PetroChina in full control of oil sands
State-backed PetroChina, the nation's largest oil and gas producer, will buy 40 per cent of an oil sands project in western Canada for C$680 million (HK$5,213 million), making it the first Chinese firm to wholly own a Canadian oil sands project.
The deal, together with a US$2.2 billion acquisition by state-owned China Petrochemical Corporation of shares in five shale gas exploration projects in the United States, announced on Tuesday, underlines Beijing's desire to invest in expensive, unconventional energy to hedge the risk of dwindling supplies of cheaper conventional energy.
Athabasca Oil Sands said it exercised an option to sell its 40 per cent interest in the MacKay River project in the province of Alberta to PetroChina, which bought a 60 per cent stake in late 2009 for C$1.9 billion.
The project last month got approval from the Canadian government to start construction. Production is slated to start in 2014, with an initial capacity of 35,000 barrels a day, rising to a peak of 150,000 barrels.
Oil sand is a thick, tar-like form of petroleum which needs to be heated by steam to extract the oil.
Due to its viscosity, transporting and refining it is expensive, energy-intensive and pollution-prone. Processing oil sands is only considered economical at prices much higher than for conventional crude oil.
Along with MacKay, PetroChina also bought 60 per cent of the Dover oil sands project from Athabasca in 2009. Once the government approves construction, Athabasca has an option to sell the remaining 40 per cent to PetroChina for C$1.32 billion.
As cheap conventional energy is getting harder to come by, all three of China's state oil firms have bought into capital-intensive oil sand projects in Canada, the largest transaction being China Petrochemical's C$4.65 billion purchase of a 9 per cent stake in Syncrude in 2010.
When unconventional reserves are included, Canada ranks behind just Saudi Arabia in proven oil reserves, according to Athabasca.
In addition to oil sands, the Chinese oil giants have been snapping up minority stakes in shale gas projects in North America, to learn more about the advanced drilling technology developed there. Shale gas is natural gas trapped in rocks deep underground, whose exploitation was only made possible by recent technological advances.
China Petrochemical, parent of listed Sinopec, on Tuesday announced it would buy one-third stakes in five oil sands exploration projects in various parts of the US from US firm Devon Energy.
China Petrochemical will pay US$900 million upfront, and up to a further US$1.6 billion by the end of 2014 to cover 80 per cent of the projects' drilling costs.
According to the US Energy Information Administration, China is estimated to have 36 billion cubic metres of technically recoverable shale gas resources, the most in the world.
Sanford C. Bernstein analysts Neil Beveridge and Ying Lou said in a research report that Chinese shales were deeper, structurally more complex and often trapped in difficult terrain, making them more expensive to develop than those in the United States.
The number of barrels contained in Canada's oil sands. The country has the second-largest proven oil reserves