The Wall Street Journal reports that a state-controlled Chinese energy company has agreed to purchase a significant position in an emerging U.S. natural gas field.
State-controlled Cnooc said Monday it will buy a one-third stake in Chesapeake’s shale oil and gas acreage in southern Texas for an initial $1.08 billion. Cnooc also will spend an additional up to $1.08 billion shouldering drilling and other costs for developing the 600,000-acre Eagle Ford share assets.
The investment marks the first foray by the Chinese government to acquire American energy assets “since Cnooc was blocked in a 2005 bid to take over California-based Unocal following a political uproar in the U.S. over energy security. China’s sole foray into North American shale gas up to now had been a non-binding pact between China National Petroleum Corp. and Canada’s Encana Corp. to set up a joint venture to exploit reserves in British Columbia.”
Since 2007, China has spent approximately $236 billion on oil purchase and “loan for energy” deals to secure future oil production. These contracts have the potential to deliver over 7.8 billion barrels of oil to China. But today’s announcement is about natural gas, not oil.
Pressure in China has been rising to tap gas deposits and other sources that burn cleaner than coal, the nation’s mainstay source of power but a major emitter of global warming gases. The International Energy Agency, or developed world’s energy watchdog, says China has reserves of 26 trillion cubic meters of shale gas, which it hasn’t been able to access due to a lack of drilling know-how. China’s Ministry of Land and Resources wants domestic annual shale gas output capacity to reach 15 billion to 30 billion cubic meters by 2020, from negligible levels now.
The two sides expect to complete an agreement by the end of the year.