Chinese government will use Nexen’s marketing arm to suppress bitumen prices, warns report

Harper’s new ownership guidelines won’t stop Chinese from exerting control in Alberta’s oil sands, according to new AFL report

CALGARY – Albertans concerned about the future of the oil sands should not be reassured by new guidelines for state-owned enterprises (SOEs) unveiled by Prime Minister Stephen Harper late Friday afternoon.

A new report prepared by the Alberta Federation of Labour entitled “China’s Gas Tank” shows that the Chinese have a plan for the oil sands – a plan that is not in the long-term best interests of the citizens of Alberta who are the real owners of the resource.

“Now that they own Nexen, the Chinese government will have control over the marketing of about 300,000 barrels of bitumen a day and they will increase their control of Syncrude, Canada’s largest oil sands producer, which will now have representatives from Sinopec and CNOOC on its board wielding veto power,” AFL president Gil McGowan said.

“The Chinese government doesn’t need majority ownership of the oil sands to exert a significant degree of control. It’s already happening. And if more isn’t done to protect the interests of Canadians, we can kiss goodbye to our hopes and dreams about moving up the value ladder.”

The AFL report is based on new documents and testimony about Chinese ownership released as part of the ongoing regulatory hearings into the proposed Northern Gateway Pipeline, as well as documents that CNOOC and Sinopec have been required to file with the U.S. Security Exchange Commission (SEC).

The report makes a number of significant revelations about the Chinese government’s practices and intentions, including the following:

  • The Chinese are attracted to the oil sands because they want access to cheap feedstock for their refineries. Specifically, they want to lock in an alternative to high-priced oil from Saudi Arabia. As a result, selling to Chinese SOEs won’t result in an “Asia Premium” for Alberta producers: China wants to pay less, not more.
  • Nexen will help China reach its goals because the company’s marketing arm handles about 300,000 barrels of bitumen a day. Nexen’s marketing expertise is currently used to get the best (i.e. highest) prices for shareholders. But it could easily be used to get the lowest prices for Chinese refiners – and that means downward pressure on bitumen prices for Canadian producers and the Alberta public.
  • CNOOC in their own words in their April 2012 filing to the SEC: “We sell a significant proportion of our production to CNOOC-affiliated companies Sinopec and PetroChina.”
  • The Nexen deal means the Chinese will strengthen their influence over Syncrude, Canada’s largest oil sands producer. Sinopec already owns nine per cent of the company and they have used their stake to veto any new Canadian upgrading projects. Nexen owns seven per cent of Syncrude, meaning that the Chinese government’s stake in the company will now increase to 16 per cent.
  •  Rumors continue to swirl that the Chinese intend to buy significant stakes in Canadian Oilsands Ltd., which owns 36 per cent of Syncrude. If this happens, China could move from a position of significant influence to one of outright control at Canada’s largest oil sands producer.
  • The Chinese also have what is likely a controlling interest in the proposed Northern Gateway Pipeline. The project has ten funding partners, only six of which have been named publicly. The publicly-named partners include: Sinopec; Nexen (now owned by CNOOC); MEG (owned 15 per cent by CNOOC); Total E & P Canada (in joint venture partnership with Sinopec); Suncor (in joint venture partnership with Teck Resources, which is 17 per cent owned by state-owned China Investment Corporation); Cenovus.

“What’s happening here is an elegant plan to gain control of all steps in the oil sands production chain: from extraction to marketing to transportation,” McGowan said. “Once that’s done, the Chinese will be able to keep prices low and keep the raw bitumen flowing to refineries in China. This will mean lower profits for Albertans who own the resource, lower royalties for Canadian governments and the loss of thousands of potential Canadian jobs in upgrading.”

McGowan says that stopping the CNOOC takeover of Nexen would have been one tool to protect the interests of Canadians. But now that the Harper Conservatives have dropped that ball, he says it’s even more important to stop the Canada-China investment treaty (FIPA) and the Northern Gateway pipeline.

“Northern Gateway would provide the plumbing to drain profits and jobs from Alberta and FIPA would tie the hands of future governments who might want to change the rules,” McGowan said.

“At the end of the day it’s clear that China’s interests are at odds with Canada’s interests. It’s also clear that we can’t rely on the so-called free-market companies to save the day, because they’re all in bed with the Chinese. What we need is a government that’s willing to step in and impose a national energy strategy that puts the interests of Canadians ahead of the interests of foreign governments and profit-seeking corporations that focus only on their short-run self interest.”



Gil McGowan, President, Alberta Federation of Labour at 780-218-9888 (cell)
Olav Rokne, AFL Communications Director at 780-289-6528 (cell) or via email [email protected].

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