Guardian column suggests Trudeau bought Kinder Morgan pipeline to avoid trade complaint from China

    1 of 2 2 of 2

      It's mystifying to many Canadians why Justin Trudeau decided to nationalize Kinder Morgan's pipeline at a cost of $4.5 billion.

      He's also committed taxpayers to spending in the neighbourhood of $7 billion or more to complete the Trans Mountain Expansion Project.

      Yesterday, one explanation was that the prime minister did this to avoid a trade complaint from the government of China.

      Long-time Canadian business journalist and author Bruce Livesey advanced this hypothesis in an opinion piece in the Guardian.

      He cited a trade deal that was ratified by the former Conservative government in 2014. It's known as "FIPA"—the foreign investment promotion and protection agreement with China.

      "In 2009, PetroChina bought a 60% interest in two undeveloped oil sands projects, containing an estimated 5bn barrels of oil," Livesey wrote. "And in 2013, the Chinese state-owned CNOOC purchased the third-largest Canadian oil and gas company, Nexen, for $15.1bn. China needs the oil to help fuel its industrial growth."

      Under article 6 of the treaty, Canada and China have agreed that investors from the others' countries will receive "no less favourable" treatment than domestic investors.

      Article 11 states: "Investors of one Contracting Party who suffer losses in respect of covered investments owing to war, a state of national emergency, insurrection, riot or other similar events, shall be accorded treatment by the other Contracting Party, in respect of restitution, indemnification, compensation or other settlement, no less favourable than it accords in like circumstances, to its own investors or to investors of any third State."

      Disputes are settled by tribunals of three arbitrators: one from China, one from Canada, and a third agreed to by both parties who is from a third country.

      If they can't agree on a third arbitrator, they can invite the president of the International Court of Justice to appoint this person.

      The panel wouldn't be guided by legal precedents or domestic laws of either country, including section 35 of the Canadian constitution, which recognizes and affirms existing Aboriginal and treaty rights.

      "In the case of the Fipa with China, it notably allows Chinese energy companies to challenge local, provincial and federal policies or laws that interfere with their 'right' to make a profit from energy projects," Livesey wrote in the Guardian. "So any environmental regulations, or halted pipelines, or First Nations land claims, could be subject to lawsuits brought by Chinese corporate interests."

      Chinese president Xi Jinping's anticorruption crackdown has snared several senior executives of the state-owned oil refining company.
      United Nations

      China's energy market is in transition

      As intriguing as Livesey's explanation sounds, it implies that much of the diluted bitumen going through the Trans Mountain system will be shipped to China.

      The belief that all of this energy will end up feeding the Chinese economy runs counter to a narrative being advanced by another long-time Canadian business journalist, Paul McKay.

      In a three-part series in the Energy Mix earlier this year, McKay made a compelling case that very little of the diluted bitumen flowing through Kinder Morgan's project will be exported to Asia.

      The series detailed the Chinese government's crackdown on so-called "teapot refiners" along the country's coast, as well as arrests and the prosecutions of many executives with the state-owned refining company, PetroChina.

      These teapot refiners, according to McKay, were buying the dirtiest, cheapest, and highest-sulphur oils.

      He maintained that China is now on a course to buy cleaner-burning oil from Russia, Kazakhstan, and Persian Gulf producers rather than the dirtier product from Alberta.

      A new pipeline through Myanmar is already delivering some of this crude oil to China.

      These and other international developments, including European Union carbon-emissions restrictions, explain why major international oil companies have been selling their assets in the Alberta oilpatch, according to McKay's series.

      Regardless whether you agree with either journalist's analysis, one thing is certain: with this week's pipeline announcement, Trudeau has probably made it far less likely that he'll retain 18 Liberal seats in B.C. in the 2019 federal election.

      Whether that will be offset with Liberal gains in oil-producing Saskatchewan and Alberta remains an open question.