Canada's push to access Asian energy markets got a shot in the arm Thursday after China's largest oil and gas firm agreed to buy a 20-per-cent stake in Royal Dutch Shell PLC's shale gas properties in British Columbia.
With the planned investment, PetroChina International – a subsidiary of China National Petroleum Corp. – has underscored its commitment to participate in a liquefied natural gas (LNG) project that Shell is planning for Kitimat, B.C.
But at the same time, Chinese state-owned oil companies are keen to partner in North American shale gas plays in order to learn the technology and transfer it to tight gas fields back home, which are believed to be massive.
Neither side would release the value of the deal Thursday, but reports in Asia pegged it at $1-billion.
Shell chief executive officer Peter Voser said the Canadian deal was part of an ongoing partnership between the world's largest LNG-producing company, and the Chinese firm that has access to one of the fastest growing markets for ship-borne gas imports.
PetroChina has partnered with Shell in projects around the world, including the Chang Bei tight gas play in China and the 2010, $3-billion purchase of Australia's Arrow Energy, a coal-bed methane producer.
In B.C., PetroChina will get 20 per cent of Shell's wholly owned Groundbirch properties, which currently produce 180 million cubic feet of gas per day, and has the potential to double that output.
The Shell deal comes on the eve of Prime Minister Stephen Harper's visit to Beijing next week, part of the government's effort to attract Chinese investment in oil and gas, mining and forestry, and to diversify Canadian energy exports, in particular, beyond the United States.
All told, state-owned Chinese companies have invested $10-billion into the Canadian oil and gas sector, and are financial backers of both crude oil and natural gas pipelines to West Coast.
The state-controlled firm is also a member of a Shell-led consortium that is pursuing the LNG project in Kitimat to ship gas to premium-priced Asian markets.
Analyst Bill Gwozd of Calgary's Ziff Energy said PetroChina's investment in Shell's Groundbirch assets in the Montney region strengthens the LNG project, which is still in the planning phase though Shell has purchased industrial land in Kitimat for a liquefaction plant.
"To have a successful LNG project, you need to have supply, and the Montney is prolific," Mr. Gwozd said. "You also need talented people and Shell has the experience up in that area and they can market that experience to a partner."
The LNG developers also need secure access to major customers in the Asian market – "an Asian market friend" – and PetroChina provides that for the Shell-led consortium, he said. Other members of that group are Korean Gas Corp. and Japan's Mitsubishi Corp., and the analyst said he would be surprised to see them invest in Shell's gas fields in northeastern B.C.
The Montney is one of most promising shale gas developments in North America, with the potential to produce 5 billion cubic feet per day of low-cost gas. But producers are eager to tap the Asian markets, where countries like China, Japan and South Korea are eager for new supply and prices there more closely track international crude prices, commanding a premium well above depressed North American levels.
In a report on North American LNG development, CIBC World Markets analyst Andrew Potter said he believes the "economics are reasonable" behind the proposed projects in Western Canada, including Shell's.
However, he warned that construction costs could soar, and labour force issues will be problematic for companies, particularly if more than one project proceeds at the same time. Currently, there are three LNG terminals proposed for Kitimat, including one by Apache Corp. and Encana Corp. that received National Energy Board approval.
PetroChina's proposed $5.4-billion investment in Encana's shale gas properties in British Columbia collapsed after the two sides disagreed on valuations.
Last month, PetroChina agreed to acquire full ownership of the undeveloped MacKay River oil sands project from its joint venture partner, Athabasca Oil Sands Corp. The company had purchase 60 per cent of the property two years ago.