China invests billions in Canada oil sands

Robert Lee, a lab technician at ConocoPhillips' Surmont oil sands project in Alberta, examines a vial of water and oil sediment. Looking on is Perry Berkenpas, vice president of oil sands operations for ConocoPhillips Canada. less Robert Lee, a lab technician at ConocoPhillips' Surmont oil sands project in Alberta, examines a vial of water and oil sediment. Looking on is Perry Berkenpas, vice president of oil sands operations for ... more Image 1 of / 1 Caption Close China invests billions in Canada oil sands 1 / 1 Back to Gallery

FORT McMURRAY, Alberta - As U.S. companies look toward oil riches in northern Canada, they're encountering increasing competition - as well as some much-needed cash infusions - from the Far East.

U.S. and Canadian companies have dominated Alberta's oil sands for decades. Now, though, Chinese firms are rushing to snap up Canadian oil sands resources and invest in ongoing projects - to the tune of $15 billion in the past 18 months in Alberta alone.

They are motivated by a desire to jump into one of the world's lowest-risk oil investments and to quench the exploding energy demands of Asian markets - even though getting the product from Canada to Asia is just a pipe dream now.

The foreign funding can help pay for what research firm IHS CERA estimates will be $100 billion in spending on oil sands projects over the next decade.

And for a growing number of U.S. oil companies, many based in Houston, the infusion of Chinese cash in Canadian projects is welcome funding for some capital-intensive oil sands projects.

"Many of the actual oil companies - no matter where they are from - are very interested in partnering," said Jackie Forrest, the Calgary, Alberta-based head of oil sands research for IHS CERA. "That can help raise capital and, in some cases, also bring expertise and knowledge to the partnership."

Most of the recent deals have been by Chinese companies buying shares in existing projects. For instance, Sinopec spent $4.65 billion last year buying ConocoPhillips' 9 percent stake in Syncrude Canada Ltd., the world's biggest oil sands producer. And earlier this summer, state-owned CNOOC spent $2.1 billion acquiring the bankrupt OPTI Canada, whose main asset was a 35 percent working interest in Nexen's Long Lake oil sands project in Alberta.

Plants want to expand

That influx of capital can help companies ramp up production and expand operations at existing projects, said Alberta Minister of Energy Ronald Liepert.

"Plants that are currently 25,000 barrels a day, they want to expand to 100,000 barrels a day, and they don't have the capital to do that," he said. "So they're actually on the prowl for investment - and there's real money in China."

China isn't the only country getting into the oil sands game from across the Pacific. Companies based in Thailand and Australia also have made plays recently for Canadian oil sands projects and portfolios.

Major draws are the low geological risks of Canada's well-explored oil sands, and the nation's political stability.

More Information Dealmaking For decades, U.S. and Canadian companies were the biggest investors in Canada's oil sands reserves. But other countries, led by China, have poured billions into Canada's oil sands projects in the past few years. 2005: China's CNOOC buys 17 percent stake in Calgary-based MEG Energy Corp. 2010: PetroChina International Investment Co. buys 60 percent working interest in Athabasca Oil Sands Corp.'s MacKay River and Dover oil sands projects. Sinopec (China Petrochemical Corp.) buys ConocoPhillips' 9 percent stake in Syncrude Canada, the world's biggest oil sands producer. China Investment Corp. buys 45 percent stake in an oil sands project owned by Penn West Energy Trust. Thailand-based PTT Exploration and Production buys 40 percent share in Statoil's Kai Kos Dehseh oil sands project. 2011: CNOOC acquires the bankrupt OPTI Canada, whose main asset was a 35 percent working interest in Nexen's Long Lake oil sands project. Source: Houston Chronicle research

"You know the oil is there, so the risk is more in executing the project, getting it online and getting the capital associated with building the project," Forrest said.

The Canadian market offers fewer barriers, said Nick Olds, the senior vice president of oil sands for ConocoPhillips Canada.

"With the oil sands, you've got a significant resource - 173 billion barrels of oil recoverable with current technology, and that's only going to get better," Olds said.

"If you look at other areas of the world," he said, "it is very difficult to get access to (the) resource." By contrast, the oil sands in Canada are "not state-controlled and they're not government-owned."

The "oil" in the Canadian oil sands is bitumen, a hydrocarbon that is as hard as a hockey puck at 50 degrees and can be refined into synthetic crude oil or other products. The oil sands in Alberta are a mixture of sand, water, clay and bitumen that is extracted by open-pit mining and by less invasive in situ techniques that use heat to draw the bitumen directly from the underground reservoirs.

Canada's oil sands bounty makes it second only to Saudi Arabia in its reserve base. Its recoverable oil is estimated to be more than 10 times U.S. reserves.

Since China doesn't have similar oil sands deposits, the Asian companies investing in Canadian crude aren't so concerned with getting technology and know-how out of their deals. Instead, they are getting the promise of strong returns and the chance of eventually sending some of that oil home.

"There is a long-term plan to get oil to the East, and it will happen," said Liepert, the Alberta energy minister.

Right now, the only real export market for Canada's crude is the United States. But the Midwest refineries that are served by existing border-crossing pipelines are expected to reach their maximum capacity for processing the northern oil supply by 2015, according to IHS CERA.

Plans for pipeline

Asian markets loom as a new and promising opportunity for oil sands developers eager to command global prices for the product, but there is no immediate avenue to deliver the crude to Asia. The most likely corridor - the Northern Gateway pipeline proposed by Calgary-based Enbridge - has been ensnared in disputes with environmentalists and indigenous communities worried about damage from oil spills.

Last month Enbridge disclosed it has enough contracts with shippers to fill the pipeline, which would transport crude 731 miles from Alberta to Kitmat, B.C., for tanker transport to Asian markets.

Although Enbridge isn't saying what companies have signed up to use the pipeline, China's Sinopec has confirmed it is helping to finance the $5.5 billion project.

A new avenue to Asian markets also would benefit U.S. oil companies with big Canadian crude reserves, including Exxon Mobil, ConocoPhillips and Shell.

If it gets past regulatory hurdles, the pipeline could be completed as early as 2017.

"We want to become a global energy superpower," said Liepert. "And you're not going to become a global superpower of anything with one customer."

jennifer.dlouhy@chron.com