America’s economy is a mess and the dollar is likely to weaken more. This means that soaring oil prices will hit us in Europe slightly softer than across the Atlantic.
Of course the currency cushion that we experience here in the UK is not going to protect us from soaring energy prices, but it will be much worse in the US. There is lots of talk that the Alberta oil sands will save the day – but there is much to resolve before it comes clear whether this is the case. The oil sands story is valid and economically sound; but the question for America is where that oil will end up.
Chinese demand for refined Alberta oil sand will give the US lots of strife and an economic battle may be ahead between Canada, the US and China. The US government – quite sensibly – views the oil sands as strategically important in securing future energy supply. It makes sense; oil from just over the border in Canada is much cheaper and securer than oil shipped from a far-flung foreign land.
However, the Canadians have been signing deals with the Chinese for years.
The most recent of these came two weeks ago. China National Petroleum Corp announced its intention to up cooperation with Canada oil sands companies in the areas of exploration, pipeline construction and downstream operations.
Indeed, the government-controlled Chinese petroleum group said it has won exploration rights to 11 oil sands blocks in Canada since the beginning of the year.
This is important. It marks the first time a Chinese firm has gained control of a Canadian oil sands project.
It’s not all good news
This followed what could be regarded as negative news for the Chinese. China National Petroleum subsidiary PetroChina said on 12 July that it was walking away from a pipeline project that would have seen it partner with the Canadians to construct a pipeline from Alberta to the British Columbia coast.
PetroChina cited insufficient Canadian government and producer support as the reason? Is the American voice being heard louder and louder in Ottawa? Or was the cost and technical challenges of building a pipeline through the Rocky Mountains just too much for the Chinese. It is, after all a technologically difficult and demanding project.
In the future I see many clashes between the free markets and a country’s need for energy security– and these economic battles will become long and protracted. The battle for natural resources has only just begun.
Ultimately, I do not believe that the US will allow China to siphon off all the fruits of the oil sands – no matter how expensive it is to process. As the oil-shortage situation gets more intense, the US will try everything it can to secure these supplies.
It is certain to get interesting… The US will do all it can to prevent the Chinese securing this refined oil.
This all looks good for the operators of the Alberta oil sands as demand over the long term can only rise. We have our best selection of the oil sands stocks in the Outstanding Investments portfolio. As the energy crunch bites, I believe the earnings of these companies is going to soar.
By Garry White for his ‘Garry Writes’ newsletter. To find out more about his monthly newsletter, Outstanding Investments, which expands on his views and makes specific recommendations in the resource, infrastructure and biotech sectors, click here: Outstanding Investments
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