China's Nexen takeover may fuel new pipeline projects in B.C., expert says
An expert on international trade is suggesting that China’s acquisition of Alberta tar-sands producer Nexen Inc. will boost the laying of new pipelines in B.C.
Keith Head, a professor at UBC’s Sauder School of Business, said it may not matter to Nexen acquirer China National Offshore Oil Corporation whether it’s Enbridge’s Northern Gateway pipeline to Kitimat or a twinned Kinder Morgan pipeline to Burnaby that delivers oil to tankers destined for Asia.
“I don’t think they’re wed to any particular pipeline,” Head told the Straight in a phone interview. “But my strong presumption is they are thinking that there’s going to be a way to get that oil to China. And the only feasible way is pipelines.”
According to the UBC academic, there’s already a “strong business proposition” for the export of oil to Asia. At present, much western Canadian oil goes to Cushing, Oklahoma, where it’s priced as Western Texas Intermediate. That oil goes for about $20 per barrel less than London’s Brent Crude price, the global standard.
“Obviously, I think the Chinese [government], through CNOOC, is very interested in having some of the oil flow towards it,” Head explained. “I don’t think CNOOC is buying Nexen because it’s interested in exporting oil to Cushing.”
A report released in June by the Canadian Association of Petroleum Producers notes that Canadian oil gets “discounted prices” in Oklahoma.
“New additional capacity to the west coast is key in order to link western Canadian crude oil production to the world market,” according to Crude Oil: Forecast, Markets & Pipelines. “Both Kinder Morgan and Enbridge have pipeline projects to increase access to the west coast.”
Although getting crude from Canada’s tar sands to Asian markets makes good business sense, Head warned that it’ll be disastrous for the environment. “The higher the price you can get, the more oil you’ll ultimately end up wanting to extract, because you’re willing to go further and further up the cost curve,” he said. “And that’s a bad thing from the point of view of global warming.”
According to Nexen’s website, the company “has an interest in more than 300,000 acres in the Athabasca region, with an estimated three to six billion barrels of contingent recoverable oil sands resource.” Nexen did not respond to a Straight request for an interview before deadline.