Opinion: What China’s ‘oil fortress’ means for Canada’s West Coast bet

When the U.S. and Israel struck Iran on Feb. 28 and the Strait of Hormuz effectively closed, most analysts expected Beijing to be among the biggest losers. China imports roughly two-thirds of its crude. Instead, China shrugged — and in the process rewrote the rules.

A tanker sits at dock at the Trans Mountain Pipeline expansion Westridge Marine Terminal. Canada needs to foster closer ties to China to benefit from that country's energy policies. PHOTO BY HANDOUT/Trans Mountain corp.

     The numbers are staggering. In June, Chinese crude imports plunged more than 41 per cent year-on year to 7.12 million barrels a day, the lowest since October 2016. April LNG arrivals slumped to 3.36 million tonnes, the weakest since April 2018 and barely half the 7.66-million-tonne winter peak. Qatar’s flows to Asia collapsed from a prewar average of roughly six million tonnes a month to just 800,000 tonnes in April. China absorbed much of that curtailment voluntarily.

     Beijing didn’t scramble. It deployed a tool kit two decades in the making.

     First, the stockpile. Reuters estimates China entered the crisis with 1.3 billion to 1.5 billion barrels in commercial and strategic storage — more than 100 days of average imports. Second, it throttled back. Refinery in June was down 18 per cent year-on-year. Third, it clamped down on exports, suspending gasoline, diesel and jet fuel shipments — about 800,000 barrels a day, or 12 per cent of Asia’s refined fuel imports — to keep domestic pumps full.

     When prices spiked, Chinese terminals resold LNG into the spot market, hitting a record 720,000 tonnes in March.

     Layer on record domestic oil production of 4.3 million barrels a day, booming EV uptake, and pipeline gas from Russia and Central Asia that let Beijing trim LNG without blinking, and the picture is clear: as Reuters Ron Bousso argued, China has morphed from price-taker to price-maker — he called it an “oil fortress,” and the label fits. It can dial demand up or down fast enough to reshape global balances.

     In an earlier column, I sketched several pillars of Beijing’s response to the shock of the Iran war; three months on, the oil-and-gas lever deserves its own look — because it’s the one that should both worry and tempt Alberta most.

     The U.S. market is turning prickly. No new CUSMA agreement is in sight, and President Donald Trump has floated tariff threats. Prime Minister Mark Carney’s diplomatic reset with Beijing and the recent trilateral deal stitching together B.C., Alberta and Ottawa on Pacific egress are necessary moves.

     But pipelines are only half the battle.

     China is already shopping for non-Gulf supply. Canadian heavy oil has shown up in Shandong teapots; LNG Canada’s first phase — 14 million tonnes a year — has been shipping to Asian off-takers since last summer, and Phase 2 will need them in spades. The trap is in assuming Beijing will pay any premium for “diversification.” It won’t.

     China’s own resilience means it can walk away the moment prices don’t suit — witness April’s LNG collapse.

     The smarter play is locking multi-year, take-or-pay contracts with floor-and-ceiling pricing that recognize Beijing’s reality: it wants stable, non-Middle Eastern volume to feed both demand and stockpiles, but it will never be held hostage to a single supplier again — including us. That means Ottawa, Alberta and B.C. need to back exporters with export-credit support, co-ordinated trade diplomacy and a clear-eyed read of Chinese energy doctrine.

     Carney’s reset is a start.

     Now make it tangible: a West Coast pipeline with Asian equity, LNG Canada Phase 2 anchored by PetroChina, Sinopec or CNOOC off-take, a bilateral energy dialogue beyond photo ops.

     The Iran war proved Beijing can weather the next shock without the world’s help. Canada’s diversification window is open, but not permanent.

     If we want our barrels feeding the fortress rather than competing with it, we’d better close the deal while the door’s still ajar.