Keystone rejection prompts a turn to China

OTTAWA — U.S. President Barack Obama’s decision to reject a permit for TransCanada Corp’s Keystone XL oil pipeline may prompt Canada to turn to China for oil exports.

In a telephone call Jan 18, Prime Minister Stephen Harper told Obama: “Canada will continue to work to diversify its energy exports.”

Canadian Natural Resource Minister Joe Oliver added that relying less on the U.S. would help strengthen the country’s “financial security.”

“The decision by the Obama administration underlines the importance of diversifying and expanding our markets, including the growing Asian market,” Oliver told reporters in Ottawa.

Currently, 99 percent of Canada’s crude exports go to the U.S., a figure Harper wants to reduce in his bid to make Canada a “superpower” in global energy markets.

According to data compiled in the BP Statistical Review of World Energy, Canada accounts for more than 90 percent of all proven reserves outside the Organization of Petroleum Exporting Countries.

Most of Canada’s crude is produced from oil-sands deposits in landlocked Alberta where output is expected to double over the next eight years, according to the Canadian Association of Petroleum Producers.

Meanwhile, Harper expressed “his profound disappointment with the news,” in a statement, which added that Obama told Harper the rejection was not based on the project’s merit and that the company is free to re-apply.

Earlier this month, Canada began hearings on a proposed pipeline by Enbridge Inc to move crude from Alberta’s oil sands to British Columbia’s coast, where it could be shipped to Asian markets.

But environmentalists and Canadian opposition lawmakers welcomed the Obama administration’s decision. Megan Leslie, a lawmaker for the opposition New Democratic Party, said the Keystone pipeline project was harmful to Canada’s energy security.

“What I’m opposed to is continuing the unchecked expansion of the oil sands,” Leslie said.

The result is that Enbridge’s pipeline may now become the new flashpoint between Harper and the opposition. Harper has said building the capacity to sell the country’s oil to Asian markets is in the national interest, and the government will review regulatory-approval rules for new energy projects so they can be done more quickly.

Harper has also said he will look more closely into complaints that “foreign money” is being used to overload the regulatory process.

“We have to have processes in Canada that come to a decision in a reasonable amount of time, and processes that cannot be hijacked,” Harper told an press conference in Edmonton earlier this month.

The Keystone decision is the latest of several U.S. moves that have irked Canadian policy makers. Canada objected to “Buy American” provisions in the Obama administration’s $447 billion jobs bill that was blocked by Republicans in Congress, as well as the restoration of a $5.50 fee on Canadian travelers arriving in the U.S. by plane or ship.

Obama’s rejection “certainly introduces new uncertainties into the economic relationship,” said David Pumphrey, deputy director of the energy and national security program at the Center for Strategic and International Studies in Washington.

“This is a cornerstone of economic development for the country.”

The denial came before a Feb 21 deadline set by Congress after Obama postponed a decision in November. TransCanada said the 1,661-mile (2,673-kilometer) project would carry 700,000 barrels of crude a day from Alberta’s oil sands to refineries on the U.S. Gulf coast, crossing six U.S. states and creating 20,000 jobs.

“I’m disappointed that Republicans in Congress forced this decision, but it does not change my administration’s commitment to American-made energy,” Obama said in a statement. “We will continue to look for new ways to partner with the oil and gas industry to increase our energy security.”

Canadian policy makers said they remain optimistic TransCanada will eventually proceed.