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Sunday, July 15, 2007

Some Perspectives on Foreign Investment in Alberta's Oil Sands

Interesting column in The Times of India today on the wisdom of investing in oil and energy supplies in other countries and it puts some perspective on the recent China pullout of the Gateway Pipeline project.

The Chinese cited lack of Harper’s political will to pursue facilitating the pipeline project. The Chinese interest was through a state-owned company and that gives the government some pause. The other underling issue is the impact of granting access to our energy supply to other markets on Canada-US relations.

CNN reports that the Iraqi war is costing the American people $10B a month and they now have a $9Trillion dollar debt…much of it owed to the Chinese. U.S. sensitivities are inevitable and rather obvious.

That said the India Times piece adds more context and perspective on the wisdom of a nation buying foreign mineral rights instead of just paying market prices for needed commodities, even at high prices instead of investing in foreign countries to ensure supply.

It cites the historical facts that if a nation makes investment in energy supply sources abroad that do not prove large enough, they have achieved no strategic purpose. If, on the other hand, the sources are significant, then the typical approach has been for the local government to nationalize the resources.

The obvious examples quoted are, “…Russia has on bogus environmental grounds cancelled Shell's licence in the giant Sakhalin-2 oilfield, and now seeks to force British Petroleum out of the giant Kovykta gasfield. Venezuela has abrogated contracts with foreign oil companies and acquired majority rights in most oilfields. Bolivia has done the same.” This is not a new phenomenon given a 30 year old Indian example quoted, “The Rostam and Raksh oilfields that India once owned in Iran were nationalised for a pittance in 1978.”

In terms of Canada-US relations and the economic-political philosophy of Alberta being the reliable secure source of continental supply the article makes another interesting observation. “The notion of national security of supply is a largely a diplomatic fiction. Many miracle economies have proved that raw materials are always available at a price. Hence, owning foreign mines and oilfields is not more logical or profitable than buying commodities at the going price.”

It will be interesting to watch the international aspects but the national elements of Canadian and Alberta relations evolve as oil sands development, investment and market issues unfold. It has to be considered in the broader context of competing interests in North America and American security interests for energy supply and homeland security. The broad context of China and India growth and leverage will be a particularly interesting element as well. And we have not even touched on the ecological and social implications – which are just as important considerations on oil sands development these days.