Shale-gas deal sweetens Harper's
Beijing trip By Robert M Cutler
MONTREAL - Chinese energy policy has
increased its focus on commercial ties with Canada
and the acquisition of technologies for
exploration and development of unconventional
natural gas in general and shale gas in
particular.
This emerges from preparations
being made in Beijing to receive Canada's Prime
Minister Stephen Harper next week. He is due to
arrive on Wednesday for a five-day visit to
continue progress over a wide range of issues
covering the economy and trade, energy and
resources, and science and education, to public
health and law enforcement.
China's
ambassador to Canada, Zhang Junsai, explained to
the Canadian Press news service that the two
countries "have every
reason to forge a stable
and win-win partnership in the long run in the
field of resources" in view of China's "rapid
industrialization and urbanization, and its demand
for energy and resources" on the one hand and, on
the other, Canada's "rich[ness] in energy and
resources" and "stable political situation as well
as favorable conditions for investment".
Chinese state-owned enterprises invested
US$5 billion in Canada's resource sector in 2011
alone, nearly one-third of the nearly $18 billion
they are reported to have spent buying oil and gas
companies worldwide last year.
In October,
China Petrochemical, known as Sinopec Group,
acquired the Canadian firm Daylight Energy Ltd for
about $2.2 billion in order to gain access to
Canadian shale-gas reserves. It was Sinopec's
largest foreign acquisition of the year. In June,
PetroChina took its $5.4 billion bid for Encana
Corp's Cutbank Ridge gas assets off the table
after negotiations over price failed to conclude
favorably.
Harper's visit come days after
PetroChina expanded its Canadian footprint by
completing acquisition of a 20% stake in a Royal
Dutch Shell Plc shale-gas project in the Canadian
province of British Columbia. Neither PetroChina
nor Shell has specified the value of the former's
stake in the British Columbia project, but
Bloomberg News cited an unattributed report by
Hong Kong-based FinanceAsia that PetroChina would
"pay more than $1 billion" for it.
Even
this minority stake will allow the company to use
any advanced technology to which it gains access
for its exploring and development shale-gas
reserves back in China.
According to a
2011 study by the Energy Information
Administration (EIA), an official statistical arm
of the US Department of Energy, China overlays
eight basins containing 36 trillion cubic meters
of technically recoverable resources. These lie
mainly the Sichuan basin in the south and Tarim
basin in the west, with others scattered in the
northeast of the country. This quantity is a dozen
times the size of China's conventional natural gas
deposits and nearly half again as great as the
EIA's estimate of recoverable US shale gas
resources.
However, shale development
requires vast amounts of water - which is already
scarce in China and even more so in the arid Tarim
basin.
PetroChina is hoping that its
partnership with Shell in British Columbia will
also enable it to gain experience in the
exploration and development of unconventional gas
resources. Last June, another Chinese firm, the
country's biggest energy producer China National
Petroleum Corp (CNPC), formed a joint venture,
also with Shell, to improve its own shale-gas well
drilling efficiency.
Nor are such ventures
limited to Canada. Last month, Sinopec acquired
one-third of US-based Devon Resources for $900
million plus possible payment for $1.6 billion in
future drilling costs, while CNOOC has signed
multiple deals over the past two years with
Chesapeake Energy, the most active American
natural gas driller, to invest in shale blocks in
Wyoming, Colorado and Texas.
Meanwhile,
China is preparing to launch a second round of
domestic shale gas tenders early this year, Xinhua
News Agency reports, and while the tender process
will be restricted to Chinese companies, firms
from outside China will be allowed to join the
projects as partners of the Chinese firms who win
the tenders.
A PetroChina spokesman told
the press that the company wants to produce 1
billion cubic meters (bcm) of gas from shale
domestically by 2015. The problems to be solved
are increasing the efficiency of production and
scaling up the projects. The Chinese offshore
energy producer CNOOC has moved onshore by
starting its first shale-gas project just last
month, in eastern Anhui province. Beijing kicked
off January with a price reform and policy
revision on shale gas, in order to promote
investment. In particular, it designated shale gas
as an independent mining resource.
This
move will increase competition by opening up the
sector, which had been reserved only to
state-controlled companies, also to private
Chinese firms. At the same time, in two provinces
it has experimentally removed the sector from the
state-controlled pricing mechanism and began to
allow the market to decide wholesale prices for
shale and other unconventional gas.
Dr
Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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