Global enough for you? 

How foreign investment is fueling resource extraction in the West

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Many of the West's biggest mines and gas fields have long flown foreign flags, particularly those of Australia, England and Canada. Huge corporations set up shop in other countries as if borders didn't exist: U.S. companies have $4 trillion in foreign direct investment assets abroad, while foreign companies have $2.3 trillion in such assets in the U.S. Now, a new wave of foreign investment is coming from a new crop of countries.

China tried to get into the game in 2005, when the Chinese National Offshore Oil Company bid on Unocal, an American petroleum company. But after a congressional contingent opposed the deal, citing national security concerns, CNOOC backed off. Chinese mining and energy firms have since focused their investments elsewhere, setting up or buying up energy and mineral operations in Africa, Latin America and the rest of Asia in ways that echo past colonizing efforts by European countries and the U.S. Australia, too, has responded to China's appetite, kicking up its extraction industries several notches, sparking concerns that the nation is becoming Asia's mineral colony.

Meanwhile, back in the U.S., with the country still drowning in the economic doldrums, the political tide has turned. Western politicians have practically tripped over each other in their rush to attract foreign, especially Chinese, investment. In 2008, three months after visiting China to look for trade opportunities, Wyoming Gov. Dave Freudenthal told visiting Chinese officials that Wyoming is "America's best-kept secret as to being a good place to do business."

Freudenthal has since become a director at Arch Coal, which is making a multi-pronged attempt to break into the Chinese market. The company has acquired about 1.4 billion tons of coal in southeastern Montana's Otter Creek Valley, and in July bought a third of the proposed Tongue River Railroad to get the coal to West Coast export terminals, two of which Arch has invested in.

Idaho Gov. Butch Otter led his own trade delegation to China, as did Senate Majority Leader Harry Reid, who's now predicting that a Chinese company is going to make a huge investment—possibly in the form of a wind-turbine factory—in his home state of Nevada. And in June, Montana Gov. Brian Schweitzer gave the keynote address at a coal industry conference in Beijing.

Into this new climate, and with a more subtle approach (investing in firms rather than buying them outright), CNOOC is back, buying portions of Chesapeake Energy's holdings in shale gas plays in the eastern U.S. and in Texas and one-third of the firm's 800,000-acre share of the Niobrara Formation in Colorado and Wyoming. The Niobrara became a hotspot after new drilling and fracking techniques produced the modern equivalent of an oil gusher in Weld County, Colo., in 2009. The deal with China gave Chesapeake the capital to get in on the action, and in the months following the transaction, nearly half of more than 100 horizontal well drilling permits issued in Wyoming's Converse County, home of Douglas, went to Chesapeake. This type of partnership is understandable, says Mark Northam, director of the School of Energy Resources at the University of Wyoming. "They (CNOOC) are using their abundant cash to help the U.S. companies carry out their drilling activities. There are few better places for Chinese investment than Wyoming because our business environment is so robust."

click to enlarge Arizona Gov. Jan Brewer gets an explanation of photovoltaic cells from Suntech founder Zhengrong Shi at Suntech’s new manufacturing plant in Goodyear, Arizona. - PHOTO COURTESY OF SUNTECH
  • Photo courtesy of Suntech
  • Arizona Gov. Jan Brewer gets an explanation of photovoltaic cells from Suntech founder Zhengrong Shi at Suntech’s new manufacturing plant in Goodyear, Arizona.

Similar scenarios are playing out all over the West, from a gold mine in Idaho financed by an investment-for-visa scheme to a Chinese-owned solar panel factory in Goodyear, Ariz. A Chinese bank is financing a proposed molybdenum mine in Nevada, with the loan secured by a Chinese mining company. A Korean company holds a 20-percent stake in the project, and the molybdenum from the mine is committed to Korean, Japanese, Chinese and European companies.

And this spring, Eesti Energia—based in the former Soviet-bloc country of Estonia—bought the Oil Shale Exploration Company, getting a federal oil shale research lease in Utah in the bargain. Utah Gov. Gary Herbert—who made a trade mission of his own to China just this spring—had nothing but praise for the deal: "Today's action falls in line with our policy of responsible energy development and allowing the free market to drive a more secure energy future for Utah and the nation."

A stimulus package has arrived in the West's mines and gas fields, and it's coming from abroad. "Under the current circumstances, this is a win-win," says Northam. "I think it's a necessity. Billions of dollars are coming into the U.S. to pay for U.S. rigs and employ U.S. workers."



Does a mine have a nationality?

How truly entangled is the U.S. in this global web? In March, U.S. Rep. Cynthia Lummis, a Wyoming Republican, introduced legislation to keep the royalty rate on soda ash mining at 2 percent rather than the 6 percent rate set back in 1995. Her reasoning: To allow American companies to compete with Chinese soda ash producers. "Although our proud tradition of soda ash production continues to be a force of economic strength for Wyoming and our country," said Lummis, "overseas competition and rising energy costs have undercut Wyoming's status as the largest producer."

Wyoming's Sweetwater County provides about 90 percent of the nation's soda ash, which is used in glass and other industrial applications. Four manufacturers operate there. One of them is Solvay Chemicals, owned by a Belgian company. Another is Tata Chemicals, whose parent company is based in India. Tata says it exports half of its Wyoming soda ash back home, helping make soda ash the state's number-one export product.

The logic of a Wyoming congresswoman shorting U.S. taxpayers to protect an Indian company operating in her state from Chinese competition so that it can cheaply export its product back to India may border on the bizarre. But these days, it's business as usual. As often as not, political efforts to block mining law reform or bills such as the American Energy and Western Jobs Act, forwarded by conservative Western lawmakers this year to fast-track oil and gas development, benefit foreign-owned companies operating in the U.S.

Few people even noticed Lummis and her Tata connection. But the Chinese invasion, as it were, has been popping up on many a right-winger's radar. "China's corporations...serve as forward troops in Beijing's global strategic economic warfare," writes William F. Jasper in the May issue of New American, the John Birch Society's publication. "And the line between economic warfare and the more traditional concept of military warfare can be very thin." The article echoes many of the comments on stories and blogs about these issues.

Liberals have their own spin on the foreign invasion story. In response to a new wave of uranium mining—dominated in the U.S. by Canadian companies—environmentalists are pushing once again to reform the 1872 Mining Law, which allows minerals to be extracted royalty-free. They are playing up the fact that so many of these mining companies are foreign-owned. Some greens also joined conservative lawmakers in opposition to the Russian company ARMZ's purchase of a controlling stake in Uranium One, a Canadian company with some 10,000 acres of uranium claims in the West, including two mines north of Douglas. They worry that the Russians could route American uranium to Iran.

For the most part, though, politicians and economists, and even many environmentalists, told me that the fact that this new wave of globalization is coming from China or even Russia rather than say, Japan or Britain, is neither here nor there: A hole in the ground is a hole in the ground, no matter who's getting the stuff from it; a skilled job in the oil field is good for the economy, no matter who's forking out the payroll; and an oil spill is an environmental disaster, whether it's BP or Exxon doing the spilling. Princeton economist Paul Krugman, in a 1995 book on foreign direct investment, suggested the same, saying that multinational firms—regardless of where they're based—sprawl across national boundaries, and therefore tend to lack national identity.

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