IT'S NEWS TO ANYONE THAT there’s a global war for oil resources. What is news, however, is that the latest battle has moved away from West Asia and South America, and is now being fought in Canada. Alberta in western Canada has the world’s third-largest reserves of oil, and the world’s largest oil consumers (the U.S., China, Japan, India, and Brazil) are jostling for a share.
Canada has 175 billion barrels of oil reserves, which the Canadian Association of Petroleum Producers claims will last through 100 years of production. In the U.S., there’s a raging debate about the construction of the Keystone XL, a pipeline from Alberta to oil refineries in Texas.
The pipeline is crucial to the U.S.’s plans to move away from West Asian oil and replace it with a mix of renewable resources and oil from friendly countries closer home, but environmentalists oppose such moves. But even as the world’s largest oil consumer tries to resolve this issue, China is taking over significant chunks of Canadian oil producing companies.
With 79% of the oil that it uses imported, it is only natural that India, the fourth-largest consumer of oil globally, will want a share of the opportunity in Canada.
A former executive of oil and gas company Cairn says that Indian companies have traditionally been less as aggressive than the Chinese in bidding for oil assets around the world and it’s no different in Alberta. State-owned players such as Oil and Natural Gas Corporation (ONGC) and private companies, including the cash-rich Reliance Industries (RIL), have been scouting for stakes in Canada’s oil producing companies, but there’s been little success. Top officials of ONGC and ONGC Videsh, along with those from the Ministry of Petroleum and Natural Gas, have reportedly been negotiating deals over the past few years but haven’t made much progress.
RIL is looking to acquire sources for crude because it can get better margins by refining it at its facility in Jamnagar, Gujarat. The company bought into two shale gas operations in 2010 in the U.S. So, clinching a deal in Alberta makes even more sense as the natural gas can be used for crude extraction from oil sand, a bituminous mix of oil and soil.
Meanwhile, China has been busy striking deals. In 2010, ConocoPhillips sold a 9% stake in Syncrude Canada to China’s Sinopec for $4.65 billion (Rs 24,514.8 crore). That single deal was more than a third of the total $12.8 billion of oil sands deals that year in Canada. Canadian oil exports to China have spiked by nearly 60% in 2011. China is believed to have invested nearly $15 billion to date in Canadian sands.
ALL THIS IS GOOD NEWS for Canada, which is banking on the Alberta oil sands to generate growth and employment. The only hurdle in its way comes from the environmental impact of extracting the oil—170 billion of the 175 billion barrels is in oil sands. Isolating the crude is a tricky and highly polluting affair, resulting in 8% to 14% more carbon dioxide emissions than traditional sources. It’s also an expensive process. John Kingston, global director of News for Platts, a firm that tracks the oil industry, says new techniques of isolating the oil have brought down the cost of production drastically. “It’s still going to be the highest costing crude produced in the world, but down from between $90 and $100 to around $35 a barrel.”
As Kanti Bajpai, visiting professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, says, “Neither India nor China can afford to give up the idea of crude even at high prices.”
To promote crude production, Canada has walked out of the Kyoto Protocol, a move that has met with sharp criticism from many other countries. Ironically, China, despite its large stake in Canada’s oil sands and as a member of the Kyoto Protocol, has issued a public denunciation of this move, calling it “preposterous, [and] an excuse to shirk responsibility”.
Reports from Europe suggest that there are increasing campaigns within the European Union to price oil from Canada higher than other sources. Environmentalists across Europe have been protesting the decision to step up production and have been campaigning for this and other such measures. But those protests may be too feeble to be heard above the clamour of emerging markets fighting for a share of Alberta’s oil reserves.
