The Chinese Market

For the past twenty five years, China has required over 400,000 additional barrels of oil per day each year. As it has only 10% of the cars per capita that North America has, it will probably need comparable annual increases for many years to come. China currently imports most of its oil from the Mideast, Africa and South America. Many of its suppliers are in countries with unstable futures. Strategically, it is important for China to find diversified and stable sources of oil. The US by law cannot export crude oil and it would be extremely difficult if not impossible for the US to build an export refinery on its west coast. Canada is the best possible large new supplier for China. It offers proximity, political and fiscal stability, the rule of law, and 100 years of safe supply.

China would no doubt take delivery of crude oil from its state-owned producers in Canada and from other companies in Canada, if it could. KC does not believe it will be able to do so. With adverse First Nations, environmental organizations, BC public and BC political opposition, shipping crude oil in tankers from BC’s coast is likely impossible. Without a refinery, oil from the Alberta oil sands is unlikely to get to China.

Even if BC eventually agrees to the shipment of crude oil in tankers, China will likely still be prepared to import refined fuel from Canada. It will need the volume and refining is considerably less expensive in Canada than in China.

Recognizing the above, China is prepared to import refined fuel from Canada. As noted above, refining is considerably less expensive in Canada than in China. Money will be made on every barrel imported, rather than lost on every barrel refined in China (for some time the wholesale rates for refined fuels in China have been mandated to be beneath actual refining costs).

At present, China has an oversupply of refining capacity. Recently it has been building two refineries per year, which are about half the size of the proposed Kitimat refinery. Based on forecast growth the oversupply will be erased by 2022 when the Kitimat refinery comes on stream.