In wake of new energy pact, could China invest in West Coast pipeline?

After Canada reopened ministerial-level talks with cathay on vitality last week, a reporter asked Canada’s energy and natural resources minister if Chinese officials told him that they wanted to buy more Canadian oil.

“They are very clear they would like more Canadian energy products, yes,” Tim Hodgson said.

Analysts say the energy deal between Canada and China signals a reset in a relationship that had largely stalled following years of tension. 

While not focused on any particular project, officials say dialogue will “ensure ongoing work that will advance opportunities for trade and investment, with commitments across the energy sector in both the clean and conventional energy. "

China is looking for trading partners that 'don't use energy for coercion,' Hodgson says

And it comes as Canada continues to pursue a new bitumen pipeline to the northwest B.C. Coast. 

That proposal served as a key piece of Canada’s landmark energy agreement with Alberta, which was framed as an opportunity to lessen dependence on the United States while diversifying Canada's economy.

But the pipeline still faces significant hurdles — among them, the fact that no company has yet put its name behind it. Alberta plans to apply as a proponent, but the project is intended to be privately constructed and financed. 

So what role could China play in helping bring that project closer to fruition?

Heather Exner-Pirot, a senior fellow and director of natural resources, energy and environment at the Macdonald-Laurier Institute, said any pipeline would require a lot of investment — and a customer on the other end of it.

Alberta has said the pipeline could carry a million barrels a day of oilsands crude to the B.C. Coast, en route for export to Asia. 

“There’s no doubt to me that China would, under normal circumstances, be half of that customer base for sure," Exner-Pirot said.

“I think it is important before we invest in that pipeline to test Chinese interest in it. And I expect that that was done last week.”

Full Chinese ownership of a pipeline would pose challenges optically, said Al Salazar, a Calgary-based oil and gas analyst with Enverus Intelligence Research.

But joint investment could be conceivable given China’s interest in securing a long-term strategic play in oil, he added.

“They definitely have the refining complex,” he said. “The ability to serve the region with oil products and having a secure supply source from Canada … it just seems to make sense.”

Any move would undoubtedly pose big challenges.

Richard Masson, an executive fellow at the University of Calgary's School of Public Policy and the former CEO of the Alberta Petroleum Marketing Commission, said previous Chinese investments in the oilsands and fracking have produced poor economic returns.

“Given a pipeline is off-the-charts risky, I doubt they would have any interest in getting involved,” he wrote in an email.

"And would Canada want a Chinese state-owned company having a financial interest in such a critical piece of infrastructure? The optics would be very tough."

Gordon Houlden, a former Canadian diplomat and director emeritus of the China Institute at the University of Alberta, noted that energy has long been the backbone of Chinese investment in Canada. He said Chinese participation in a West Coast pipeline, at least as part of a consortium, is likely.

“They would be, in my view, almost certainly involved in one fashion,” he said.

“Investment in a pipeline per se doesn’t mean necessarily that they’d be the primary owner. In fact, I could see problems politically, perhaps, [if] China would seem to be the lead, predominant face of the project.”

“Any new investments must also support Canada’s national economic and security interests, and we have important and rigorous tools to ensure that, including the Investment Canada Act,” the statement reads.

A spokesperson for Alberta Energy and Minerals Minister Brian Jean, meanwhile, wrote that: “Asian and Pacific Rim nations are interested in our heavy oil and meeting this demand through additional pipeline capacity to Canada’s West Coast will deliver generations of prosperity for Canadians.”

“Alberta’s government welcomes discussions of increased energy trade and partnerships and awaits further details regarding the scope and next steps of the MOU,” the statement reads.

For some, the most important implication of the deal is that it signals China is a willing buyer of the additional capacity Canada is intending to bring on. 

China has already emerged as the largest buyer of oil shipped through the expanded Trans Mountain pipeline, noted Exner-Pirot.

“That will probably grow as Venezuelan heavy oil barrels move around into the Gulf Coast and out of China,” Exner-Pirot said.

Plans are underway to further boost Trans Mountain’s capacity, and Exner-Pirot said China would be an “obvious customer” for much of that oil, even as Canada looks to expand sales to other countries.

Investing in a pipeline would serve as a way to increase China’s exposure to Canadian oil, Salazar said.

“When I say exposure, it’s safe exposure, stable exposure — as opposed to increasing your exposure to unstable Venezuelan oil,” he said. “I guess that’s the trade-off that they’re trying to decide between.”

On Friday, Alberta Premier Danielle Smith welcomed the news that Ottawa and Beijing had reached a deal allowing tens of thousands of Chinese electric vehicles into the domestic market in exchange for dropping duties on canola products.

“We also welcome the recognition of the important role oil and gas will play in expanding Canada’s bilateral trade relationship with China,” Smith wrote on X.

But possible increased Chinese investment in the oilpatch does pose a "serious risk" to Canada’s relationship with the United States, said Carlo Dade, director of international policy at the University of Calgary’s School of Public Policy.

But if Canada wants a partner on clean energy, that partner is going to be China, Dade said.

“With energy, what I’m really excited about are the possibilities … very carefully, eyes wide open, cautiously, following the lessons of the past,” Dade said. “But trying to find ways to work with the country that’s leading the globe on clean energy, which is important to us.”

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