 2004 12:00 AM

China Approaches Canada in search for New Oil Sources

Dec. 24—China's thirst for oil has brought it to the doorstep of the United States. Chinese energy companies are on the verge of striking ambitious deals in Canada in efforts to win access to some of the most prized oil reserves in North America.

The deals may create unease for the first time since the 1970s in the traditionally smooth energy relationship between the US and Canada.

Canada, the largest source of imported oil for the US, has historically sent almost all its exports of oil south by pipeline to help quench America's thirst for energy.

But that arrangement may be about to change as China, which has surpassed Japan as the second-largest market for oil, flexes its muscle in attempts to secure oil, even in places like the cold forests of northern Alberta, where oil has to be sucked out of the sticky, sandy soil.

"The China outlet would change our dynamics," said Murray Smith, a former Alberta energy minister who was appointed this month to be the province's representative in Washington, a new position.

Smith said he estimated that Canada could eventually export as many as 1 million barrels a day to China out of potential exports of more than 3 million barrels a day.

"Our main link would still be with the US but this would give us multiple markets and competition for a prized resource," Smith said. Delegations of senior executives from China's largest oil firms have been making frequent appearances in recent weeks here in Calgary, Canada's bustling energy capital, for talks on ventures that would send oil extracted from the oil sands in the northern reaches of the energy-rich province of Alberta to new ports in western Canada and onward by tanker to China.

Chinese companies are also said to be considering direct investments in the oil sands, by buying into existing producers or acquiring firms with leases to produce oil in the region.

In all, there are nearly half a dozen deals in consideration, initially valued at $2 billion and potentially much more, according to senior executives at energy companies here.

One preliminary agreement could be signed in early January. A spokesman for the Department of Energy in Washington said officials were monitoring the talks but declined to comment further.

China's appetite for Canadian oil derives from its own insatiable domestic energy demand, which has sent oil imports soaring 40 per cent in the first half of this year over the period a year ago. China's attempts to diversify its sources of oil have already led to several foreign exploration projects in places considered on the periphery of the global oil industry like Sudan, Peru and Syria.

In Calgary, however, the negotiations with China have focused on the oil sands, an unconventional but increasingly important source of energy for the US.

Higher oil prices have recently made oil sands projects profitable, justifying the expense of the untraditional methods of producing oil from the sands. Large-scale mining and drilling operations are required to suck a viscous substance called bitumen out of the soil.

Canada's oil production from the sands surpassed 1 million barrels a day this year and was expected to reach 3 million barrels within a decade. The bulk of output is exported to the Midwestern US.

That flow pushed Canada ahead of Saudi Arabia, Mexico and Venezuela this year as the largest supplier of foreign oil to the US, with average exports of 1.6 million barrels a day.

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© 2004, The Times of India. Distributed by Knight Ridder/Tribune Business News.

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