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Daniel J. Graeber

Daniel J. Graeber

Daniel Graeber is a writer and political analyst based in Michigan. His work on matters related to the geopolitical aspects of the global energy sector,…

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How to Buy Your Own Shale Boom

Foreign companies have spent tens of billions of dollars in an effort to capitalize on the U.S. oil and natural gas boom. The Energy Department said foreign companies like the China Petroleum & Chemical Corp are pushing deeper into the U.S. energy market through joint ventures or outright acquisitions. China is expected soon to overtake the United States as the top consumer of energy resources. With Beijing aiming to go from bust to boom in terms of its own natural gas campaign, taking advantage of the U.S. technological developments may make good business sense. The Energy Department said it's expensive for foreign companies to pay the entry fee but with billions of dollars invested already, there may be no shortage of foreign interest in the United States.

Last month, a subsidiary of Tokyo Gas Co. Ltd. paid $485 million to take on a minority stake in the Barnett shale oil and gas play from Quicksilver Resources. The Tokyo company gained access to an estimated 275 million cubic feet per day that it says it will sell on the U.S. market. That said, Japan is looking to shore up as much natural gas as it can in order to compensate for the nuclear shortage brought on by the Fukushima nuclear disaster in 2011. In February, Japanese Prime Minister Shinzo Abe tried to woo U.S. President Barack Obama to gain access to shale natural gas, which is cheaper than the liquefied natural gas it normally gets.

Related article: Fracking Industry Loses $1.5 Billion in Gas Leaks Each Year

The appetite is no different for China. Last year, the U.S. Energy Department ranked China as the No. 4 consumer of natural gas in the world and Chinese demand for natural gas in 2011 was 50 percent higher than it was in 2009. At home, Beijing expects to go from zero to 6 trillion cubic feet of natural gas production per year by 2020.

In early 2013, Chinese conglomerate Sinochem Corp. spent $1.7 billion to team up with Pioneer Natural Resources at the Wolfcamp shale play in Texas. China Petroleum and Chemical Corp., known also as Sinopec, said in February it would pay just over $1 billion for a 50-percent stake in the Mississippi Lime shale formation in Oklahoma owned by Chesapeake Energy Corp. Chesapeake said production there was around 34,000 barrels of oil equivalent per day by the fourth quarter of last year. And that's just the latest for the Chinese company's acquisition of U.S. shale.

The Energy Department said investments like these are part of a larger foreign capital push into the U.S. energy market. The department's Energy Information Administration said foreign companies spent more than $26 billion on tight oil and shale gas plays in the United States since 2008. That's just the amount spent on joint ventures, however. A combined $133.7 billion was spent by foreign companies through 73 separate deals for U.S. oil and gas between 2008 and 2012.

"While foreign companies may pay sizable initial costs through joint ventures, these deals can be considered a cost of entry to the development of hydrocarbons through the latest technology," the EIA stated.

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But that may just be only a partial characteristic of the trend. Japan is searching for new ways to keep consumer demand met without nuclear energy by taking on more natural gas. China, meanwhile, needs to find ways to tap into its own shale potential. While China may hold substantial natural gas reserves in its own right, it's buried twice as deep as American shale, meaning it might not be worth it to extract for the time being.

By the end of last year, Asian economies accounted for a majority of the global demand for natural gas. The EIA said the influx of foreign capital is good for the U.S. and foreign companies, but the outlook may depend on what those foreign investors take away from the deal.

"U.S. operators get financial support, while foreign companies gain experience in horizontal drilling and hydraulic fracturing that may be transferable to other regions," the EIA said.

By. Daniel J. Graeber of Oilprice.com




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