As China continues to look abroad to secure its energy future, particularly with natural gas, there is room for the United States to play a larger role in its plans, according to consultancy Ernst & Young (E&Y).
The firm recently held an executive panel that examined opportunities afforded by China’s need for energy. Chinese companies have been investing in U.S. energy, and there are opportunities for U.S. companies to do the same in China, the firm said.
“It is very clear we can look to China as a real source of opportunity. The Chinese are very interested in working with the U.S. to create a strong bond and a winning relationship,” said Marcela Donadio, E&Y Americas oil and gas leader.
Having imported 60% of its fossil fuels in 2010, China is aggressively pursuing partnerships to support future supply, E&Y said. China’s most recent and significant investments in the Americas have focused on Canadian oilsands and offshore Brazil. However, interest in U.S. investment is increasing.
E&Y noted a recent joint venture (JV) between China National Offshore Oil Corp. and Chesapeake Energy Corp., involving a one-third interest in Chesapeake’s Eagle Ford Shale gas/liquids play in South Texas (see Daily GPI, Oct. 10, 2010). However, a large JV proposed by PetroChina and Canada’s Encana Corp. was abandoned, the firm acknowledged (see Daily GPI, June 22).
Chinese outbound investment from the first quarter of 2006 through the second quarter of this year shows an emphasis on the Former Soviet Union countries, 34% of total deal value; and the Americas, excluding the United States, 23%. The United States garnered 4% of deal value during the period.
“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,” E&Y said.
To work with the Chinese it is important to understand them, panel speakers said. Access to foreign reserves and progress against China’s 12th Five-Year Plan (2011-2015) — the initiatives guiding the country’s economic growth — are key performance indicators that Chinese oil companies are measured against, E&Y said.
“International companies doing business in or with China should seek alignment with the strategies and policies of China’s leaders. Seek complementary interests with Chinese partners or business allies which can use your company, resources and products to bolster their own competitive positions in the market,” said investment banker and author Robert Lawrence Kuhn, a geopolitical expert on China.
For many companies, Chinese investments could provide some much-needed operating capital for cash-strapped developments, E&Y said. Additionally, while the Chinese national oil companies own their own service companies, there is an opportunity for U.S. oilfield service companies to provide high-tech services the Chinese do not currently have. This is a growing opportunity, particularly as China looks to develop its shale resources, E&Y said.
“China is here to play and is determined to be a global player when it comes to energy,” said Donadio.
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