Sinopec teams up with Enbridge for Northern Gateway pipeline

Carrie Tait, Financial Post · Tuesday, Jan. 18, 2011

BEIJING — Sinopec Corp., China’s second-largest energy company, has struck a partnership with Enbridge Inc. on the Canadian
company’s proposed $5.5-billion Northern Gateway pipeline — a controversial project now under regulatory review.

“We are participating,” Hou Hongbin, vice-president responsible for exploration and planning at Sinopec International Petroleum
Exploration and Production Corp. (SIPC), a subsidiary of Sinopec, said in an interview in Beijing.

However, Mr. Hou, along with other Sinopec executives, declined to say whether this means the government-controlled company will
invest directly in the project. The proposed pipeline will shuttle oil-sands crude 1,172 kilometers to a port in Kitimat, B.C., so it can be
shipped to markets in Asia.

Deng Hanshen, deputy director general in Sinopec’s development planning department, otherwise known as the foreign co-operation
office, provided a peek at Sinopec’s relationship with Enbridge regarding Northern Gateway at a conference in Beijing last fall.

“Sinopec [is] involved in pre-stage work in the project and provide[s] support,” Mr. Deng wrote in a slide at a presentation he gave at
the Fifth International Forum on China’s Energy Strategies, which was combined with the Sixth China-Canada Energy and
Environment Forum.

Mr. Deng outlined his company’s activity in Canada in three slides: He first detailed Sinopec’s joint venture with France’s Total SA on
the Northern Lights oil-sands project, which is undergoing feasibility studies; then he showed the Northern Gateway slide; and
finally, he highlighted Sinopec’s US$4.65-billion in Syncrude Canada Ltd. Both the Northern Lights and Syncrude slides stated that
Sinopec has made equity investments, while the Northern Gateway slide did not.

Enbridge owns 100% of Northern Gateway. However, the company sold 10 units for $10-million each to potential shippers in 2007
and 2008. In exchange, the buyers have the option to buy equity stakes in the pipeline in the future.
Further, they will pay lower tolls than other shippers. The $100-million is being used to fund Enbridge’s costs as it Northern Gateway
winds through the regulatory process.

It is normal for pipeline companies to sell part of their project to outside investors, particularly companies that will use the funnel.
Gina Jordan, a spokeswoman for Enbridge, would not speak about Sinopec’s relationship with the Calgary-based company.
“Northern Gateway will not provide names of its funding partners,” she said. That includes those who are funding its regulatory
costs, have made equity investments, or have any other commercial agreements with Enbridge, she said.

The opinion of Sinopec’s Mr. Hou on Northern Gateway echoes that of many executives, investors and politicians across Canada.
“I believe it is important to build a pipeline project to the western coast in Canada because this will help Canada diversity its export
market,” he said.

Korea National Oil Corp.’s chief executive, Young-Won Kang, in an interview said his company has not invested in Northern
Gateway.

Many First Nations in British Columbia are trying to block the project, arguing the environmental risks are too great. They are
backed by a number of green groups across the country.

Existing pipeline infrastructure that ships oil sands crude to the United States will not be able to keep up with further expansion in
the oil sands. Sinopec and Total will reconsider the pace of development at their Northern Lights oil sands project if Northern
Gateway is not built, Mr. Hou said. This reflects what other executives with operations in northern Alberta have said.

While China is on the hunt for energy assets to feed its explosive economy, Mr. Hou said Sinopec is committed to maximizing profit
when it comes to selling its oil sands crude, even if this means the product will not go to Asia. Indeed, the Canadian government
demanded Sinopec maximize profit on its Syncrude production as part of the deal when the federal government approved the
investment.

Sinopec is the world’s second-largest refining company, behind Exxon Mobil Corp. It is Asia’s largest refining company.
Enbridge hopes to have approval in less than a year and a half and have oil flowing by 2016.

ctait@nationalpost.com

The Asia Pacific Foundation of Canada funded this reporter’s research in China and South Korea





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