Shell sells 20 per cent interest in B.C. shale lands to PetroChina

CALGARY — PetroChina is buying part of Royal Dutch Shell PLC’s shale gas lands in northeastern British Columbia, the latest in a series of investments state-owned Chinese companies have made in Canada’s energy sector.

CALGARY — PetroChina is buying part of Royal Dutch Shell PLC’s shale gas lands in northeastern British Columbia, the latest in a series of investments state-owned Chinese companies have made in Canada’s energy sector.

Peter Voser, CEO of the Anglo-Dutch energy giant, told investors on a conference call Thursday that PetroChina has agreed to buy a 20 per cent interest in some of Shell’s Groundbirch lands in a part B.C. that is emerging as a major new source of gas for North America.

He did not disclose a purchase price for the assets.

Chinese energy companies have been looking to Canada to fuel that country’s growing need for energy — from coal and oil to natural gas.

Plans have been proposed to build pipelines to the West Coast to ship oil and liquefied natural gas for eventual tanker delivery across the Pacific Ocean to Asia.

Northern Alberta’s vast oilsands reserves have been a major draw for Chinese companies, with PetroChina recently taking on a 100 per cent interest in the MacKay River development and another state-owned outfit, Sinopec, acquiring a nine per cent stake in the Syncrude Canada Ltd. mine a few years ago.

But University of Alberta professor Wenran Jiang said it’s clear other types of energy assets are piquing China’s interest, too.

“There’s a fairly clear… shift of emphasis from the oilsands assets to conventional oil and gas and shale,” he said.

For instance Sinopec bought conventional producer Daylight Energy Ltd. last year for $2.2 billion. PetroChina and natural gas giant Encana (TSX:ECA) had been looking to work together on B.C. shale assets, but the deal ended up falling through last year.

Jiang said he did not see the Encana-PetroChina deal collapse as the end of the Chinese company’s pursuit of Canadian shale assets, so Thursday’s announcement by Shell was not a surprise.

He also pointed out PetroChina and Shell have worked together on natural gas developments elsewhere in the world, including in China’s Sichuan province, for several years.

Likely adding to the B.C. assets’ attractiveness to PetroChina is the fact that Shell is one of many companies looking to build an LNG export terminal off the B.C. coast, said Jiang.

“These are all connected. If China’s going to invest very heavily in our oilsands or conventional oil and gas and shale and all the others, it would only be logical that they would want to look at shipping options.”

Another example is Sinopec’s financial support for Northern Gateway, a controversial oil pipeline Enbridge Inc. (TSX:ENB) is planning to build between Alberta and the West Coast port of Kitimat, B.C.

While having shipping options in place are a plus, so far Chinese companies have not made their investments in oil and gas production contingent on the ability to transport the energy across the Pacific, said Jiang.

Rather, China’s view of energy security is more “relaxed” than many realize, he said: “Let’s go around the world, put money in the upstream … and add the total supply to the oil market. And then China can buy it anywhere.”

A report by TD Economics on Wednesday said the Canadian economy has been gradually becoming less reliant on the United States as an export market — a trend that points to more trade with Asian countries in the years ahead and a growing emphasis on exports of natural resources.

Exports to the U.S. directly contributed an annual average of 0.5 percentage points to nominal GDP growth over the last decade, well below an average annual contribution of 2.3 percentage points during the 1980s and 1990s, the report found.

Meanwhile, a report by CIBC this week said liquefied natural gas demand is expected to grow sharply over the next several years, with the ever-growing energy needs of Asian markets one of the biggest drivers.

Liquefied natural gas, or LNG, is natural gas that has been cooled into a liquid state, which enables the fuel to be shipped more easily overseas in by tanker. In Asia, natural gas fetches a price several times higher than it would in the oversupplied North American market.

Global demand for LNG is poised to grow from 200 million tonnes per year in 2010 to some 470 million tonnes by 2035, the report said

“The majority of the demand growth will be driven by Asian markets where the energy requirements necessary to drive domestic economic expansion will far surpass local (and neighbouring) supply capabilities,” wrote analyst Andrew Potter.

Several international oil companies are participating in LNG projects on Canada’s West Coast. Potter estimates they’ll need 39 trillion cubic feet of natural gas to fuel those plans, exceeding the 17.8 tcf in resources they currently own.

And that dynamic points to more joint-venture deals in northeastern B.C.’s shale fields.

“We believe Encana will once again be a highly sought-after partner given the high quality and size of its resources,” wrote Potter.

Encana has a process underway to find a partner for its Montney holdings, and Potter said he would not be surprised to see the company expand an existing farm-out arrangement with Korea Gas Co.

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