February 11th, 2011 | Global Times Partnership boosts China’s energy future
PetroChina announced a major deal Thursday as the company prepares to invest $5.4 billion in Canadian gas producer Encana, a deal that analysts say will secure a stable energy source to feed Beijing’s rising demand and raise its profile in the global energy market.
In the country’s largest overseas natural gas investment, PetroChina is to inject billions to fund a 50-50 joint venture with Encana, North America’s top gas producer, to explore shale and deep gas, a problematic natural gas deposit, in Canada’s Cutbank Ridge area, according to an online statement.
Stretching across northeastern British Columbia and northwestern Alberta, the assets cover 1.3 million acres of land, containing nearly 28 billion cubic meters of natural gas with a current daily production of 7.2 million cubic meters.
The move is expected to provide a platform for the Chinese oil giant to enter the North American market in a major fashion, PetroChina said in the statement.
Encana chief executive Randy Eresman called the agreement a “major milestone” in the Canadian company’s developing relationship with its Chinese partner, and said that it will enable the company to develop faster.
Its shares surged nearly 11 percent to $34.15 in the after-hours market on the New York Stock Exchange following the news.
Dong Xiucheng, director of the China Petroleum Industry Development Research Center, told the Global Times Thursday that the purchase will provide a stable source for China’s energy demand.
Despite abundant reserves in China, the unconventional gas deposits are yet to be commercially exploited on a large scale due to technical problems.
“Compared with energy giants in Western countries, China still lags behind in energy exploration, oil refining and chemical engineering,” Dong said, adding that this investment will give PetroChina a chance to learn and improve its technology.
China plans to enlarge the proportion of natural gas consumption from 4 to 8 percent by the end of 2015, according to China Oil News.
Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, told the Global Times that nearly half of the natural gas used in China by 2020 will be imported, with a surge to come in the next few years.
According to the International Energy Agency, China’s energy demand has doubled since 2000, and the country overtook the US to become the largest energy user last year. By the end of last year, Chinese companies had spent $24.6 billion on oversea oil and gas acquisitions, the Financial Times reported.
With demand increasing, Beijing has been pushing for domestic energy firms to go global and secure resources in Africa and South America, Dong noted.
PetroChina is not alone in acquiring natural gas resources overseas in rich countries.
Last month, China National Offshore Oil Corporation (CNOOC) invested $570 million in a gas and oil project with US company Niobrara in Colorado and Wyoming, which followed an nearly $1.1 billion agreement between the two for land to explore in Texas in October.
“It’s a positive signal for domestic energy companies to enter into developed markets, indicating a great progress in their competitiveness and capability,” Dong said.
However, Dong also noted that, despite the progress, China is still far from punching at its weight on energy pricing, as it is dominated by the Western energy market system.
Meanwhile, the deal’s value was doubted with Neil Beveridge, an analyst at Sanford C. Bernstein in Hong Kong, telling Reuters that “If you look at the proven reserves that PetroChina getting, it is 1 trillion cubic feet of gas for $5.4 billion, so it looks to be about $5.40 per mscf (million cubic feet) on the current proven reserves, which looks to be expensive.”
The contract still needs regulatory approvals in China and Canada, including clearance under the Investment Canada Act, which requires a “net benefit” to Canada in the deal.
Some Canadian politicians and critics have questioned the country’s increasing dependence on China in terms of capital and markets.
Last year, Canada rejected a $39 billion takeover of Potash Corp by Anglo-Australian miner BHP Billiton, for the Canadian firm was of strategic interest and its sale was unlikely to benefit the country.
China also has experienced a backlash in North American, where CNOOC bid for US Unocal in 2005 and failed over political oppositions.
Huang Jingjing contributed to this story
By Zhu Shanshan and Liang Fei