China buying Canadian oil with US cash
China is looking to increase its control and supply of oil.
China's power is growing, and we may not like it, but it's all our fault. Thanks to beneficial trade contracts with the US and tremendous currency reserves, China is looking to satiate its appetite for commodities by buying out producers around the globe. And a Canadian oil giant may be the next target.
Canada is the largest supplier of oil to the US, and Nexen has operations across the country as well as in other oil producing regions, including the Gulf of Mexico, North Sea, Africa, and the Middle East.
Behind the US, China is the world's second largest consumer of oil. Most of the world's oil trade is dominated by the US and Canada, thanks to a series of global mergers designed to maintain US control over worldwide oil production. However, if China can acquire Nexen, it could give the country access to some 213,000 barrels per day.
China is even willing to pay the premium to extract oil from Canadian tar sands, where the oil is actually mined rather than pumped. The political stability found in Canada is worth it, since China is otherwise vulnerable to price shocks and supply disruptions because of world events, particularly in the Middle East.
In addition to political concerns, environmentalists have also expressed reservations about the proposed takeover. Should China acquire Nexen, new pipelines would have to be built across the country to the Pacific, and pipelines have the potential to disturb the environment and leak.
The growing Chinese oil behemoth is created in large part, by the US. China controls more than $3 trillion in US currency reserves. And with a surplus in trade, amounting to more than $160 billion, the country is cash-rich. Standard investment practice is to invest cash into projects that will yield a greater return than the cash alone.
In this case, China will get oil to burn and profits to boot. This will increase Chinese influence and power throughout the world, particularly in China and the US.
For now, the proposal is being reviewed by Canadian Prime Minister, Stephen Harper. Harper is a conservative with ties to the oil industry. It is unknown when a decision will be announced.
© 2012, Distributed by NEWS CONSORTIUM.
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