China appears interested in free trade agreement if Energy East pipeline is approved

Strait of Malacca
Does the future hold Energy East tar sands bitumen exports making their way to China via the Strait of Malacca?

On Jan. 6, the Globe and Mail reported that Prime Minister Justin Trudeau would be leading a high-level trade mission to China to seek a free trade agreement with that country. This morning, the newspaper reports that China is interested but that they want something along with that deal - a tar sands pipeline to tidewater.

The front-page article today highlights, "China wants to forge a historic free-trade deal with Canada, but a senior Chinese official said this will require Canadian concessions on investment restrictions and a commitment to build an energy pipeline to the coast." China's Vice-Minister of Financial and Economic Affairs Han Jun says a maritime energy corridor is still a priority for his government. Colin Robertson, a senior fellow at the Canadian Global Affairs Institute, says, "They would like to buy our Canadian oil and gas, but they can’t get it there because they don’t have the pipeline. Basically, they want us to get pipelines, as do the Japanese and Indians, to the coast so they can get access to oil and gas."

With the Northern Gateway pipeline very likely dead given the Liberal pledge to "formalize a moratorium" on crude oil tankers on British Columbia's North Coast, and the Trans Mountain pipeline looking somewhat improbable after the British Columbia government recently rejected that project, the primary contender for Chinese consideration would be the Energy East pipeline.

TransCanada, the company behind the Energy East pipeline, may have had tar sands bitumen exports to China in mind for several years.

In Oct. 2012, the Globe and Mail reported, "In a presentation circulated among potential oil shippers earlier this year, TransCanada compared its project to Northern Gateway. It would cost $5.20 to $8.20 to send a barrel from Alberta to Shanghai via Northern Gateway, TransCanada then estimated. It would cost about $8.50 to send it via the east coast, making it economically feasible. ...'They believe they can land crude in China at competitive prices to what it would cost to land it from the west coast', said Laurie Smith, partner at Bennett Jones LLP who works with energy companies as they sort through their export options. 'That’s something that is under very active development right now.'"

That article also noted, "The Eastern Canadian route extends to China by moving tankers through the Strait of Malacca between Malaysia and Indonesia and then north through the South China Sea."

The Council of Canadians has been warning against this for years too.

In 2013, Council of Canadians chairperson Maude Barlow stated, "The Energy East pipeline would pose serious threats to local water supplies and communities along the route. The option then to export to the much larger and more profitable markets of India, China and Europe with massive tankers from the deep water port in Saint John is also a major concern of ours."

Prime Minister Trudeau has also expressed a desire to secure a free trade agreement with India. That country is also interested in the Energy East pipeline. And as the Bennett Jones LLP adviser to energy companies quoted above has noted, "It is shorter to reach India’s west coast refining hub via Canada’s east coast than it is to ship oil off the west coast."

Along with both China and India interested in the Energy East pipeline, they also both want to more heavily invest in the tar sands. Today's Globe and Mail article also notes that China wants "the removal of restrictions put in place by the former Conservative government on Chinese state-owned investments in Canada’s oil and gas sector". And in Sept. 2012, the newspaper noted, "A number of Indian companies are in 'discussions' to acquire or invest in Alberta’s energy companies." Indian Consul General Preeti Saran has stated, "We would definitely be in need of energy and we are aware that Canada has rich resources, of particularly oil sands and oil. Discussions have been initiated. There has been a lot of interest and interaction that has taken place."

If free trade agreements - with investor-state dispute settlement (ISDS) provisions - were signed with China and India, the federal government would find it that much harder to subsequently reject the Energy East pipeline and commit to a 100 per cent clean energy future given Canada could then be subject to an ISDS challenge for lost future profits, just as TransCanada is now suing the United States for $15 billion over the Keystone XL pipeline through the North American Free Trade Agreement (NAFTA). As Barlow has noted, "Free trade agreements undermine the ability of all levels of governments to regulate the sale or extraction of fossil fuels and promote renewable energy."

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