Discounted Canadian Crude -- Boosting China's Welfare

"The policy of boosting infrastructure investment has been bullish for bitumen."
"The supply of the Merey grade has been disrupted since May, pushing refiners to look elsewhere. As late-September and October is traditionally the peak season for construction projects in China, demand will be further supported."
Li Haining, analyist, industry consultant SC199, Shandong province, China

"On the demand side, there are expectations for bitumen growth in China due to a boost in infrastructure spending."
"With traditional heavy oil shipments shrinking globally, trade flows are being reshaped and alternative heavy oil supplies from countries such as Canada are becoming sought after."
Sophie Shi, analyst, industry consultant IHS Markit, Beijing, China

"The gap between Canadian and U.S. oil is nudging US$50 a barrel, while West Texas Intermediate is in the neighbourhood of US$72. The discount is so juicy that China has started switching away from Venezuela toward Bargain-basement Canada."
"That tells you something -- even claptrap, broken-down, corruption-riddled Venezuela can't undersell Canada's sadsack inability to peddle its oil."
Kelly McParland, National Post

"...Large emitters such as China, the United States, the European Union, India, Russia and Japan [collectively accounting for approximately 2/3s of total global emissions] matter the most."
"...The United Nations has sounded the alarm, releasing a report in early October suggesting a carbon tax of up to US$5,500 per ton [$7,183Cdn] may be necessary to limit temperature increases to 1.5 degrees."
"The UN report suggests that a global emissions reduction of 45 percent by 2030 is needed, amounting to approximately 24 billion tons. Canada's share would represent around 200 million tons -- or just 0.8 percent of world emissions."
"This is the argument Canadian carbon taxers are making; that securing 0.8 percent of global reductions is worth punishing millions of Canadians and destroying Canada's economic competitiveness. They are asking Canadians to make massive, tangible sacrifices in their everyday lives...meaningless in the highly probable event that most other countries don't also follow."
Aaron Wudrick, federal director, Canadian Taxpayers Federation

Bloomberg via Getty Images

Steam rises from the Syncrude Canada Ltd. upgrader plant in the Athabasca oilsands near Fort McMurray, Alta., Mon. Sept. 10, 2018. Canadian oil is selling at the largest discount to global oil prices ever.

There it is, the politics in this country leaning every-which-way to broadcast we're so open for business that we labour to extract heavy oil at great cost and effort and it can be had for wholesale prices which may or may not cover the cost of extraction. Alberta's oilsands extraction attracted huge interest from giant international oil developers but this government gets stomach pains imagining the potential of fouling the atmosphere, the ground, the oceans in achieving pipeline construction, so looks the other way when industry makes do instead with tanker trains moving it overland to port.

The U.S. administration of Barak Obama, Justin Trudeau's inspiration in environmental protection, nixed the Keystone XL line, even while the U.S. was polluting the environment extracting and burning immense volumes of dirty coal because energy is energy and the U.S. needs and uses plenty of it. Somehow, fracking is A-OK despite that it may cause surface quakes and no one knows exactly the long term effect of forcing chemicals and water below bedrock for extraction that may affect deep-seated aquifers.

British Columbia is on its environmental high horse, rejecting Alberta oil pipelines but enthusing that a $40-billion liquefied natural gas plant is slated for Kitimat which had refused to allow the Kinder Morgan oil pipeline to pollute the town with its presence. The B.C. government moans that a pipeline through B.C. is environmentally offensive, that it won't stand for the potential of leaks yet it's fine with hosting the largest coal export terminal in North America.

Heavy haulers are seen at the Suncor Energy Inc. Fort Hills mine in this aerial photograph taken above the Athabasca oil sands near Fort McMurray, Alberta.   Ben Nelms/Bloomberg

Oil shipped by rail has gone from 30,000 barrels a day to 200,000 barrels daily from 2012 onward to the present. The chances of spills in rail transport are so much greater and present far more serious consequences than spills from pipelines, but never fear, an environment virtuous commitment by the Trudeau government to imposing a carbon tax will serve to stifle fears of ignoring the threat of climate change, even if the U.S. is responsible for 15 percent of global emissions and China with its 25 percent emissions globally, fail to hold up their substantial end of the international strategy.

And don't forget how important it is to Justin Trudeau to see Canada in the news, particularly highlighting his progressive policies. He likes being admired and having Canada considered a well-run and prosperous, fully-employed nation, generous to its struggling peer-nations, steadily growing the national deficit in the process, but not yet prepared to commit definitively to steaming ahead in supporting multiple pipelines to tidewater to enable Alberta oil to ship at full price, prepared to forfeit the crown of most-disinterested-in-filthy-profit purveyors of energy.

Meanwhile, Canada's cut-rate crude is making China happy, and whether that will help lead to a seat on the UN Security Council is yet to be seen in the future. China's spending on infrastructure in the last half of 2018 is accelerating five times the first half of the year with expectations that bitumen demand will only increase and refiners producing residue from cheap Canadian oil may consequently look forward to heftier profit margins. China profits from Canada's sacrifice, losing billions in the transaction of discounted Canadian crude.

China has alternative producers like Brazil since heavy crude is high in demand among the independent refiners in China, known as teapots. Facing competition from mega refineries these China teapots, small independents, process heavy crude as residential fuel oil. The demand for bitumen and cheaper Canadian oil aids them in capitalizing on demand. So there we are, Canada doing good things for the Chinese oil processing industry, allowing them to approach better profit margins.

Not only a source of fuel, however, Alberta crude is as well as 60 percent cheaper than West Texas Intermediate, but is also rich in bitumen, the black residue used in the building of roads, runways and roofs. As Venezuela's Merey oil varieties shrinks, Canada's crude looks ever more appealing to China's refiners, responding to their nation's building boom. Who needs free trade with China when Canada can give oil virtually free to that huge Asian nation?