With good reason, Australia's Foreign Investment Review Board recently gave Royal Dutch Shell PLC and PetroChina the thumbs up for their $3.45 billion joint bid for Arrow Energy Ltd.
The new Shell-PetroChina joint venture—called CS CSG (Australia) Pty. Ltd.—will integrate Arrow's Australian assets with Shell's existing coal seam gas assets and Shell's site for a planned LNG plant on Curtis Island, Queensland.
The firms will own equal share of the gas produced by the LNG plant and Shell said it was "likely" to sell its gas to China. That's probably an understatement, given the potential size of the Chinese market.
China is not just hungry for increasing supplies of gas, however, it is really looking to exploit its own sources of CSG through the use of the advanced Shell technology.
Expertise wanted
PetroChina Chairman Jiang Jiemin said the expertise gained from the Arrow deal would help PetroChina develop China's coalbed methane reserves, which may be as much as 38 trillion cu m.
Jiang said PetroChina plans to boost its output capacity of the fuel to 4 billion cu m (bcm)/year within 5 years. What does that mean? Well, it could mean 20% of China's CBM output by 2015, which may reach 20 bcm by then.
For Shell, the agreement means that China is opening the great wall to its upstream industry and downstream markets.
The downstream prospects could not be much better. While the BP Statistical Review of World Energy shows China had a shortfall of 5 bcm of gas in 2008, Beijing's Center for Energy Studies forecasts imports will be 135 bcm/year by 2020.
That's a lot of gas, and through the Arrow deal, Shell is positioned to be more than a spear-carrier in fulfilling Chinese demand growth—a point underlined by Malcolm Brinded, Shell's executive director of upstream international.
Upstream, downstream
"This transaction combines Shell's global LNG expertise, PetroChina's operational experience, and our access to regional gas markets," Brinded said. "The new [JV] will be an important growth asset for Shell, and help meet growing demand for cleaner energy in Australia and international markets."
As for upstream, just days after signing the Arrow deal, Shell and PetroChina parent China National Petroleum Corp. announced plans to jointly develop and produce gas in China's Sichuan basin.
Under the 30-year contract, Shell and CNPC would appraise and potentially develop tight gas reservoirs on Jinqiu Block in central Sichuan Province.
"This is another step forward for Shell's worldwide tight gas strategy, building on our technology and production track record in China and elsewhere," said Brinded.
The agreement between Shell and PetroChina is surely a win-win proposition for both sides. The key? Shell's willingness to share its advanced technology with the Chinese.
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