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PetroChina Co. Ltd.'s commitment to partner with Royal Dutch Shell PLC in a British Columbia shale gas play bolsters the business case for Shell's liquefied natural gas project proposed for Kitimat, B.C., with Asian partners.
With a large LNG importer signed up to fund the unlocking of shale gas supplies, Shell's development costs are reduced and the early stage Kitimat export concept is nudged closer to reality.
The two global energy superpowers confirmed Thursday that PetroChina had signed a binding agreement a day earlier to acquire a 20 per cent stake in Shell's wholly owned Groundbirch property in northeastern B.C., where Shell will remain operator. Neither company would disclose the price.
FinanceAsia reported that PetroChina was planning to pay more than $1 billion for the interest, citing market talk but not naming sources.
PetroChina, which controls about 80 per cent of China's gas supply and plans to grow natural gas imports dramatically in the coming years, is viewed as a key potential buyer of LNG from the proposed Shell project. The Anglo-Dutch supermajor and partners Korea Gas Corp., Mitsubishi Corp. and PetroChina parent company China National Petroleum Corp. bought a Kitimat marine terminal to stake their ground in an emerging LNG hub last October.
PetroChina's upstream investment was ``inevitable'' and likely matches the amount of gas the company plans to buy from a future Kitimat facility, said Hong Kong-based analyst Neil Beveridge, with Bernstein Research.
``For Shell, it gets an access in the Chinese market and for PetroChina, it gets an access to overseas reserves, which is a key part of the global strategy,'' Beveridge said. ``China is the fastest-growing large gas market in the world.''
Shell and other North American LNG proponents want to cash in on oil-linked prices Asian buyers will pay for liquefied natural gas, $12 or more per thousand cubic feet versus the less than $3 per mcf North American buyers are currently paying.
The PetroChina investment is a ``very significant'' development for the Shell LNG project, said Oppenheimer & Co. analyst Fadel Gheit, who covers Shell from New York.
Funding by PetroChina, the publicly traded arm of state-owned CNPC, allows Shell to justify drilling while gas prices are low.
``If you're an offtaker from these LNG facilities and you want gas to be ready by 2015 or 2017, you need to start drilling in the next year or two to make that happen,'' said Cameron Gingrich, a manager at Calgary gas consultancy Ziff Energy Group.
The deal marks the latest investment in Canada's energy sector by China, which has spent about $15 billion in Alberta's oilpatch alone, and comes ahead of Prime Minister Stephen Harper's trade visit next week to the Middle Kingdom - his second in less than a year.
PetroChina's Shell deal follows its recent agreement to acquire full ownership of the undeveloped MacKay River oilsands project from partner Athabasca Oil Sands Corp. Taken together, the company is stepping up its investment game against rival Chinese state-owned energy firms, said Wenran Jiang, associate political science professor at the University of Alberta.
"Sinopec has been leading the pack," Jiang said.
A $5.4-billion partnership agreement between PetroChina and gas producer Encana Corp. on B.C. shale gas development collapsed last year after the two couldn't agree on details.
Shell has revealed little about its LNG plans in Kitimat.
A nearby $4.7-billion Kitimat LNG proposal by Apache Corp., Encana Corp. and EOG Resources Inc. has regulatory approval for export and plans to begin output of 700 million cubic feet of gas per day in 2015. The National Energy Board awarded an export licence Thursday to a smaller nearby proposal by BC LNG Export Co-operative LLC, which plans to export 125 million cubic feet of gas per day as early as 2013.
CIBC World Markets analyst Andrew Potter predicted additional LNG export project announcements in North America during 2012 in a report this week, including investments from LNG importers in shale gas plays that would benefit producers suffering from low prices.
PetroChina indicated gas supplies at Groundbirch would serve existing Shell customers and future supplies could be earmarked for LNG export.
Shell is currently producing 180 million cubic feet of gas equivalent per day from 250 wells at Groundbirch, which the company acquired from Duvernay Oil Corp. in 2008.
``PetroChina hopes to gain experience in management and production in the exploration and development of unconventional natural gas through its co-operation with Shell,'' PetroChina spokesman Mao Zefeng said in an emailed statement. ``Furthermore, PetroChina hopes to achieve reasonable returns from the investment.''
Shell chief executive Peter Voser confirmed Thursday that the two companies had signed ``binding agreements,'' while announcing Shell's fourth quarter financial results to media in London.
PetroChina is partnered with Shell in Australia on coal bed methane gas development and a proposed LNG project. Shell also signed a global energy agreement with CNPC last year and is helping in early development of China's vast shale gas reserves with its technology.
Unconventional natural gas has become a global hotspot. It is changing the pattern of the world energy. Shale gas will become one of the three energy resources in the next 20 years. Read More >
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