According to Bloomberg News, Chinese energy companies, both state-run and private, are seeking to invest more than $40 billion in U.S. shale energy.
Readers may remember the Chinese oil and gas producer CNOOC Limited's (NYSE: CEO) $19 billion bid for U.S.-based refiner Unocal, which was rejected by federal regulators in 2005. (Unocal later merged with Chevron Corp.)
Although CNOOC was recently able to complete a $15.1 billion purchase of Nexen Inc., a Canadian oil and gas company with assets in the Gulf of Mexico, outright takeovers of U.S. energy assets by Chinese companies are probably still not welcome.
Chastened by its experience with Unocal, CNOOC has not attempted to buy any U.S. company outright.
However, after developing a relationship with Chesapeake Energy Corp, (NYSE: CHK), CNOOC has purchased stakes in specific Chesapeake projects in Colorado and Wyoming.
"They didn't come over here and try to buy Chesapeake," Chesapeake CEO Aubrey McClendon told The Wall Street Journal. "They came over here to buy a minority, non-operating interest in an asset and not take the oil and gas home."
So why do the Chinese want to invest billions of dollars to fund shale oil and shale gas projects in the United States when it won't be able to export the energy products back to China?
Why China's After U.S. Shale Oil, Gas
It all comes down to America's world-beating hydraulic fracturing (fracking
technology. The vast shale gas and shale oil reserves in the United States have completely changed the global energy outlook.
Shale gas and shale oil are expected to lead to a revival of U.S. manufacturing over the next 10 years as cheap energy gives the U.S. a big cost advantage over the rest of the world.
But as big as U.S. shale energy reserves are, China's are even bigger. The problem is that Chinese companies lack the technology to access these reserves.
With experience gained by looking over the shoulder of shale energy leaders such as Chesapeake, Chinese companies could learn enough to develop their own shale gas and shale oil resources.
Obstacles to Developing China's Shale Energy Resources
But even with the best U.S. technology at their disposal, there are still many obstacles to the development of China's shale energy resources.
One of the biggest is China's underdeveloped pipeline infrastructure. There are more than 300,000 miles of gas pipelines in the United States. In 2010, China had only 22,400 miles of pipeline. This is expected to rise to 62,100 miles by 2015 but even that is woefully inadequate if shale gas is going to become a major domestic source of energy in China.
Another problem for China is a lack of water. It's called hydraulic fracturing for a reason. Fracking uses a lot of water.
Where I sit, on the eastern edge of Marcellus Shale in upstate New York, with average annual precipitation of nearly 50 inches, we just don't have to worry about water. That is one of the reasons why our neighbors just across the Delaware River in Pennsylvania, who share our weather, have taken the lead in the exploitation of shale gas by fracking.
Is it a good idea to let the Chinese have access to our fracking technology?
One vote for yes comes from Matthew Hulbert, writing in Forbes:
"The added bonus of letting China in on the North American party is that Beijing will take all the tech and know-how it has from America directly back to China. Given Chinese shale gas reserves [1,275 trillion cubic feet] dwarf those of the U.S. and unconventional oil plays are being revised up and up on a yearly basis in Beijing, both America and China could become energy superpowers in their own right. Perceived resource scarcity would be a thing of the past. Washington and Beijing could feed global hydrocarbon liquidity, set credible benchmark prices, and cut out any unwanted "riffraff' in between. Energy flows East to West, not just North to South and vice versa."
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- Bloomberg News:
China Joining U.S. Shale Renaissance With $40 Billion
- Financial Times:
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Why China Will Stop U.S. Energy Independence