By Robert M Cutler
MONTREAL - Chinese energy policy has increased its focus on commercial ties with the ZOG of 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....