Technology Access Key to Shale Deal
China's top offshore oil producer CNOOC announced earlier this week that it would pay $1.1 billion to Chesapeake Energy Corp. for a stake in oil and gas assets in a south Texas Eagle Ford shale deposit. In addition, CNOOC will pay $1.1 billion in drilling costs through 2012.
China’s investment is less about securing oil and natural gas for its rapidly growing economy, than the desire to secure shale drilling technology that will allow it to learn the techniques used to find and exploit its own shale deposits without entering into foreign joint ventures.
The investments are really about the technology, says Amy Myers Jaffe of Rice University’s Baker Institute for Public Policy. “China wants to be able to do shale at home on their own,” Jaffe said. “Right now, China is dependent on U.S. companies, Exxon Mobil, Chevron, and Shell, going to China to do shale.”
CNOOC took the same approach when it came to deep-water drilling, and is now moving ahead with its own deep-water efforts.
For China, Chesapeake, is the ideal catch. The company trumpets that it has “earned its reputation as the partner of choice for international oil companies wishing to establish or build operations in the U.S. and who are seeking to learn unconventional oil and natural gas technology and processes.”
China has an estimated 918 trillion cubic feet of natural gas bearing shale reserves, according to the International Energy Agency. To put that into perspective, China only consumed 3.1 trillion cubic feet of natural gas in all of 2009, according to BP Statistical Review.
The deal follows last years U.S.-China Shale Gas Resource Initiative. The agreement was aimed at accelerating the development of unconventional natural gas resources in China using American technology and knowledge.
Despite the Obama administration's policies, protectionist sentiments run high in United States. Five years ago U.S. regulators and politicians stepped in to block CNOOC's effort to buy U.S. oil company Unocal. However, this time around, it is the potential transfer of technology and intellectual knowledge to Beijing that may be a roadblock.
At present, cheap and abundant coal provides 70 percent of China’s energy needs, with gas constituting only three percent of China’s energy mix in 2009. But for a country choking on industrial air pollutants, natural gas provides a far cleaner future for air quality and environment.
Perhaps anticipating political arm twisting ahead, Chesapeake begs to differ on the notion the deal is about technology.
“CNOOC is a very large, very sophisticated energy exploration and production company and may well be very capable of horizontal drilling on its own,” said Jim Gipson, director of media relations at Chesapeake.
“But if not, there are literally hundreds of companies around the world that have horizontal drilling capability. And the completion technology — hydraulic fracturing — also is provided by many multi-national companies.“ The energy industry is a worldwide business and leading-edge technology is not confined to the United States. CNOOC or any other company can rent or buy any technology that is available to us,” Gipson said.
The same thing motivates Russia’s Gazprom, also a majority state-owned business, Jaffe said. While that firm has tried to downplay shale in the past, it still has much to gain by learning about it though a North American investment.
With the drilling and production knowledge it would gain, Gazprom could better compete against western firms in bidding to develop shale in places like Poland and the Ukraine.
When will Gazprom make its move?
Source: Houston Chronicle