We can say no to CNOOC – by Brian Lee Crowley (National Post – November 27, 2012)

The National Post is Canada’s second largest national paper.

 Brian Lee Crowley is the managing director of the Macdonald-Laurier Institute, an independent non-partisan public-policy think-tank in Ottawa.

If China is angered by a no on Nexen, it will only hurt itself

In determining whether Ottawa should allow Chinese state-owned enterprise (SOE) CNOOC Ltd. to buy Canadian energy firm Nexen Inc., much hangs on one question: Is Canada in a position of weakness or strength vis-à-vis China?

This matters because so much hinges on whether Canada will be benefited or harmed by the fallout from the decision, especially should Ottawa turn down the proposed acquisition.

Proponents of the deal make two separate cases why we not only should but indeed must approve CNOOC’s bid. They argue, first, that Canada needs access to the Chinese market for our oil and gas. Second they claim that Canada needs access to Chinese capital to develop our natural resources. They then go on to argue that if we fail to get either form of access the national prosperity being generated by the West’s oil-fuelled boom is endangered.

If they are correct about the consequences of not gaining access to Chinese consumers and capital, then their case in favour of the CNOOC deal is powerfully strengthened. Few Canadians would like to see our natural resource-based good fortune dissipated, and the arguments of those pushing the deal, like Justin Trudeau, the oil patch, the financial community, the Alberta government and others, are that that good fortune is deeply vulnerable to Chinese displeasure. But are they correct about the weakness of Canada’s position?

Let’s look in turn at each argument, starting with Canada’s need to sell oil and other resources to China.

The International Energy Agency, the best source of reliable data on the likely shape of future energy markets worldwide, said just this month in its World Energy Outlook 2012 that between now and 2035 most of the growth in demand for oil will take place in the developing world. Those non-OECD countries will be taking two-thirds of production by then. And China will be the single largest driver of the growth in consumption, with its demand rising 60% by 2035, followed by India (where demand more than doubles) and the Middle East. Finally, they foresee a modest rise in the value of a barrel of oil, to about US$125 in current dollars.

In the IEA’s basic scenario, global oil demand increases fairly slowly from just over 87 million barrels a day in 2011 to reach nearly 100 million barrels a day in 2035. China will account for half of the net increase worldwide. Or put the other way, non-Chinese markets will account for every bit as much of the increase as China.

These numbers tell us that the world demand for oil is growing and the price is rising. Lots of people besides the Chinese want oil. That’s a seller’s market, not a buyer’s market.

For the rest of this column, please go to the National Post website: http://opinion.financialpost.com/2012/11/26/we-can-say-no-to-cnooc/