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 January 09, 2012
Why China is Staging a Canadian Invasion

 

It was too early in the morning to be riding an elevator with this guy.

We were in the heart of Calgary, heading up to the top floor of the hotel I'd called home for a few days during a scouting trip for my next oil play. I was heading back to my room to grab a few things I had left there before starting out for the day.

The moment he stepped inside the elevator, he frantically began whispering to himself...

"Zao shang hao. Zao shang hao. Zao shang hao."

Pushing a room service cart, I had a good idea of where he was going. He was on his way to serve breakfast to several Chinese businessmen, rehearsing the entire way to their suite.

After hearing him repeat this mantra for the tenth time, I tried to boost his confidence, "I don't think you'll be forgetting that anytime soon."

He must have realized how odd it sounded, because he smiled at me as he said, "Sorry about that. It means 'Good morning' in Chinese."

"Are you normally in the habit of learning foreign languages at work?" I asked.

"Absolutely. My boss said I have to learn a bunch of these basic phrases. Ya know, stuff like 'Good morning,' 'Thank you,' and such."

So what had my elevator companion thumbing a Mandarin pocket dictionary on his one free night of the week?

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China's Last Resort

Although his morning language exercises may not have made much sense to most people, I knew exactly why a Calgary hotel manager was catering to the Chinese...

Their country has been pouring billions of dollars into Western Canada.

What's so special about Canada?

For starters, the Chinese realize they have an ever-increasing appetite for energy.

By 2040, China's oil demand will have caught up with Uncle Sam.

During the last decade, the number of cars in China jumped 333% to 62.9 million. By 2020, there could be as many as 220 million automobiles tearing up China's roads. (I guess nobody was listening when the Chinese government told its people they shouldn't own private cars.)

And to think that's just oil...

The country's natural gas demand is heading higher --- much higher. In twenty-five years, China will be consuming as much natural gas as the entire European Union.

It's just one of the reasons the Chinese are scrambling right now to secure future energy supplies.

And believe me when I say they're spreading the wealth around. They know how unappealing it is to have to rely on a single foreign power to meet their domestic energy demand (a situation we're all too familiar with).

We can expect China to do everything in their power to avoid that kind of dependence.

Let's face it, dear reader; the absolute last place you'd want to be indebted to is Russia.

How many times has Russia used its tremendous oil and gas resources as leverage?

Anyone else remember when Russia completely cut off all gas supplies to the Ukraine back in 2005?

And the Russians are aware of China's growing thirst for energy...

Notice that every other country besides China is cutting their Russian imports of fossil fuels.

According to that chart from the IEA's World Energy Outlook 2011, China paid Russia just a little over $5.1 billion in 2010. By 2035, that amount is projected to grow 1,547% to $84 billion!

Can you think of a better reason for China to invest elsewhere?

This isn't some sudden epiphany on China's part. They've been quietly scooping up stakes in unconventional oil and gas plays across the globe.

In 2007 and 2008, the Middle Kingdom spent more than $40 billion in oil and gas acquisitions in places like Iran, Libya, and Venezuela.

Just yesterday, Nick Hodge told you about one of China's latest deals in North America.

While you might not expect to hear about another one so soon, PetroChina took full ownership of Athabasca Oil Sands Corp.'s Mackay River project on Tuesday in a deal worth nearly $700 million.

You have to admire their strategy: When in doubt, just bet on every horse in the race.

North America, it appears, is their favorite stomping ground for making deals.

And China's rush to stake a claim in the shale plays across Canada and the United States are making us extremely happy...

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The way we see it, you can either pick up the buying companies like PetroChina that are late to the party (at a hefty $137 per share), or you can beat them to the punch... which is precisely what we're doing.

I've narrowed the field for you to just three oil stocks --- all of which could easily double in 2012 from a buyout.

It happened to Petrohawk in July. It happened to Brigham in October. You can bank on it happening again.

Something's Brewing in BC

Back in the elevator, I couldn't help having a bit of fun.

As nervous as the room service attendant was (he was now repeating 'Thank you' over and over again), I decided to offer him a tip before I departed.

"Ohayou Gozaimasu," I told him with a straight face.

He was puzzled, and I could tell he was racking his brain to see if he had forgotten one of his phrases.

The young man wasn't yet aware that Canadian natural gas won't just be headed to China. There's another country across the Pacific willing to pay top dollar for future Canadian LNG...

"Well, once you have Chinese nailed down, you'll be moving on to Japanese."

The look on his face was priceless