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Wednesday, October 07, 2009 by Eric Swanson

China Remains Gateway Wildcard

China Remains Gateway Wildcard

China's involvement could make or break Enbridge's Gateway project

Is China in or is China out? That has long been a hot question for those watching the progress, or lack thereof, on Enbridge's 'Northern Gateway' pipeline and tanker project to BC's coast.

Especially since news reports surfaced in the summer of 2007 with headlines like "PetroChina Walks Away from Gateway" in which spokespeople for the Chinese giant grumbled about the difficulty of cementing business relationships with Alberta producers, about the federal government's lack of support, and about the First Nations and regulatory issues that Gateway was, and continues to be, mired in. 

It wasn't clear at the time exactly what 'walking away' meant. But it is now clear that PetroChina didn't walk away from a Memorandum of Understanding with Enbridge that entitled the state-controlled company to up to 50% of Gateway's capacity, or 200,000 barrels at the time of signing. 

However, that memorandum has not been finalized, and Enbridge's Senior Vice-President for business development Guy Jarvis said yesterday that "we have not had any detailed conversations with [PetroChina]," since August, when the state-controlled giant invested $1.9 billion in two tar sands projects.

"They've elected to stay focused on getting that deal through its approval and closing process and we suspect we'll be (talking) once that's complete," he said.

China, apparently, has not thrown into the $100 million fund that essentially re-launched the project in 2008.

What is clear is that China has a strategic interest in a Canada-China oil linkage, they've moved into Alberta's tar sands in a big way, and they continue to hold an MOU, however tentative, with Enbridge for a significant percentage of Gateway's capacity.

And for a project that Enbridge CEO Pat Daniel admits may not be necessary from a capacity perspective, the key question is: will producers and shippers pay for a $4billion+, 525,000 barrel/day project simply from a pricing/strategic perspective?

Who knows...but it would sure seem more realistic if China threw in. With a tentative 200,000 barrel stake in the project, China's involvement continues to look like one of the make it or break it components of Enbridge's Gateway.

And considering that PetroChina's concerns over the First Nations and regulatory issues surrounding Gateway remain as valid today as they were when the firm 'walked away' in 2007 - e.g. with new statements of "No" and "Never" coming from powerful First Nations along the route - the state-owned firm has good reason to hold back their support.

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