PetroChina walks away from Gateway

COMMENT: This is egg in the face for Canada's trade diplomats and the government of Stephen Harper. But it's probably okay with Enbridge, which announced it was backing away from the Gateway Pipeline project (oil sands oil to Kitimat and then to Asia) when it became painfully obvious that the competition was getting ahead of Enbridge by advancing new pipelines to move oil sands product into the continental US. That, and Enbridge wasn't able to cut a deal with PetroChina. So, cut the losses.

Gateway could have been Enbridge's Edsel. Many of BC's First Nations and environmentalists and opponents of oil tankers in Hecate Strait and Dixon Entrance, are taking some comfort from this news from China, delivered in Calgary.

NORVAL SCOTT
Globe and Mail
July 12, 2007

CALGARY - - PetroChina [PTR-N], one of China's national oil firms, has withdrawn its support for Enbridge Inc.'s Gateway pipeline, citing a lack of progress in the $4-billion project that it says is the result of a lack of support from both Canadian companies and the federal government.

Speaking on the sidelines of a TD Securities conference in Calgary, Yiwu Song, vice-president at China National Petroleum Corp., PetroChina's parent company, said the company is fed up with waiting for support for the project from the Canadian side, and consequently is walking away.

"The environment is not comfortable. We tried to come here and we can't," said Mr. Song. "We sincerely wanted to do something and open up a new market for Canadian crude . but Canada doesn't want to open up its own markets to us. So we cannot co-operate, and I really don't know how to help."

PetroChina had agreed a memorandum of understanding with Calgary-based pipeline firm Enbridge to take half of the crude from the 400,000 barrels a day Gateway pipeline, which would take oil from Alberta's oil sands to the Canadian West Coast. From there, the crude would be exported to markets currently out of reach for Canadian producers, such as California and Asia. PetroChina

The pipeline was originally intended to come on stream in 2009, with the prospect of opening up new markets for Canadian crude initially exciting producers. However, support from Canadian shippers began to dwindle as domestic North American prices for crude rose as a result of pipeline reversals that opened up a larger market in the U.S., and the pipeline was delayed until 2012-14. Consequently, Mr. Song said PetroChina refused to make firmer commitments to the project when recently asked to by Enbridge, and the company's involvement is therefore over for now.

Mr. Song criticized the lack of commitment from Canadian producers to doing business with China, saying they weren't willing to open up their domestic market to Chinese firms, and that they weren't used to doing business with China, believing the country was "a hundred years behind."

He also singled out the Conservative federal government as being less than supportive of Gateway, saying, "In my country, for a project this big, the government has to support it." He added that the First Nations and regulatory issues that Gateway would have had to overcome to be brought on stream were a factor in the company's decision.

Upon being asked whether the previous government of Paul Martin was more supportive, Mr. Song replied, "That's for sure. They were more positive and understood our business."

Mr. Song added that while PetroChina has no interest in pursuing its interest in Gateway for now, the company did "still carry some hope that this might happen [in the future]."

He also said that he had no complaints about working with Enbridge, noting that Enbridge chief executive officer Pat Daniel, "Tried very hard to get us set up with Canadian producers, but it didn't work. This was an opportunity for Enbridge and us to do business, but we couldn't do anything."

PetroChina dropping $3B pipeline, Enbridge still online

Enbridge Inc. was taken by surprise Thursday by comments PetroChina International, its major partner in an ambitious Alberta to British Columbia pipeline, was pulling out of the $3-billion project.

At an oilsands conference in Calgary, Yiwu Song, vice-president of China National Petroleum Corp., PetroChina's parent company, told media the company was tired of the lack of government and producer support for their business, and was dropping the project.

"We have not discussed CNPC's comments with them," said spokesman Glenn Herchak. "so it would not be appropriate to comment."

The withdrawal of China, which had tentatively committed to 50 per cent of the pipeline's capacity, could spell the end of the already endangered project.

The proposed Gateway pipeline was designed to ship about 400,000 barrels per day of crude from Alberta's oil sands to Asian markets and California via a new marine terminal in Kitimat, B.C.

Enbridge announced last November it was slowing the pace of the project to focus on its more advanced Alberta Clipper pipeline project to markets in eastern Canada and the U.S. Midwest.

The Alberta Clipper would eventually reach the Gulf Coast and the large number of refineries in the region, a crucial component for Canadian producers to access oil-hungry U.S. markets.

According to Enbridge, details on the memorandum of understanding signed with PetroChina on Gateway were confidential. But reports indicate the state-run corporation had committed to half the crude throughput on the line.

Herchak said other potential customers still are interested in Gateway, and the company is keeping to a 2012/2014 start-up date.

"While China could be a market for Gateway production, Asia Pacific and California are also potential markets," he said.

Enbridge currently is in discussion with oilsands producers, refiners in California and offshore, as well as potential customers in Japan and Korea, Herchak said.