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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Why Is China Buying Up These Unprofitable Natural Gas Assets?

Chevron Bangladesh

Big surge in oil and gas M&A the last few months. With watchdogs Evaluate Energy reporting that Canadian energy deals have already totaled $32.8 billion in 2017 — nearly as much as full-year 2015 and 2016 combined.

That uptick has been driven by global majors selling oil sands assets. And elsewhere in the world, another big firm shed unloved fields this week — to a surprising buyer, which may show an important geopolitical shift underway.

In Southeast Asia.

The place is Bangladesh. And the seller is Chevron — which announced Monday it is divesting its portfolio of natural gas production in the country.

It’s been widely known that Chevron’s Bangladesh assets were on the block. With the company announcing its intent to pull out of the country after the government denied a request for a hike in natgas prices, in 2015.

Chevron subsequently said that the current $2.76/Mcf rate it receives at its fields here is too low to make money. Causing the company to scrap plans for $650 million of new investment in the Bangladesh portfolio — which produces a significant 1.55 billion cubic feet per day.

The question then became: who would buy these apparently unprofitable fields?

And this week the answer emerged.

China.

Chevron said it is selling its Bangladesh portfolio to Himalaya Energy — a joint venture between state-owned China ZhenHua Oil and Hong Kong investment firm CNIC Corporation. Related: Low Oil Prices Force Abu Dhabi To Sell U.S. Assets

The price tag for the deal wasn’t disclosed — but given the production levels here, it’s likely sizeable. Raising the question, why would the Chinese firms pay up for fields that are close to losing money?

The answer may be, influence.

The Southeast Asian sphere has recently become an energy focus for China — evidenced by the launch of mega-projects like a 770-km oil pipeline across Myanmar to Kunming.

Chevron’s offshore Bangladesh fields lie just a few hundred kilometers from that pipeline’s docking point in Myanmar. Suggesting this week’s deal could be a move to further increase power in this critical supply region — especially given that Chevron’s production makes up 58% of national Bangladesh supply.

That gives China a stranglehold on energy flows here. Watch to see if that influence might in fact kill the deal — with Bangladesh state oil firm Petrobangla saying it is looking at exercising a right of first refusal on the Chevron assets. The outcome here could quietly reshape the energy picture in this part of the world.

Here’s to the hidden value.

By Dave Forest

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Leave a comment
  • Dan on April 26 2017 said:
    Chevron thinks oil,gas how much they can steal from investors before retiring. China thinks long term, Silk Road, economic growth for all countries within Silk Road realm. Everyone is a customer.
  • Kthor on May 01 2017 said:
    China will steal those NatGas (export) and sell it back at a higher price (Import)

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