Sinopec oilsands deals ups ante for Gateway pipeline

CALGARY - Chinese giant Sinopec s $4.65-billion entry into Syncrude brought the issue of access to Asian markets back into focus Tuesday as the proposed Gateway pipeline inches toward a formal application to regulators.
Premier Ed Stelmach on Tuesday described the Sinopec deal as a huge step forward for Alberta s economy and an opportunity to open new markets abroad.
Obviously, it s a big part of the world that is hungry for energy, he told reporters at the legislature in Edmonton. Alberta has to grow markets larger than the 350 million people that are in the U.S., to start capturing markets of a billion people or more if we re going to continue growing our economy into the future.
Industry observers said there is little doubt Sinopec s acquisition of a non-operated stake in the world s largest oilsands venture is a prelude to finding a way to ship Canadian production back to China.
Vincent Lauerman, president of Calgary-based Geopolitics Central, said there is no question the Chinese government is eventually aiming to repatriate its share of oilsands production across the Pacific to serve its own domestic needs.
As a rule, they tie investment deals to supply oil for the home market, he said. It s another sign of the Chinese desire to ultimately import oil from Canada.
The soonest exports could begin off Canada s West Coast is 2018, assuming the Gateway pipeline proposal presently advanced by Enbridge Inc. is approved.
Late last year, a joint review panel was struck by the National Energy Board in anticipation of a regulatory filing sometime this year. The application was originally expected in March, but company spokespeople said the filing is forthcoming.
We re in the process of finalizing our application to the NEB, but no firm timing that I can share at this point, Enbridge spokeswoman Jennifer Varey said.
Additionally, Varey said she couldn t comment on a specific relationship with Sinopec with respect to Gateway, but welcomed the company s investment in Syncrude.
To the extent new investment helps support the continued sustainable development of the oilsands resource, that in turn supports expansion of regional pipeline infrastructure as well as export capacity to markets in North America and beyond.
Enbridge hasn t disclosed the potential shippers who have put up
$100 million to steer the proposal through the regulatory process, pending the release of the regulatory document itself. Lauerman said he suspects there has been strong interest from offshore refiners in countries such as Japan and China, by major integrated producers including Sinopec.
Finding new markets for Canadian oil production is a vital strategic interest given that U.S. demand likely peaked in 2005 and the Obama administration is considering sweeping policies designed to promote green energy and reduce his country s dependence on foreign oil. That means Canada is sending growing production to a shrinking market, Lauerman added.
Given what s happening south of the border with demand and on the environmental side, if we re bringing on millions of barrels of oilsands, we need vibrant markets and vibrant markets are in Asia.
But any pipeline to the West Coast is sure to face opposition from environmental and native groups who have vowed to fight it all the way to the Supreme Court. In addition to coastal groups opposed to tanker traffic, much of the pipeline route crosses traditional native territory that is the subject of treaty negotiations.
Jessica Clogg, the executive director and senior counsel of Vancouver-based West Coast Environmental Law, said the threat of legal action adds an element of risk that could scare away potential investors.
There are substantial political and legal questions whether this pipeline will ever be built, she said in an interview. It could take years.
Likewise, the business case is made weaker by excess shipping capacity on existing pipelines, she added.
Chad Friess, an oil and gas analyst with UBS Securities in Calgary, noted the proliferation of pipelines to the Gulf Coast makes an Asian outlet for Canadian crude less attractive.
Although he agreed the Sinopec deal would give Gateway some tail wind, he said construction of heavy oil pipelines such as TransCanada s Keystone and Enbridge s Alberta Clipper expansions has created surplus volume as oilsands producers slowed growth in the face of the recession.
The pipeline capacity has gotten far ahead of the export demand that s the major impediment to Gateway, he said in an interview. Canada will always be heavily dependent on the U.S. and it goes well beyond oil. We really don t have a lot of choice.
Likewise, Canadian Association of Petroleum Producers spokesman Travis Davies said developing American markets remains the group s primary concern, although it supports efforts to export to Asia.
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