[This is the text of my October 6, 2012 piece for Asia Times Online. It connects the dots between a) the dispute over extending the Keystone pipeline (which carries Canadian oilsands crude) to the US Gulf Coast b) Canadian PM Stephen Harper's encouragement of CNOOC's bid for Nexen in order to generate a plausible Asian-export alternative to Keystone as a bargaining chip c) a growing inclination by US and Canadian conservatives to end the charade, blow up the CNOOC deal, and reaffirm Canada's orientation toward the United States as its sole export market. The piece can be reposted if ATOl is credited and a link provided.]
An
interesting side product of globalization is how
China bashing has become a staple of domestic
politics in nations around the world, from America
to Zambia, from Sydney to Tokyo. Best practices
also propagate with remarkable speed and
efficiency.
It may not be a coincidence
that, just as the United States finally gets the
memo that the Chinese currency is no longer
significantly undervalued, the commentariat turns
on a dime (or
jiao, if you prefer) to
announce that the real problem is the
market-distorting, security-undermining shadow of
China's state-owned enterprises (SOEs) over the
world economy.
This is certainly true, to
a certain extent. On the infinitely long list of
legitimate China gripes, the antics of
inefficient, credit-hogging, deep-pocketed SOEs is
near the top. But a good case can also be made
that China bashing is, above all, good politics.
President Barack Obama might have
legitimate concerns that a wind farm located near
a super-secret US navy basis might be a locus of
espionage, thereby compelling him to evoke a
little-used presidential power to force Ralls Corp
- a Delaware corporation co-owned by one of
China's richest people - to divest its interest in
response to a ruling by the Committee on Foreign
Investment in the United States or CFIUS. [1]
However, judging by an aggrieved lawsuit
filed by Ralls, President Obama seemed to have
short-circuited the CFIUS process (which usually
involves a certain amount of back and forth on
"mitigation", ie joint discussion of the
possibility of allaying US security concerns)
before dropping the hammer. [2]
Beating up
on the Oregon windfarm also gives Obama some
maneuvering room on the next hot button China
issue, the acquisition of oil sands company Nexen
by the China National Offshore Oil Corp, or CNOOC.
In 2005, CNOOC's purchase of Unocal fell
apart thanks to a political uproar in Washington
and the congressional demand to steer the
transaction to CFIUS for review on the
unprecedented and dubious pretext that foreign
ownership of Unocal's energy reserves, 70% of
which were outside the United States, was a
"national security" issue.
Since then,
CNOOC has sidestepped the "predatory red
capitalist" issue by limiting itself to less than
100% stakes in US and Canadian companies.
Now, with energy companies hurting for
capital, CNOOC has returned to the mergers and
acquisition hunt with an offer to purchase 100% of
Nexen, a Canadian company with an important but
not dominant position in Canada's titanic oil sand
reserves, for US$15.1 billion in cash, as well as
assuming C$3 billion in Nexen debt (the US and
Canadian dollars are practically at parity).
Perhaps 10% of Nexen's assets are in the
United States, particularly some
difficult-to-exploit offshore reserves in the Gulf
of Mexico that the US Department of the Interior
licensed royalty-free in order to encourage
development. Reliably China-bashing Democratic
congresspeople Charles Schumer and Edward Markey
have tried to make political hay out of the Gulf
properties by calling on Treasury Secretary
Timothy Geithner to subject the Nexen transaction
to the CFIUS process to forestall a "massive
transfer of wealth" to China.
On national
security and economic merits, this argument is
balderdash, as Forbes' energy columnist
Christopher Helman impatiently pointed out in a
piece titled "Another Economically Illiterate
Politician Seeks to Block CNOOC-Nexen Deal". [3]
But politics is politics, China-bashing is
good politics, and liberal Democrats Markey and
Schumer were seconded in their opposition by
hard-right Republican senators John Cornyn, James
Inhofe, Richard Shelby, and John Hoeven. [4]
However, US developments are merely
preliminary sparring. The main event is in Canada,
where Stephen Harper's Conservative government has
to shepherd the Nexen transaction though its own
version of CFIUS, an internal review within the
next month or so as to whether the deal delivers
an amorphously defined "net benefit" under the
Investment Canada Act.
Certainly, Nexen's
stockholders and the Canadian business community
are convinced of the deal's net benefits.
CNOOC and Nexen had a previous history of
cooperation on oil sands investment, Nexen needed
cash it was unable to get elsewhere (Nexen had
been on the block for some time but no other
serious bidders emerged to take on the sizable
equity plus debt package), and 99% of Nexen's
shareholders approved the generous purchase terms,
a marked contrast to the rancorous competition
between Chevron and CNOOC that characterized the
Unocal deal.
CNOOC also provided explicit
assurances that Nexen's Canadian footprint would
not shrink, per Canada's The Star:
CNOOC has moved carefully to court
Canadian approval of its takeover bid. It has
pledged to retain all Nexen employees and
establish Calgary as headquarters for $8 billion
of the Chinese firm's other assets in the
Americas. The company also promises to seek a
listing on the Toronto Stock Exchange and
maintain Nexen's social responsibility efforts
globally. [5]
CNOOC drew a
lesson from the disapproval by the Canadian
government on "net benefit" grounds of BHP
Billiton's bid to buy Potash Corporation in 2010.
The deal was apparently torpedoed by the
provincial business and political interests in
Saskatchewan and Alberta that form Harper's
political base after it transpired that BHP
intended to move corporate operations out of
country.
The prospect that Nexen will
herald a flow of foreign capital into the Canadian
resource sector has sparked undisguised enthusiasm
in the Canadian business community, and well-bred
drooling by the M&A set. Despite CNOOC's
efforts, however, the deal is not popular with the
Canadian public, as it feeds into a growing
interest in resource-nationalism issues and
anxiety about China.
A survey conducted in
September found opposition to the deal by over
two-thirds of those polled - 12% more than the
previous month. Opposition was across the board:
When asked whether the federal
government should approve the deal, 69% said the
deal should be rejected while 8% believed it
should be approved. Opposition to the deal was
uniform across most subgroups. There were few
regional or partisan differences. In fact,
respondents who said they voted Conservative in
2011 were almost as likely to say the deal
should be rejected as those who voted Liberal or
NDP (Conservative 68%, NDP 72%, Liberal 73%).
[6]
The opposition NDP, while
courageously declining to take a stand on the
transaction, noted that public opinion is
"crystallizing" against the deal, and urged public
consultations. [7]
A liberal case against
the Nexen deal was laid out by Globe and Mail
national affairs columnist Jeffrey Simpson in a
commentary titled "What if Nexen coveted CNOOC?"
Mr Simpson seized upon the issue of reciprocity,
declaring:
China plays by one set of rules,
Canada and other open economies by another.
Their state-owned companies can buy here and
elsewhere, while our private companies can't buy
there in sectors the state considers vital to
its future ...
… This double standard is
worth remembering in connection with the Chinese
National Offshore Oil Corp's proposed takeover
of Calgary-based energy company Nexen Inc. If an
American company, say, had bid for Nexen, that
bid might be good or bad for the company and
Canada's energy industry; but a Canadian company
could do likewise in the United States if the
terms of the purchase were right for both
parties. But there's no price a Canadian company
could pay for a state-owned Chinese company,
because the state deems them vital to the
country's future and thus off limits for
purchase ...
In unwelcome news for
Simpson, by the way, the countries that Canada is
trying to lure into its oil sector - outfits like
Saudi Arabia and Kuwait - all have unpurchasable
national oil companies. And those regimes in Iraq
and Libya created with the generous support of
Canadian lives and munitions all have national oil
companies as well.
"Reciprocity" on a less
exalted level has also emerged as a buzzword for
the Harper administration, which seems to be
looking for some conspicuous win in China for
Canadian business to prove it fully exploited the
power of the "net benefit" process to stick it to
the red mandarins in Beijing.
Unfortunately, Canadian investment
activity in China is extremely sparse, and it is
possible that Harper will have to make do with the
obtaining the long-delayed approval of
Scotiabank's acquisition of Guangzhou Bank for
$726 million - about one-twentieth of the Nexen
deal - as his trophy. [8]
However, the
Nexen issue also plays into a broader debate as to
whether Canada will define itself as a
managed-investment destination, doling out access
to its resources on a "national interest", ie "net
benefit" basis, as opposed to the "level playing
field", ie "money talks and b - sh - t walks"
language of unfettered global capitalism.
In an interesting perspective on Simpson's
whinging on reciprocity, the debate seems to be
moving in terms of making Canada more like China,
instead of the other way around:
"Some Chinese investment in the oil
sands would be in our country's interest," said
Mr Edwards, a leading industry figure with ties
to Prime Minister Stephen Harper. "We want to
make sure we have access to capital but, as a
country, we want to ensure a strong Canadian
presence in the oil sands." Mr Harper said that
the government will set out guidelines for
foreign acquisitions by state-owned enterprises
when it announces its decision on the proposed
Nexen takeover.
Executives did not
stipulate which companies should be considered
off limits to foreign buyers, but such a roster
would likely include Canadian Natural, Suncor
Energy Inc, and Cenovus Energy Inc, which is the
largest producer using in situ - rather
than mining - techniques.
[9]
This situation presents an
interesting dilemma for Prime Minister Harper, an
avowed free trader who is championing Canada's
entry into the Trans Pacific Pact trade regime.
But he is probably more concerned about the impact
that hostility to Chinese investment will have on
his difficult dealings with President Obama.
It could be argued that a major impetus
for Harper's pivot to China was the perceived need
for a counterweight to a less than satisfactory
relationship with Obama, particularly the US
president's unwillingness to give full-throated
support for extending the Keystone pipeline (the
primary outlet for Canada's prodigious oil sands
reserves, which now terminates in Oklahoma) to the
US Gulf Coast.
There is little question
that Harper would prefer to see Mitt Romney in the
White House. Aside from ideological leanings,
Romney supports Keystone unequivocally, as in:
Romney: Keystone pipeline will happen "if I have
to build it myself". [10]
US environmental
groups adopted the Keystone pipeline as a metaphor
for mainlining fossil fuels to feed America's
energy addiction while boosting global warming
through the emission of greenhouse gases.
Environmentalist Bill McKibben reported that
influential NASA climatologist James Hansen told
him that burning up the hundreds of billions of
tons of tar sands in Alberta would be "game over
for the planet". Environmentalists, an important
and not particularly happy Obama constituency,
embarked on a campaign of civil disobedience that
led to a delay in US approval of the pipeline
extension.
When Obama announced a delay in
the approval process until 2013, Harper decided to
create a resource-nationalist rumpus of his own.
Harper also told Harman that Canada
has been selling its oil to the United States at
a discounted price.
So not only will
America be able to buy less Canadian oil even if
Keystone is eventually approved, the US will
also have to pay more for it because the market
for oil sands crude will be more competitive.
"We have taken a significant price hit
by virtue of the fact that we are a captive
supplier and that just does not make sense in
terms of the broader interests of the Canadian
economy," Harper said. "We're still going to be
a major supplier of the United States. It will
be a long time, if ever, before the United
States isn't our number one export market, but
for us the United States cannot be our only
export market. That is not in our interest,
either commercially or in terms of pricing."
[11]
Ironically, Harper sounded just
like the lord of another free-market resource
barony - President Elbegdorj of Mongolia - who
thirsts to create an alternative destination
(Russia) to his domineering neighbor ( China) for
his mineral riches.
Also, ironically,
American environmentalists seem unable to come up
with a suitable political riposte to Harper's
proposal to outsource the end of the world to
China instead of the United States. Establishing
an alternative to US consumption means finding a plausible
channel to Asian markets, and that means a)
planning a multi-billion dollar pipeline,
"Northern Gateway", from Alberta to the Pacific
and b) a bankable buyer's commitment that will
make the pipeline buildable.
Enter, of
course, China, which apparently has the main
refineries in Asia capable of handling sulfurous
oil sand crude. Harper jetted to China in February
with the publicly declared mission of luring
Chinese investment. The first fruit of Harper's
policy was CNOOC's announcement that it would
abandon its previous program of cautious minority
stakes to pursue the 100% acquisition of Nexen.
It is easy to speculate that CNOOC also
jollied Harper along on the Northern Gateway
pipeline as the cost of obtaining Canadian
government support for something as big and
potentially provocative as the Nexen purchase. In
return, Canada could claim to the United States
that the Obama administration's lack of Keystone
enthusiasm was driving Canada, its energy
resources, and its pipeline plans into China's
waiting arms.
CNOOC, which despite sneers
at its state-owned pedigree runs its business like
a business, would probably prefer to sell Nexen
crude to the United States via the Keystone
pipeline at a healthy profit. With Mexican and
Venezuelan output faltering, the United States via
Keystone is the logical destination for Canadian
oil sands, no matter who owns them.
The
Northern Gateway scheme would burden CNOOC's oil
sands business with capital and shipping costs to
get the Nexen crude (whose production cost is
about double that of conventional Middle Eastern
crude) across Canada, across the Pacific, and
through its refineries in order to sell it for
less or no profit within the price-controlled
environment of China.
The commitment of
the Harper administration, on the other hand, to
continue with its quixotic Asian scheme as
anything more than a bargaining chip in its
Keystone negotiations with the United States is
open to question.
Will this arranged
marriage endure the political stresses of Canadian
and North American politics despite the differing
agendas of the partners? Certain indicators from
the Canadian side are not promising, at least for
CNOOC. There are dark murmurings that Harper's
cabinet and the Conservative caucus, usually a
tractable bunch, are "divided" on the issue. This
probably means the "Snack Pack" is throwing its
weight around.
The "Snack Pack" is the
nickname given to a group of hard-charging,
youthful, and rather chubby politicians who are
more American-style movement conservatives than
traditional pro-business warhorses, and who rose
to prominence in the past 10 years serving as
Harper's political centurions. Their ideology is
driven by conservative social, religious, and
political values and is reflexively anti-People's
Republic of China.
The most prominent
member is Jason Kenney, who is now Minister for
Citizenship, Immigration and Multiculturalism. His
anti-communism manifests itself through sympathy
with refugee Falun Gong practitioners and other
dissidents - on September 29, he achieved an-anti
PRC omnibus triumph of sorts, posting a picture on
his Twitter feed of his attendance at a "Wonderful
event w/ Tibetan, Uyghur, N Korean, Falun Gong
& Chinese refugees & human-rights
activists" - and is the nexus for anti-CNOOC
sentiment inside the cabinet. [12] [13]
The other high-profile Snack Packer is Rob
Anders, who holds Harper's old seat in Alberta and
made a name for himself by casting the only vote
against making Nelson Mandela an honorary citizen
of Canada. He also holds strong anti-PRC
sentiments, characterizing the Chinese regime as
the worst human rights abuser in the world,
comparing the Beijing Olympics to Hitler's 1936
Berlin Games, and opposing a memorial to Canadian
Norman Bethune on the grounds that taxpayer money
should not be spent on a man who was a "fan" of
"the biggest mass murderer in history", Mao
Zedong. [14]
As for CNOOC:
"There's a lot of people, I would
say the vast majority of the country, that [sic]
are very concerned about making sure there's
conditions [on CNOOC]," said Rob Anders, a
Conservative member of Parliament from Alberta,
where the oil sands are located. He told
reporters on Wednesday that he regarded China as
"a non-benevolent actor and a strategic
adversary." [15]
Both men have strong
ties to American conservative social and political
movements. Anders did a term at Norman Blackwell's
Leadership Institute, a conservative boot camp
that claims Karl Rove and Ralph Reed among its
alumni. He achieved notoriety by serving as a paid
political heckler in 1994 for arch-conservative
(and oil industry advocate and global warming
denier) James Inhofe in his campaign to become US
senator from Oklahoma. A video of Anders donning a
Pinocchio nose to assail Inhofe's opponent,
Democrat Dave McCurdy, lives on at YouTube and in
the hearts of his constituency. Anders is also
credited with introducing US phonebanking
techniques - aka robocalling - to Canadian
politics. He recently described his attendance at
CPAC, the hardcore US movement conservative
convention as "the fix conservative political
junkies look for". [16] [17]
Jason Kenney
attended the Jesuit University of San Francisco in
the United States. He responded to the teachings
of some intensely conservative faculty members and
discovered his political vocation:
Kenney was initially opposed to the
life of politics, believing that morality and
politics are mutually exclusive. His life was
changed when he read the Holy Father's
encyclical, "Evangelicum Vitae". Seeing that the
Holy Father's notion of politics was a form of
charity changed Kenney's perspective. "I felt
compelled to enter politics as a vocation. I was
called to politics, not qua politics, but as a
form of charity as a promotion of the message of
the Gospel of life". [18]
He went back
to Canada a full-fledged movement conservative in
the pro-life/anti-gay rights vein, and served as a
youthful advisor to the Christian Coalition of
Canada, a clone of Ralph Reed's political
powerhouse in the United States.
Kenney
and Anders also shared a stint at the Fraser
Institute, a conservative think tank and brain
trust for Harper, which is also a recipient of
significant largesse from America's Koch brothers,
the free-spending resource barons who have
committed themselves to free markets, global
warming denialism, and no-Obama (and are alleged
to have major involvement both in Canadian oil
sands crude production and their refining in the
United States. and therefore have a strong
interest in getting Keystone built). [19] [20]
[21]
In addition to movement conservatism
and sentiments against the PRC and in favor of Tibet and Uyghur separatism and Falun Gong, the
clownish Anders and the cloistered Kenney share
another bizarre link: the two unmarried
politicians adopted a lifestyle of chastity until
marriage, a lifestyle neither has to date publicly
renounced. [22]
One thing Anders and
Kenney do not share in common is a commitment to
hard work. Kenney channels his youthful energy
into 20-hour per day marathons of events,
hearings, and twittering. By cultivating his
original conservative supporters in western Canada
and using his cabinet responsibilities to reach
out beyond the party's traditional white support
to include socially conservative Asian communities
in the cities, Kenney is now plausibly considered
as a potential successor to Harper.
Anders, on the other hand, holding a safe,
ultra-conservative seat, appears to have sunk into
sloth and has become famous for his ability to
sleep on the job. Aside from embarrassing
rhetorical bombthrowing, he apparently does little
for his riding and only personal intercession from
Harper kept him from facing a challenge from
within his own party in 2010. [23] In addition to
a shared distaste for the PRC and CNOOC, both
Kenney and Anders would prefer to see Alberta's
oil go to the United States via Keystone.
As for Kenney and Keystone, as he put it
in one of his thousands of Tweets:
Keystone pipeline will offset the US
imports of Venezuelan oil w/ CDN oil. Why does
the left prefer Hugo Chavez's oil to CDA's [sic]
ethical oil?
"Ethical oil" is, by the
way, the wonderful PR handle for Alberta's
planet-destroying goo, in contrast to Venezuela's
depraved socialist glop.
Rob Anders also
raised the ethical oil issue in response to a
previous Chinese oil sands investment asserting,
in the words of the Fort McMurray News, "China
Tainting Oil Sands":
"If you have a country that is an
ethical producer of oil but directly implicates
another government, not just a company but
another government that is very unethical in its
extraction, where does that leave us, It raises
an interesting question, kind of a hypothetical
conundrum," said Anders.
Anders says,
among all foreign operators in the oil patch,
China has the worst human-rights reputation.
[24]
As far as I can tell, Anders has
not roused himself to issue a formal statement in
support of Keystone (though he did update his
official website to include a petition opposing
the use of parliamentary women's rest rooms by
transgendered men), but I think it is safe to say
he is for it, having expressed his gratitude for
the "many pledges to buy Canada's ethical oil via
pipeline" he received while attending CPAC.
In the United States, Keystone and Nexen
are emerging as shared conservative talking
points. Nebraska Senator Lee Terry, a Republican
and a major champion of the Keystone pipeline,
went the extra mile and unambiguously linked the
two issues in an op-ed titled "Oppose CNOOC-Nexen
merger, approve Keystone".
There is a simple way for the United
States to maintain control of our energy future
and our competitive edge over the Chinese: We
can get moving quickly on the Keystone XL
pipeline. Approving this pipeline would ensure
that North Americans control North American oil.
[25]
In a further indication of the
emerging crossborder conservative Nexen/Keystone
linkage, the four US Republicans who urged that
the insignificant US component of the Nexen deal
be reviewed (thereby giving US regulators a chance
to throw a spanner into the Canadian works) -
Inhofe (Rob Ander's former employer), Hoeven,
Cornyn, and Shelby - are all energy industry
stalwarts and diehard Keystone boosters.
Let us recap.
Prime Minister
Harper's political core is conservative movement
activism, and is viscerally anti-PRC. His pivot
toward China is probably grudging and conditional,
impelled by his need for a riposte to the Obama
administration's caution on Keystone. Now that the
Nexen deal is arousing across-the-board liberal,
conservative, and nationalist opposition across
Canada, blocking Nexen has become a battlecry
among the pro-Keystone Republicans who are
Harper's natural US allies, and his closest
political associates are also going public with
their distaste for the transaction. That US and
Canadian conservatives have not yet united to try
and blow up the deal openly is probably a sign of
their deference to Harper.
But they have
done enough to create a handy political bolthole
for Harper in case he chooses to exit the deal.
The question is, will he?
Ordinary
business and diplomatic logic would seem to
dictate that the deal go through. And Harper is
sufficiently beholden to Canada's business
interests to think twice about denying Canadian
plutocrats the lucrative payday that Nexen and
subsequent Chinese deals might bring.
Political logic, however, is another
matter, given extensive public doubts, the dubious
strategic underpinnings for the deal, the probable
shortage of Conservative sincerity in wanting to
strengthen ties with China ...
The
determining factor in Harper's decision whether or
not to switch sides and start feeding the
anti-CNOOC bonfire may be the prospect of Obama's
re-election in November. If Mitt Romney were
poised to win, Keystone is a done deal and the
political liabilities of engagement with China
will loom the larger as the benefits shrink. If
Obama triumphs - a prospect seen as increasingly
likely - the Chinese bargaining chip will retain
its value.
But there might be one more
thing - a gut-level wave of outrage against the
deal, regardless of its merits. Perhaps an idea
that permanently blocking China from acquiring a
major Western oil company, like sustaining the
anachronistic arms embargo against the PRC, is an
instinctive exercise in China bashing that feels
so good on an atavistic level, it just can't be
resisted. The Canadian government will probably
make its decision by mid-October.
"China's Nexen Deal Tangled Up with Keystone Pipeline"
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