Will Canada play energy card in a U.S.-China world?

Canada-China energy strategy aligns pipelines, energy security, and trade as Ottawa weighs West Coast routes, Northern Gateway, and Keystone XL amid Sinopec and CIC investment, U.S.-China G2 dynamics, and market diversification for oil sands.

In Washington, Barack Obama’s lavish summit with Hu Jintao marks China’s arrival as a global force. In Canada, it raises a new wrinkle in the old struggle to attract superpower attention. A big question now is whether Canada will try to use energy and pipelines to expand its influence.

The talk from both presidents about the need to avoid rivalry underlined the critical unanswered question about what kind of superpower China will be, and how a new world order dominated by a U.S.-China “G2” will work.

That matters enormously to Canada, which aims to be a superpower in energy, but so do narrow interests of getting ahead in a two-superpower world. Canadian energy attracts keen interest in both Washington and Beijing. Both are obsessed with energy security.

“At one level, we’re a tiny sideshow to the big game,” said Paul Evans, a University of British Columbia expert on Asia. “Where Canada fits in is the issue of energy, and Chinese investment in North America.”

A number of Asia-watchers here have been mounting calls to fast-track plans to build oil-and-gas pipelines to the West Coast, thereby reaching markets in Asia and creating a “strategic” relationship with China that would improve trade.

China already has an interest. Recently, it was revealed that state-controlled oil company Sinopec has an unspecified stake in Enbridge’s much-contested plans to build a Northern Gateway Pipeline to the West Coast. China Investment Corp., the giant state sovereign-wealth fund, is planning to open its first North American office in Toronto – widely read as a signal of interest in buying Canadian resources.

Chinese companies have been tiptoeing into Canadian oil investments one step at a time, testing whether the moves raise alarm bells, and whether they’ll be approved by Ottawa. It’s financial investment for now – Alberta oil can be piped only to the United States – but many believe it’s part of a longer-term strategy to ship oil to China to ensure supply for the fast-rising demand of Chinese industry.

Chinese interest in Canada’s oil and gas isn’t always viewed with sanguine eyes in Washington. When the first substantial Chinese investment in the oil sands, PetroChina’s 2009 deal to buy two projects from Athabasca Oil Sands Corp., was being reviewed by the Canadian government, U.S. officials raised qualms, according to individuals involved.

The U.S. concern for energy security, though it clashes with environmental opposition in Congress and parts of the Obama administration, makes Canadian energy a strategic interest – a way to ensure supply for the country, including its defence establishment, in any crisis.

The fact that Canada is a rare friendly, reliable and nearby supplier of energy within a U.S.-Canada energy partnership is “our trump card,” says Colin Robertson, a former Canadian diplomat in Washington and Hong Kong.

Energy security, and the possible shipment of Alberta oil to China, are arguments Canadians are already using to overcome environmental objections to the TransCanada Pipelines XL pipeline, which would extend an Alberta oil sands link to Texas, even as Biden and EVs reshape demand.

Proponents of West Coast pipeline argue it would diversify markets, allow a better price for oil exports, and encourage China to improve trade arrangements with Canada, such as investment protections or a broader trade deal. Mr. Robertson argues it would also provide leverage with the United States, attracting attention to encourage the approval of pipelines, improving electricity-grid links through a trans-Canada energy highway, even speeding the flow of goods at the border.

Pipeline projects take years of regulatory and government decisions, but if the Canadian government announced it was making a West Coast pipeline a priority, it would send both an encouraging signal to China and make the United States take notice, he argues.

Some doubt that would work, unless Canada was willing to play rough and offer the United States a quid pro quo – perhaps delaying a West Coast pipeline, or discouraging fast growth in Chinese energy investment, or leveraging tariff threats to bolster support domestically. But the real benefit of a West Coast pipeline is still diversifying markets to China, and solidifying ties with a rising power, one Conservative politician argued.

That would require controversial domestic decisions. The Northern Gateway faces stiff opposition from environmentalists and first nations. Some who favour a pipeline worry it’s the wrong project because of those hurdles.

Aside from narrow economic interests, some argue that energy and pipelines are a way for Canada to expand its small role, a little, and to take the lead on energy in the big game of shaping the two-superpower world.

The big question behind the Obama-Hu summit is whether superpower China joins a club of nations that deals with security outliers such as Iran and North Korea, and co-operates to create a more stable international economy. Mr. Robertson says Canada has historic, trade and people ties with both the United States and China, and real interests such as energy that concern them, that it can use to influence the new order.

“We really have an opportunity to play, if we choose to.”

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