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Keynote Speech by Ambassador Zhang Junsai at the Luncheon of Alberta Oil Magazine

China's Energy Development, the Changing Global Energy Landscape and China-Canada Energy Cooperation

- Keynote Speech by Ambassador Zhang Junsai at the Luncheon of Alberta Oil Magazine

(May 30, 2013, Calgary)

The Honourable Ken Hughes Minister of Energy for the Alberta government

The Honourable Teresa Woo-Paw – MLA for Calgary-Northern Hills

The Honourable Kent Hehr – MLA for Calgary-Buffalo,

Ladies and gentlemen, dear friends,

It gives me great pleasure to come to Alberta, a land flowing with oil and gas at the invitation of Alberta Oil magazine.

I was asked to talk about China's investment and involvement in Canada's oil and gas sector today.

Indeed, the past few years saw energy cooperation become the highlight of the China-Canada strategic partnership. CNOOC's acquisition of Nexen last year attracted broad attention here in Canada,

But before diving into today's topic, I want to take one step back and share with you some facts and my thoughts on China's energy development and the profound change of global energy landscape, because they not only underpinned the rationale for China's investments in Canada's energy sector, but also help to define the priorities of our cooperation in this area in the future.

In 2011, As the world's largest energy consumer, China accounts for 20% of the global primary energy consumption. The percentages of coal, oil, gas and non-fossil energy in China's total energy consumption were 68.4%, 18.6%, 5% and 8% respectively.

As the economy is expected to keep growing at a fast pace and the per capita energy consumption just reached the world's average level, China's total energy consumption will continue to increase steadily in the years to come.

It is estimated that China will account for more than 30% of the world's primary energy consumption by 2030.

So how will China secure the energy it needs to power the economy in growth?

First and foremost, we continue to rely on domestic supply.

China's primary energy consumption in 2011 equaled 3.6 billion metric tons of standard coal.

While being the world's largest energy consumer, it is also the world's largest energy producer. China's energy self-sufficiency has been for years around 90 percent. But the major source of energy is coal, whose efficiency is low and the emission is high.

According to the Twelfth Five-Year Plan for Energy Development, China will cut down on the consumption of coal and its share in the total primary energy consumption will be reduced to around 65% by 2015.

Meanwhile, the share of gas and non-fossil energy will be increased to 7.5% and 11.4% respectively, and the annual oil output will stay at 200 million metric tons, with its share lowered to 16.1%.

To achieve this goal, China will intensify the exploration and extraction of conventional fossil energy, as well as R&D of coal-bed gas and shale gas technology so as to increase the share of unconventional gas in its total gas supply.

At the same time, China will improve energy efficiency and promote the use of cleaner and more eco-friendly technologies.

Secondly, we will fill the gap between domestic supply and the total demand through international energy cooperation, particularly through trade.

In 2012, China's dependence on oil and gas imports reached 56.4% and 29%. These figures will grow to 61% and 35% respectively by 2015.

Most of China's imported oil comes from the Middle East, North Africa and Central Asia. Angola and Venezuela are also important suppliers.

Natural gas through pipelines mainly comes from Central Asia, while LNG suppliers are rather diversified, including countries in the Middle East, Africa, Latin America and Australia.

Furthermore, the Chinese energy companies have invested in more than 40 countries throughout the supply chain in the oil and gas industry.

In 2011, the total amount of equity oil and gas acquired by Chinese investors reached 90 million metric tons oil equivalent, 10% of which was shipped back to China while the rest was sold on the international markets, which helped stabilize both the international prices and the cost of China's imports.

By investing abroad, these companies have successfully diversified their assets and learned the most up-to-date know-hows in international operation.

Many of them have become partners of multinational energy giants, including some Canadian ones.

Ladies and gentlemen,

China's development has helped the change of the global energy landscape. The center of gravity of world energy consumption is shifting eastward due to the fast development of China and other Asian countries.

In 2011, Asia alone consumed 39.1% of the world's primary energy. It is anticipated that over the next 20 years, China and India combined will account for 94% of net demand growth in oil and 30% in gas.

Asia's role as the world's major energy consumer and "strategic buyer" will become more prominent.

Another significant change of the global energy landscape is the emerging of new center of energy supply due to the sudden boom of unconventional energy exploration such as oil sands and shale gas.

Amongst others, Canada's status as the emerging energy superpower and the much touted idea of energy independence of the United States are particularly compelling.

Many people have even started to talk about North America' potential of becoming the new Middle East.

The breakthrough in new technologies is the game changer for the unconventional energy industry.

And technology featured by lower cost and higher environmental standards has become the focus of competition and will surely enter new frontiers such as polar region and deep seas.

And we now have more options in securing energy supply and dealing with the global climate change at the same time.

Ladies and gentlemen,

The above-mentioned changes have significantly impacted on the world energy supply-demand structure, prices and the development of the whole energy industry. And I think if anyone could have better felt that pulse, it's got to be you people.

For China, the changing global energy landscape has brought opportunities of improved energy security and diversified supply.

And for Canada, an urgent task is to play to its full strengths and make best use of the international market and capital to maximize the benefits for its energy industry.

Having said above, it has become all the more necessary for China and Canada to deepen their energy cooperation for win-win results.

According to incomplete statistics, the Chinese investments in Canada's oil and gas sector totaled 30 billion dollars by the end of 2012, accounting for 63% of the overall Chinese investments in Canada.

China's investments in Canada's energy sector have brought tangible benefits to both sides.

Taking Sinopec's acquisition of Daylight Energy in 2011 for example, Sinopec kept the management team of Daylight and the investment was increased by a large margin after the transaction.

By the end of 2012, Daylight's oil and gas reserves had increased by 26.8%, and the number of its full-time employers had increased by 12%, compared with the previous year.

The Chinese companies are also providing technological services and participating in pipeline construction in Canada.

For example, the Greatwall Drilling Company, a subsidary to Sinopec, is providing exploration and extraction services in Estevan, Saskatchewan, and PetroChina has partnered with TransCanada in building oil sand pipeline from Fort McMurray to Fort Saskatchewan.

What are the drivers for Chinese investments here in Canada? Apart from the abundant reserves of oil and gas, the stability, mature legal system, regulatory transparency, developed financial markets, and integration with the international market are all making Canada an attractive destination.

Last year, the Canadian government announced adjustments to its foreign investment review guidelines. We have noticed the more nuanced requirements for foreign companies seeking to invest in Canada, including in the oil sand sector.

I think these adjustments serve to provide a clearer and more transparent policy framework for foreign investors and will help them make the most appropriate business decision.

Ladies and gentlemen,

During Prime Minister Stephen Harper's visit to China in February last year, the leaders of our two countries agreed that China and Canada should endeavor to build a long-term, stable and win-win partnership in the energy and resource sector.

Both the governments and business communities on two sides have made tremendous progress toward this goal, and there is still a lot more we can do in the future.

No.1, further optimize the role of relevant institutions for bilateral energy cooperation.

China and Canada have established an energy policy dialogue on regular basis and we also have communication and coordination regarding energy cooperation under the mechanism of Strategic Working Group, which is a vice-ministerial level inter-departmental consultation framework.

We should make full use of and better improve these existing mechanisms so as to strengthen the two-way communication, coordination and planning in energy cooperation.

Last year, China and Canada signed FIPA and it was widely-applauded by the business community. Now the Chinese side has already ratified this agreement. We look forward to the early ratification from the Canadian side so that the investors from both countries can harvest benefits as soon as possible.

No.2, more breakthroughs in energy trade. Should the large-scale export of Canada's crude oil and gas to China materialize, it is very likely that Canada's trade balance with China will turn from deficit into surplus, and that's good news for Canada's economy.

I understand that there now exist some bottlenecks in exporting Canadian energy products to Asian countries including China in large scale, especially when it comes to the infrastructure.

But I still have to say that we will not see it done if we never start. And China is willing to deepen cooperation with Canada in this area.

No.3, a comprehensive and integrated pattern of energy cooperation.

Canada's energy wealth is not just what you dig up from the ground. It also includes this country's outstanding enterprises, management expertise, gifted geologists, engineers, bankers and lawyers.

And China's strength is not limited to capital and market either. We also have advantages in cost management and technology.

Therefore, full-fledged energy cooperation between China and Canada could well go beyond trade and extraction, to the areas of production, refining, storage, transport, distribution as well as man power training.

In addition, we can join hands in exploring the market of a third country by combining our strengths. In that way we can make the pie of energy cooperation even bigger.

No.4, more room for growth for the Canadian companies in China.

China's energy industry is open to foreign investment and we encourage foreign investors to partner with local companies in China to explore and extract oil and gas, including coal bed gas and shale gas.

The Chinese government has just approved Shell's production-sharing contract with Chinese National Petroleum Corporation (CNPC) two months ago, which will allow both sides to explore and produce shale gas in China's Sichuan province.

Some Canadian companies are also doing quite well in China. For example, the deepwater gas project jointly operated by CNOOC and Husky Energy headquartered in Calgary in the South China Sea is well under way and is expected to go into production this year.

China does welcome the Canadian companies to bring along cutting-edge energy technologies in their cooperation with Chinese partners.

No.5, People should have more objective and square perceptions of Chinese investments in Canada.

The debate about the Nexen deal last year left me with the impression that the public opinion environment for Chinese investments in Canada are yet favorable.

I wish to stress two facts regarding the Chinese investments.

The first one is that China is a market economy, and China's state-owned enterprises, such as CNOOC, are independent market players, whose investments in Canada's energy sector, just like in other countries, are sheer market-driven decisions.

While investing here, they have made due contribution to local employment, community development and fulfilled their social responsibilities.

In fact, China-Canada energy cooperation can't go fast without the SOEs, because almost all the big energy companies in China are SOEs, and those with clear strength in capital and technologies are also SOEs.

This is determined by China's system.

The second one is that the Chinese investors did not come to Canada to grab this country's wealth of resources.

The major motive driving them here is to optimize the portfolio of their overseas investments and learn the best technology and management know-hows, just like everyone else.

Some of you may have contacts or even cooperation with Chinese companies and I believe most of them have left you with nice impression.

Of course, the responsibility to improve public image depends mainly on the good practices and effective PR by the Chinese investors.

I still hope that you can help explain to the Canadian people with your own experience that what China wants in its energy cooperation with Canada is nothing but a win-win scenario.

In conclusion, I wish the energy cooperation between China and Canada continue to score better and more achievements in the future so as to inject more positive energy to this important partnership between our two great countries. And again, I congratulate you all for your great performance which has made you so outstanding. Thank you.

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