Canada made some big moves in the energy market last week. On Friday, Ottawa approved a takeover of Canda’s Nexen by China’s CNOOC, one of the country’s largest oil companies. This $15.1 billion takeover is China’s biggest foreign acquisition and will give it a major interest in the North American energy boom. The WSJ:
The deal approvals come as Canada moves to open up new markets for its quickly growing crude production. Almost all of Canada’s crude exports currently travel south to the U.S. But that market is now looking much more tenuous. Pipeline bottlenecks and growing American oil output has sent Canadian crude prices plummeting.
The approvals also end months of debate among Canadian politicians over what role state-owned enterprises, particularly from China, should play in Canada’s economy. While Canada has allowed significant investment by state-run firms, Cnooc’s bid was by far the largest.
Ottawa also approved a $5.2 billion takeover of Canada’s Progress Energy Resources Corp. by Petronas, a Malaysian state-owned company.
These deals may be the last of their kind for Canada, at least for the time being. After the government approved them, Prime Minister Stephen Harper said in no uncertain terms that Canada will be seriously limiting the ability of foreign state-owned energy companies to invest in Canadian resources from now on:
[A]ny further deals for Canadian oil-sands assets would be approved only under “exceptional” circumstances, as the government now sees further foreign-government involvement in that sector as no longer of “net benefit” to Canada’s economy, its longtime litmus test to approval for foreign deals.
“The government of Canada has determined that foreign-state control of oil sands development has reached the point at which further such [deals] would not be of net benefit to Canada,” Prime Minister Stephen Harper said in a statement.
Mr. Harper said the deal approvals shouldn’t be seen as the “beginning” of a trend, but the “end of a trend.”
This rule-change fits with a larger trend towards more nimble, innovative firms in the energy field. The energy revolution is putting North America at the center of the global energy market, a development that tilts the playing field against cumbersome state-controlled enterprises and towards private development. This marks a major shift in the trajectory of the global economy and will be felt more strongly as the North American energy revolution continues.
It is not just that the North American energy superpowers are more market friendly and (with the exception of Mexico, where the state-owned Pemex’s constitutional oil monopoly is under review) hostile to state ownership. It is that the exploitation of unconventional hydrocarbon sources works better in a less top down, centrally controlled industry. Only a few years ago, analysts were forecasting a future in which ‘state capitalism’ was going to play a much larger role in the 21st century; those forecasts are starting to look quaint.