Chinese oil companies like Sinopec and CNPC are locating new sources of oil supply in Canada.

The move is expected to get a kick-start next month when Canadian Prime Minster Paul Martin visits Beijing for talks with top leaders. The two governments may sign framework accords that could lead to specific contracts between China's two giant oil group, Sinopec and China National Petroleum Corp. (CNPC), parent of PetroChina, and several Canadian firms with interests in the Alberta oil sands, Sinopec and industry sources say.

Following negotiations over the past few weeks, China Petrochemical Corp, a Sinopec group unit, may be among the first to sign an agreement, Sinopec sources said.

The Alberta oil sands, with proven reserves of 175 billion barrels, have long attracted the world's major oil companies, but high production costs made them uncompetitive with more conventional, and easily extractable, supplies. Now with oil prices more than US$40 a barrel, and likely to remain high, the economics had become much more attractive, said a source at CNPC-Alberta Petroleum Center, a research outfit set up jointly by CNPC and the Alberta government in 1989.

According to company sources, Sinopec may buy one or more stakes in Canadian companies with licences to produce the Athabasca oil sands. Though the source would not name names, the New York Times last week suggested that among the possible partners is UTS Energy.

Another possible target could be the Canadian Oil Sands Trust, which is the majority shareholder in the largest oil sands project and holds a 35.49 percent interest in the Syncrude joint venture that brings together international companies such as Conoco Phillips Oilsands, Exxon and Petro-Canada.

Editor: Olivia