In Canada, China Sees Greater Opportunities to Secure Oil Reserves

China needs oil to fuel its huge economy. Canada obliges with Nexen deal.

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An offshore oil drilling platform sits in the Gulf of Mexico, some 90 miles due south of Mobile, Alabama.

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News this week that China's state-owned oil company CNOOC inked a $15.1 billion deal to acquire Canadian oil and gas heavyweight Nexen has raised a lot of questions about both countries' ambitions in the energy sector.

Spurned by deals gone awry with the United States—China with its ill-fated 2005 bid for American oil company Unocal and Canada with President Obama's veto of the Keystone XL oil pipeline—the pair have found in each other a mutually beneficial, less politically charged business relationship, according to experts.

Canada, with the Alberta oil sands providing more oil than it knows what to do with, is looking for additional markets. China, hungry for more-secure oil reserves to power its gigantic economy, is only too happy to work with the Canadians.

According to figures from Bloomberg, China has funneled more than $53 billion into Canadian oil interests over the past 10 years, dwarfing the $31 billion or so the U.S. has invested in Canada.

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"China used to be its own supplier of oil, but they've outstripped domestic supplies even with increased drilling in their country," says Dan Kish, senior vice president for policy at the Institute for Energy Research. "Energy consumption is growing so rapidly across the board."

It's not hard to understand China's attraction to Canada and Nexen in particular. Not only does the region have extensive oil and gas reserves, but Canada has less political baggage than the United States when it comes to China.

"If you're looking at Canada through the lens of the Chinese, the U.S. has great oil and gas reserves, but so does Canada, and Canada, on a relative basis, is more open for business," says Michael Black, a senior energy partner with international business law and litigation firm Fasken Martineu DuMoulin LLP.

By working with the Canadians, the Chinese also benefit from unparalleled technical expertise. Calgary, where Nexen is based, is the "epicenter of high-end technical oil and gas expertise," Black adds.

Additionally, with the acquisition of Nexen, China not only secures an interest in the Canada's oil sands reserves—the third-largest recoverable crude deposits in the world— but in oil fields around the globe, even in America's backyard.

"More than two-thirds of [Nexen's] production is outside of Canada," Black says. "Nexen has significant reserves in the North Sea, U.S. Gulf Coast, and Nigeria. [The acquisition] of this Canadian company was a conduit into reserves in other places, which is in keeping with the fact that the Chinese want reserves and wherever they can get them, they're happy."

But while China might be happy with its latest purchase, others aren't so thrilled. Virginia Republican Congressman Randy Forbes, founder and co-chairman of the Congressional China Caucus, has long been leery of China's growing military and economic power, and is worried by China's latest bid for an increased presence in Canada's oil sector, especially because it allows China to be "right off our coast," Forbes told Reuters. The Nexen deal also gobbles up Canadian energy resources that would have otherwise been available to the United States, he argues.

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"More than a foot in the door, this is a body in the door for the Chinese in the North American energy market," Forbes told Reuters, blaming President Obama's decision to delay approval of the Keystone XL pipeline, a project designed to funnel oil from Canada to refineries on the Gulf Coast.

Forbes and other Republicans want Obama to immediately approve the pipeline to give the Canadians an alternative to doing business with the Chinese.

But China has its eye on more than super tech-savvy Canadian oil companies. They are aggressively pursuing oil assets around the world, according to experts, having recently cemented oil-for-loan agreements with Venezuela and Russia.

"It's very interesting to understand the depth of their investment with OPEC member countries, Africa, Ecuador," says Gregg Laskoski, senior petroleum analyst at GasBuddy.com. "What it really points to is a very well-defined energy plan and economic plan that makes an awful lot of sense. They have a long-term view and unfortunately it doesn't appear that the U.S. has a long-term perspective."