Thursday, July 1, 2010

EnCana and Chinese Company on Road to Shale Joint Venture

Last week, EnCana announced that the company had signed a memorandum of understanding with China National Petroleum Corporation (CNPC) that is expected to lead to a joint venture to develop EnCana's leases in the company's British Columbia shale plays, the Horn River, Montney and Greater Sierra.  A formal JV agreement likely is a couple of months away, and the MOU is non-binding.  The JV would accelerate EnCana's development of these fields, where EnCana has about 2.7 million acres under lease.  

Add the Chinese to the list of foreign entities paying up to learn about shale gas.  EnCana's press release states:
"CNPC would invest capital to earn an interest in the assets and gain an advanced understanding of unconventional natural gas development through an ongoing sharing of technical knowledge."
China has demonstrated an openness to pursue shale within its own borders.  Sinopec subsidiary China Petroleum & Chemical Corp. has already a specialized project team to develop domestic shale gas resources.  The country is also investing heavily in LNG import capacity.  It's probably not reasonable to suggest that China is bound for energy independence or a natural gas-based economy any time soon, but can you imagine the enormous change that could occur in the worldwide geopolitical dynamic if China were no longer dependent on "rogue nations" for oil?  T. Boone Pickens should start talking to the the Chinese about natural gas trucks!  Hell, Warren Buffet has already invested in BYD, a Chinese electric car maker.  That's starting to look like a smart decision for a very smart investor.

The argument that China builds a new coal-fired power plant every "x" number of days has retarded progress towards larger environmental goals for the past decade.  If China starts substituting gas-fired plants for coal-fired plants and we might start to see some real progress towards reducing carbon output. 

Wouldn't it be interesting to see China exploit a technology developed in the U.S. and take it to great heights?  Sounds like a familiar storyline to me.

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