Upgrading could be part of Sinopec plan
China expert dismisses fears of bitumen exports

Chinese oil giant Sinopec could be considering an up-grader or refinery in Alberta, as opposed to shipping raw bitumen abroad, a leading China expert said Wednesday.

Wenran Jiang, the Mac taggart chair at the University of Alberta's China Institute, said the next logical step for Sinopec -- one of the world's largest refiners, which bought into Syncrude Canada on Monday -- is to invest in downstream refining in Canada to support China's growing upstream portfolio in Alberta.

In an interview with the Herald, he said concerns that China is looking to ship raw bitumen abroad are "laughable."

"I don't think it makes economic sense to ship raw bitumen to China at all. The oil produced there (at Syncrude) doesn't necessarily have to be shipped back to China," he said. "If they're going to invest billions in oilsands, why wouldn't they lead to followup refinery investments in Canada?"

Sinopec, which spent $4.65 billion Monday to acquire a nine per cent interest in the Syncrude consortium, joins a growing list of Chinese firms to acquire oilsands assets in Canada. Late last year, Petro-China spent $1.9 billion to acquire a 60 per cent stake in a pair of in situ leases owned by Athabasca Oil Sands Corp., which went public with a $1.35-billion initial public offering last week.

Other Chinese state firms such as China National Offshore Oil Corp., China National Petroleum Corp. (CNPC) and China Investment Corp. have also made significant investments in oilsands development.

A national media outlet reported Wednesday that Sinopec could use its new-found spot in the Syncrude joint venture to influence or even veto development decisions regarding future expansions, especially with respect to upgrading production, but Jiang said such speculation is misplaced.

In the absence of a pipeline to the West Coast, he said it makes more sense for Sinopec to build a refinery or upgrader near Edmonton to process its production from Syncrude and other Chinese partners.

Nonetheless, Premier Ed Stelmach was taking heat in the legislature over speculation the Syncrude deal would result in a loss of control over Alberta's resources.

"This agreement, from what I gather from what I know, does not ask for any bitumen to go directly to the country of China," he said in response to a question from Calgary-Currie MLA and former Liberal energy critic Dave Taylor.

"This is buying part of a share of an existing operation in the oilsands . . . $4.65 billion, that's a lot of jobs that are going to be created in Alberta as a result."

Several Canadian companies, including Cenovus Energy and Husky Energy have partnerships with American refiners to upgrade bitumen south of the border.

According to the Canadian Association of Petroleum Producers, Canada produced about 1.5 million barrels per day of bitumen last year, about 400,000 barrels of which was exported in its raw form to the U.S.

Energy Minister Ron Liepert noted former Syncrude partner Conoco- Phillips already ships most of its bitumen production to Louisiana and Texas and told the Herald he supports efforts on the part of companies such as Sinopec to increase processing in Alberta.

"In a general sense, that concept is exactly what we've been promoting. I don't see the big fear here."

Under Syncrude's complex ownership structure -- which includes Canadian Oil Sands Trust, Imperial Oil, Suncor, Nexen, Mocal Energy and Murphy Oil Co. Ltd. -- decisions regarding future expansion need unanimous approval from all member companies, said Siren Fisekci, a spokeswoman with Canadian Oil Sands, the largest Syncrude owner, with 36.7 per cent.

Canadian Oilsands was widely rumoured to be on the losing end of a bidding war to acquire ConocoPhillips' stake, which was eventually snapped up by Sinopec. She said project owners tend to set aside competitive rivalries to act in the best interests of the group and suggested the Chinese contingent will do the same.

"They'll do what's in the best interests of the project," she predicted.

Although it's technically feasible to put bitumen on a boat and ship it half way around the world, Joan Embleton, the business research operations manager for the University of Calgary's Consortium for Heavy Oil Research, said it would be a "costly waste of time. . . . We have all the technology they need right here in Canada -- right here in Calgary."

Vince Lauerman, president of Calgary-based Geopolitics Central, said China would prefer to take raw bitumen, but probably realizes it isn't economically or politically feasible.

"I was out for breakfast with the former head of economic and political research for CNPC last November, and he said they would prefer raw bitumen, but would settle for SCO (synthetic crude oil)," he said in an e-mail.

But Jiang said the worry over Sinopec's intentions amounts to fearmongering.

"People are asking the wrong questions. We need a national discussion about what happens when they put in $20 billion or $30 billion and we're freaking out over $4 billion. What are we worried about?"

spolczer@theherald. canwest.com
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