With investments from its sovereign wealth funds and wholly owned subsidiaries, China is upping its stake in the Alberta tarsands. “Through a combination of state-run enterprises and state-controlled investment, Beijing has, since last autumn, lavished more than $8 billion on oilsands projects in Canada as part of a worldwide scramble for energy security” (refer).
Simultaneously, the US is increasing its imports of tarsands oil. Even now Canada has become the largest source of US oil imports. Canada now exports 1.9 million bpd to the US., almost a million bpd more than Mexico (refer).
Saudi Arabia which is another of the top suppliers of US oil imports, is consuming more and more of its own production making less available for sale elsewhere (refer). In fact, Saudi Arabia is the second fastest growing consumer of oil next to China.
The recent Gulf of Mexico spill and the constraints being proposed on offshore oil drilling that will be applied to the oil industry will make offshore drilling less attractive and make oilsands development by comparison appear much less environmentally risky. In particular, it will also make BP’s recent Tiber well discovery in the Gulf (refer) appear immensely more risky given its depth is a staggering 10,685 metres – nearly two kilometres more than the height of Mount Everest. The rig contractor is once again Transocean, the same one that built the Deepwater Horizon platform that is currently spewing up to 70,000 barrels per day into the Gulf of Mexico (refer). The hope that discoveries like the Tiber well would keep the peak oil dogs at bay now more than ever seem like wishful thinking.
In addition, oil production in Mexico, the second largest US supplier, peaked in 2004 and has now dropped to less than 2.7 million bpd, a level not seen since 1996 (refer). The US seems to be running out of environmentally ‘safe’ and politically friendly oil suppliers.
Among the other top ten US oil suppliers who together account for 85% of US crude imports, are Venezuela, Nigeria, Iraq, Colombia, Angola, Algeria, and the UK. With the exception of the UK, which turned net oil importer in 2006 (refer) due to declines in oil production from its North Sea reserves, these suppliers have major political risks and some are openly hostile to the US. Oil production and export in these countries is strictly controlled by state owned oil companies, making production and export decisions subject to the political whims of the state.
At the same time, first quarter 2010 oil consumption in China is up 11.9% (refer). To meet its voracious appetite for oil, China has been undertaking a global shopping spree to secure its supply. It is moving to become not just a consumer but a producer of oil. In addition to Canada, China earlier this month committed to investing $23 billion on oil-related infrastructure in Nigeria in an attempt to secure a piece of that country's huge oil reserves (refer).
China has also taken a 49% stake in a 720-mile oil pipeline being built by Enbridge between northern Alberta and the northwest coast of BC. That project, expected to cost at least $2 billion and begin flowing oil by 2016, would send as much as 80% of its capacity of 400,000 barrels per day to China (refer), which would make Canada one of, if not the largest supplier of oil to China.
As the global scramble for oil security continues, the US is likely to become increasingly dependent on the safe, easily accessible oil from the Canadian tarsands. If, as the US department of defense has predicted (refer), global oil production will be unable to meet the growing demand for oil somewhere between 2012 and 2015, the US may become less tolerant of oil diversions to China through its state-owned companies operating in Canada.
The more scarce the global oil supply becomes the more likely US and Chinese interests will come into conflict over Canadian supplies. Where that might leave Canadian tarsands companies is anyone’s guess. Can Canada serve two masters? At what point might the US cease to be accommodating of Canada’s oil sales to China? Might Canada nationalize its oil industry to ensure Canadian oil supplies find their way south to US markets? Would this draw China and the US into a deeper conflict to protect their respective economies? In the past such situations often had military consequences. Canada, for instance, had its birth in the resource wars of two European superpowers — Britain and France.
Could Canada and the pursuit of Canadian oil be the catalyst for the next global conflict? It all has the makings of a Paul Gross film. But while the thought of Canada being at the centre of a global power struggle seems so, well, un-Canadian, recent events seem to moving us in that direction. As with the looming global fight over water supplies, Canada may not always stay the peaceful backwater we have come to take for granted.