Outcome of China-U.S. trade fight raises questions for Canada's oilpatch

The Canadian Energy Research Institute is flagging the potential outcomeof a trade pact between the United Statesand China should it result in American producers becomingpreferred suppliers of oil and gas to the Asianeconomic giant.

While China and the U.S. have been tangled in a costly trade dispute for more than a year, the two sides reached a temporary truce this fall and are working on a phase onedeal.

Optimism for a deal has ebbed and flowed, but there are expectations in the U.S. that a new pact would benefit the Americanenergy sector, particularly its liquefied natural gas (LNG) industry.

Allan Fogwill, president of CERI, said Tuesday the outcome of the U.S.-Sinotrade war could have future implications for Canada's oilpatch if American producers emerge as China's preferred suppliers.

"The real question is whether or not oil and gas will be part of that trade agreement," said Fogwill during a presentationon the outlook for the Canadian oil and gas sector.

"Will the U.S. become a preferred supplier to China? That's a big question. And if they are, both in terms of oil and gas, where does that leave Canada? That's a significant unknown."

CERI isan independent research institute that receives funding fromindustry and government.

The vast majority of Canada's oil and gas exports go to the U.S.butgrowing Asian energy markets are viewed as a significant internationalopportunity by the energy industry worldwide.

Last year, China set a record for oil and gas imports. It is the world's top oil importer and last year became the largest importer of natural gas.Forbes recently reported China will soon surpass Japan as the world's largest importer of LNG.

The U.S., meanwhile, aims to become the biggest supplier of LNG in the world.

Gordon Holden, director of the China Institute at the University of Alberta, said if the U.S. and China reach a trade deal focused on commodities, he wouldn't be surprised to see energy as part of a pact.

"Agriculture, 100 per cent for sure [would be part of a deal] because Trump needs those Midwestern states there's a political calculus for him," Holden said.

"But I would not be surprised to see LNG included."

Canada's natural gas sector also sees LNG exports as an important part of its future,including the massive LNG Canada project under development at Kitimat, B.C.

"LNG plants provide an opportunity to develop production capacity in Western Canada and attract more growth-oriented investments into the upstream gas industry," according to CERI's forecast.

Proponents of LNG development say the fuel will help replace the use of coal in Asian markets, though environmentalists havewarned of the impact burning more natural gas will have ongreenhouse gas emissions.

Tim McMillan, president of the Canadian Association of Petroleum Producers, said China is an important market for all industries, including oil and gasbecause it's such a large consumer.

Canada has "some great opportunities" because shipping routes are shorterthan between a lot of the other countries, he said.China and Canadaalready havetrade relationships, he added, pointing to agriculture as an example.

McMillansaid he has no concerns aboutwhere a U.S.-China trade deal will lead.

He said he is moreconcerned about Canadian policies that are keeping the domestic industry out of the global market.

"If we can get out of our own way, if we can enable Canadian infrastructure to link our commodities to that growing market, I have no concerns that we can't compete," he said.

"If we can't build the infrastructure in Canada,it probably is to our advantage that the U.S. has a strengthened relationship [with China] because we are today beholden almost 100 percent to the U.S. to be our marketers of our products.They have become a global player in shipping LNG and in shipping oil. And they are our only customer."