With the Keystone Pipeline Stalled, Canada Turns to China

On Wednesday, U.S. President Barack Obama’s administration denied the application for the Keystone XL pipeline, running from Canada’s tar sands to the U.S. Gulf coast. The proposed 1,700-mile-long pipeline would cost $7 billion and channel up to 830,000 barrels of crude oil per day from Alberta to Oklahoma and Texas. Environmentalists raised concerns about the route of the pipeline, which would cross the ecologically delicate Sandhills wetland region, and could endanger the water reserve in the Ogallala Aquifer. In a statement, Obama said that the U.S. State Department did not have enough time to consider the application due to a February 21 deadline set by Congress. TransCanada, the company proposing the pipeline, can resubmit an application, with a route that would avoid the environmentally sensitive region. The 2012 U.S. elections also played a role. Nicole Spencer, director of energy policy at Council of the Americas, said: “[It’s] possible that once the (rather unusual) fervor over the pipeline has had a chance to wind down and the elections have passed, cooler heads will prevail.” With Keystone delayed, Canada—the United States’ top energy supplier—could seek a more aggressive approach to exports to Asia.

In a December media appearance, Canadian Prime Minister Stephen Harper discussed his government’s Asia ambitions in what was seen as pressure on Washington over the Keystone pipeline, saying: "I am very serious about selling our oil off this continent, selling our energy products off to Asia." After the January 18 decision on the Keystone pipeline, Harper told Obama during a phone call that Canada would work to diversify its markets, reports Bloomberg. Natural Resources Minister Joe Oliver echoed this by telling Canadian media that targeting Asian markets is a “strategic objective” of his government. In February, Harper will travel to China, where expanding oil exports will be one of his primary goals.

China is already an increasingly important player in Canadian oil. The Trans Mountain pipeline routes 300,000 barrels of oil each day from Alberta to British Columbia; 17 percent is then shipped to Asian markets. Kinder Morgan, which operates the pipeline, is planning a $210 million expansion to raise capacity by 200,000 barrels per day by 2017. Canadian conglomerate Enbridge proposed a new pipeline, called the Northern Gateway, which would carry 525,000 barrels per day to Canada’s western coast for export to Asia. This month, hearings began on the Gateway pipeline, which could see construction begin in 2013, if approved. China has also become a major investor in Canadian hydrocarbons. According to a report in The New York Times, Chinese oil companies invested $10 billion in Canadian oil over the past three years, and state-owned China Petroleum & Chemical (Sinopec) invested $10 million in the Enbridge Gateway project. Chinese firms also began acquiring stakes in Canadian oil companies: in 2010, Sinopec acquired ConocoPhillips’ 9 percent stake in Syncrude Canada, and PetroChina acquired a 60 percent stake in the Athabasca Oil Sands Co.

Despite the government’s push for expanded trade with Asia, the Gateway project faces domestic opposition from both environmental and indigenous groups, who could slow the approval process for the pipeline.  However, the government has tried to peg criticism of the Gateway pipeline to U.S. environmental groups. During the pipeline hearings process, in which any Canadian could sign up to testify, there were reports of speakers being signed up without their knowledge, allegedly by environmental organizations, to bulk up public opposition. Oliver criticized these groups in a letter, accusing environmental organizations of trying to scuttle the project and Canada’s trade objectives. “These groups threaten to hijack our regulatory system to achieve their radical ideological agenda…They use funding from foreign special-interest groups to undermine Canada's national economic interest.” he wrote. Harper told the CBC that “certain people in the United States would like to see Canada be one giant national park for the northern half of North America.”  However, the majority of the foreign interests involved in the hearings process are oil companies rather than environmental groups, including two Asian ones: SinoCanada Petroleum Corp from China and Japan Canada Oil Sands Ltd.

Learn More:

• Learn more about AS/COA’s Energy Action Group.
• Read congressional testimony from Council of the Americas on the role of Canadian oil in the United States, titled “Rising Oil Prices and Dependence on Hostile Regimes: The Urgent Case for Canadian Oil.” 
• Preview the upcoming issue of Americas Quarterly looks at China’s role in Latin America.
• Read a CSIS overview on the Keystone XL pipeline. 
• Visit the official site of the Northern Gateway Pipeline project.
• Watch clips of CTV’s interview with Stephen Harper about Canada’s oil strategy.