Harper in China

Prime Minister Stephen Harper, a neo-classical economist, visited Imperial China this week to do some energy begging on behalf of investors in the world's third largest oil reserves.

Harper, accompanied by his pals at Enbridge and EnCana, shamelessly shuffled down the same petroleum road padded by the world's well-known ethical oil crowd: Iran, Saudi Arabia and Hugo Chavez.  

The jaunty Venezuelan, who sits on the world's second largest oil reserve, visited the Communist superpower five times in recent years to ink eight agreements on energy cooperation no less. Chavez, as you might guess, has some ethical issues with the United States.

Now Harper, a self-confessed libertarian and a champion prison builder, also has some ethical problems with the United States. That frightful democracy ignored Harper's Big Oil lobby and then temporarily rejected a "no-brainer" pipeline.

The ill-fated Keystone XL pipeline promised to deliver landlocked bitumen to refineries owned by Saudi Armaco, Venezuela and the Koch brothers in the Gulf of Mexico.

Rejection issues

After the rejection, a petulant Harper vowed to diversify bitumen markets to boost Ottawa's oil revenue. In the process he also experienced a quiet moral conversion. Harper once championed God before Mammon on trade with Godless China, but the evangelical has taken a shine to power politics. He now recognizes that the oil business is not for ethical sissies.

Borrowing Orwellian vocabulary from Mao's Little Red Book, Harper and his minions have even dubbed democratic protestors in Canada as "foreign radicals" and "puppets."

So Harper, Canada's premier bitumen salesman, has had a "Chavez" moment. He has found Divine Providence in bitumen and belatedly embraced China, the world's least ethical oil consumer, if there is such a thing.

Now here's the situation and it's a damnable one. Thanks to a hyper-paced industrial revolution, China became an oil importer in 1993. Since then, three state-founded companies have scoured the planet for "equity oil" and all to sustain China's dizzying nine per cent growth rates. (Fort McMurray, by the way, has grown at a similar pace.)

China's oil demand, one very thirsty dragon, has jumped anywhere from two to 17 per cent in recent years and, incredibly, accounts for anywhere between one-fifth and one-half of total global consumptive oil growth.  

The math has alarmed energy security types. Between 1994 and 2004, China's oil imports rose from two million to four million barrels a day. Combined with hurricanes and global political squabbles, China's new oil addiction drove up global oil prices. It even made the world's least economic and most energy intensive hydrocarbon, bitumen, a palatable risk for oil companies.

Today, China pours nearly nine million barrels of oil a day into its heavy industries, industrial agriculture and transportation gridlock. (The Imperial Kingdom, a copy-cat capitalist, wants to replace one billion bicycles with one billion cars because that's what everyone else did with their oil.)

Thanks to cheap loans for heavy energy-intensive industries, land subsidies and lax environmental standards, China now makes about half of the world's glass and cement, a third of its steel production and more than a quarter of its aluminum. (Harperland, which arrogantly calls itself a superpower, barely accounts for three per cent of the world's oil production.)

Colossal waste of energy

But like the spectacular growth of the tar sands, Chinese energy spending has been incredibly wasteful.

Just to generate 10,000 yuan (that's $1,500 Canadian) in GDP, the industrial superpower spends three times more energy than the global average. (Bitumen, a signature of the end of cheap oil, consumes large volumes of natural gas and offers energy returns as poor as ethanol in some projects.)

The Peterson Institute for International Economics, a non-partisan think tank, says that China's oil spending on capital intensive heavy industry has created gross imbalances in the Chinese economy as well much volatility and uncertainty in global oil markets. In fact, China forked out more yuan for oil in 2011 than it made from exports to the United States.

The forecast, of course, calls for more oil spending. China's global energy demand could expand from 16 per cent to 22 per cent by 2030. The implications are unprecedented. To move a population of 1.3 billion consumers, now burning two barrels of oil a year per capita, to a profligate North American standard (22 barrels), China would have to import 80 million barrels of oil a day.  

Yet China's industrial revolution and gangster capitalism has already created a Charles Dickens-like inferno that includes depleted groundwater, contaminated rivers, smog-chocked cities, toxic-laced food, cancer epidemics and an appalling loss of biodiversity.

The pollution of energy-intensive heavy industry now transcends borders. Korea and Japan worry about acid rain while Russia recently dealt with a benzene slick on the Songhua River. In 2007, China's fossil fuel spending gave the nation another dubious honour: it's now the world's largest emitter of greenhouse gases. About 60 per cent of the pollution comes from heavy industry.

China's race with time

No one thinks this sort of oil spending is sustainable, inspired or even sane. Unless China switches to labour-intensive light industry and reduces the number of its oil-based energy slaves, the empire's economy will raise food prices, spark environmental protest, fuel inflation and launch massive political unrest.

Even the Wall Street Journal warns that China's boom is waning: "The country is littered with luxurious county government offices, ghost cities of empty apartment blocks, unsafe high-speed rail lines and crumbling highways to nowhere." 

Meanwhile Alberta, an incompetent petro state that bases its energy policies on the contents of fortune cookies, says it's now looking for a Canada-Asia energy trade expert.

Although President Hu Jintao officially recognized the shortcomings of China's Alberta-like development model in which "economic growth is realized at an excessively high cost of resources and the environment" in 2007, the government hasn't done much to change course.

Jonathan Watts, an astute China watcher for the Guardian, notes that the country has even shelved plans for reducing diesel pollution.

"Environmental scientists say the move shows public health concerns remain far less of a priority for China's leaders than the economic interests of state-owned petrol companies, PetroChina and Sinopec."

Rise of Sinopec and its sisters

Therein lies the other half of this disturbing story: the power and influence of China's state-owned oil companies. They include the China National Petroleum Corporation (the world's fifth largest oil company); the China National Offshore Oil Corporation and the Sinopec, China's largest company.

Until recently these powerful firms, which have a reputation for oil spills and corruption, prevented the formation of any Chinese national energy strategy. China's new National Energy Commission, however, might yet overcome this oil lobby.

In addition, Big Oil owns major shares in China's petroleum empire. Explains Cambridge oil analyst Ricardo Soares de Oliviera: "Most people don't know that western oil majors are strategic investors in the internationally-listed subsidiaries of the three Chinese companies; they cooperate extensively in China and elsewhere, particularly but not only in the refinery sector; and will soon (once WTO criteria is implemented) be fully competitive within China itself."

To feed the nation's oil orgy, all three firms deal with "terrorist sponsoring governments" such as Iran, Iraq, Syria and Sudan. The Institute for the Analysis of Global Security notes that in Africa "Chinese oil companies turn a blind eye to the way petrodollars are used by the local governments" just as Canada's SNC Lavalin does in Saudi Arabia.

According to Soares de Oliveira, the Chinese have merely inserted themselves "in a much older political economy that is already illiberal, destructive and hyper-exploitative."

Since 2003, China's national oil companies plunked $16 billion into the tar sands, accounting for more than 34 per cent of all foreign investment.

Sinopec, whose last chairman was sent to jail for defrauding the Chinese people of $28 million, now owns a nine per cent stake in Syncrude, Canada's biggest oil supplier. It also supports the proposed Northern Gateway pipeline.

Bubble waiting to burst?

In a critical report on that project, retired economist Robyn Allan offered a surprising observation. If Sinopec has an option to secure ownership rights in the pipeline, then Canada would follow an African-like model of oil development.

"The government of China would have a direct stake in a pipeline transportation system in Canada to secure security of supply for Chinese citizens, while the Canadian government is reluctant to develop an energy strategy for Canadians that would ensure the same commitment to security of supply."

The bottom line here is pathological. Canada, the producer of the world's most energy intensive and expensive hydrocarbon, now wants to prop up the world's most energy intensive economy for the benefit of a few oil companies.

The Canadian media, a scantily clad cheerleader, covered Harper's China visit with great fanfare. But it missed the real story underlying the troubling China/Harper union: both nations face serious economic bubbles.

Thanks to Alberta's overzealous regulators and Big Oil lobbyists, more than 100 bitumen projects have been approved since 1998. They did so without public cost benefit studies or even the benefit of an energy Asian expert. In addition, Canada has no energy plan, no oil savings, no oil intelligence and no awareness of how its growing dependence on dirty oil has hollowed out its manufacturing sector.

Given steady declines in U.S. oil consumption, the U.S. shale oil boom, growing carbon concerns and the Great Economic Stagnation, Canada's bitumen economic engine is now over-fueled and over-hyped.

Meanwhile, China's disruptive high-energy growth, a key psychological driver for Canada's bitumen boom, has peaked. By most estimates the globe's new empire has over-industrialized and flooded the world with cheap junk. China is spending more oil than it can afford and getting less and less for it.

Harper and his newfound Communist cronies, of course, skirted around the big question like a fly in a bowl of bird's nest soup.

But here it is: which economic bubble will burst first: the tar sands or the Chinese economy?

[Tags: Energy, Politics.]