(This article is part 1 of a 3-part series on Opportunities in China.)
While non-Chinese upstream companies will find partnership opportunities in China somewhat more limited, unconventional gas development in China could become open to partnership opportunities for smaller, but specialized international oil companies, Ernst & Young noted in a recent report, Fueling the dragon: China's investment into the oil and gas market.
China's three national oil companies (NOCs) - China National Petroleum Corporation, China Petroleum & Chemical Corporation, and China National Offshore Oil Corporation - continue to dominate the sector. While some opportunities are arising for U.S. companies to work offshore China or partner with the NOCs, these opportunities are typically only available to the largest, integrated and/or specialized international oil companies.
Meanwhile, oilfield service companies should see a substantial increase in demand for their services for shale and coals seam gas development in China, as the Chinese oilfield service industry will likely need outside help.
Large, diversified oilfield service companies that are currently involved with the North American shale boom will be particularly well positioned for an unconventional gas boom in China.
"But there will also likely be room for the ambitious, smaller, specialized OFS companies looking to grow internationally," according to the Ernst & Young report.
Chinese oil and gas companies have been seeking joint ventures with foreign companies and acquiring assets, spurred on by the Chinese government as a means to meet domestic energy demand.
From first quarter 2006 to second quarter 2011, Chinese companies conducted over 200 oil and gas transactions, with a total reported value of more than US $135 billion. Almost 85 percent of the total reported value went toward oil and gas assets outside of Asia, Ernst & Young reported, dominated mainly by investments in the former Soviet Union, Brazil, Venezuela, Sudan and Angola.
Seventy-nine percent of the total deal value involved upstream reserves and production; deals involving upstream acreage accounted for another three percent.
North American investments, which are becoming more frequent, have been primarily focused on Canadian oil sands and U.S. shale gas, most notably the joint venture between CNOOC and Chesapeake Energy for Chesapeake's Eagle Ford play in South Texas.
"However, the historical deal statistics likely understate the Chinese interest in U.S. unconventional gas/liquids development as well as the interest of many U.S. companies in the potential investment in their resources activities as a liquidity source, given the low current and expected gas price levels," as reported by Ernst & Young.
Joint ventures are largely seen as acceptable in the U.S. market as political sensitivity to foreign ownership of energy assets in the U.S. eases. Chinese investment also could provide some much needed operating capital for cash-strapped developments, given the relatively low North American gas prices. Chinese companies, in turn, gain access to technology that can be leveraged to develop China's domestic resources.
Investments and partnerships around liquefied natural gas (LNG) development and supply are very likely, not only in Southeast Asia but Australia, Africa, the Middle East, Russia and the Americas.
Continue on to Part 2: China's O&G Consumption to Rise
Skip to Part 3: Expert: Understanding China's First Step to Business Success
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