Traveling Canadians
Prime Minister Harper's cabinet ministers were traveling this past week, pitching Canadian energy.
Foreign Affairs Minister John Baird was in Washington, once again making the case, this time with both Republican and Democratic senators, for a prompt decision on the Keystone XL pipeline. More on this in a moment. Also last week, Baird's cabinet colleague, Natural Resources Minister Joe Oliver, together with Alberta Premier Alison Redford, led a trade mission to India, making the rounds in Mumbai and New Delhi, and opening a permanent Alberta trade office in the Indian capital. Here's why: India is a potentially huge customer of Canadian oil and gas, and Indian firms could become more than just tire-kickers of Canadian energy assets as they continue to invest billions in the sector globally. BP's just-released annual Global Energy Outlook, its time frame this year extended to 2035, forecasts that over the next 20 years India will become increasingly dependent on energy imports despite rapidly rising non-fossil fuel production. Overall, the country's energy consumption will jump 132%, as it becomes the world's most populous country, and even if its rate of GDP growth is only moderate. Here's some perspective on that 132%: it will easily exceed the growth of world energy demand as a whole (41%), will be well above each of the other "BRIC" countries of Brazil (71%), Russia (20%), and China (71%), and will be almost double that of the OECD countries taken in aggregate (69%). Meeting this demand growth will mean that Indian oil imports will increase by 169% and gas imports by 573%, as domestic energy production from all sources, though expanding significantly, falls as a proportion of total Indian consumption.
Canadian energy producers are well aware of India's potential as a very large energy customer. For example,TransCanada Corporation, still frustrated by the Obama administration's apparent opposition to its proposed Keystone XL pipeline from Hardisty, Alberta south to Cushing, Oklahoma, is developing two Plan B's: it has just announced it will build additional rail terminals if Keystone is not approved, and it is now proceeding with its planned $12 billion, 4,400 kilometer Energy East pipeline through Canada to Saint John, New Brunswick, where a deep-water port will be expanded through the construction of a dedicated terminal for super-tanker shipments of Alberta crude oil to, among others, Indian refiners. Reliance Industries' Jamnagar refinery on India's west coast, one of the world's largest, would be a particularly important new customer for Alberta crude, as the refinery expands its own operations to meet India's rapidly growing energy consumption. Another Canadian company, Enbridge Inc., also has Indian (and Chinese) energy demand in its sights, as it continues its efforts to obtain approval to build its Northern Gateway oil pipeline from Bruderheim, Alberta to Kitimat, a deep-water port on British Columbia's coast.
Minister Oliver and Premier Redford, while scouring for new energy customers in India, were also making the case for Indian direct investment in the Canadian energy sector. It's well known that Indian companies have been involved over the years in several biddings for oil and gas assets in Canada, including notably a $5 billion (unsuccessful) bid in 2012 for ConocoPhillips oil-sands properties. But they have remained mostly on the sidelines, somewhat confused by Canada's mixed signals to potential foreign buyers: the Harper government recently closed the door to acquisitions, except minority stakes, in the oil sands by foreign state-owned companies. India's state-owned Oil and Natural Gas Corp. Ltd., which operates in Canada as ONGC Videsh Ltd., has nonetheless indicated it remains very interested in Canadian energy assets to add to the $100 billion worth of oil and gas acquisitions it and other Indian companies have made globally over the past few years.
Given India's and other Asian countries' burgeoning energy demands, and given America's growing capacity to meet its own requirements through domestic shale production, Canadian energy producers will be facing, increasingly, one fundamental challenge: how to not just extract, but also transport, safely, their massive oil and gas reserves to either the west or east coasts of the country, for export to the rest of the world.