After two years of aggressive purchasing, Chinese energy majors are curtailing unconventional oil and gas acquisitions, leaving room for other Asian competitors.
Sinopec Group, PetroChina and CNOOC Ltd, who have been leading the Asian market in energy purchases for the last two years, are now reducing the number unconventional oil and gas acquisitions overseas. Spending has decreased by 31% from $23.4 billion in 2010 to just $16.3 billion in 2011. According to Thomson Reuters, the majors have spent just $5.1 billion in deals so far this year, compared to over $13 billion by neighbouring Asian countries.
China’s state-owned oil companies have already shied away from American shale gas projects due to increased environmental lobbying and oversupply-driven price cuts, and are now expected to focus on developing their overseas projects. In Australia, PetroChina’s $3 billion coal-seam gas joint venture Royal Dutch Shell is already under scrutiny from local environmental groups, causing increasing cost pressures for the two majors.
Nonetheless, China’s massive demand for energy will still drive oil acquisitions for the foreseeable future. While industry analysts do not see Chinese oil firms retreating from major overseas energy acquisitions any time soon, it is likely they will leave unconventional energy projects for Japanese and Southeast Asian players, such as Indonesia, India, Malaysia and South Korea.
In Japan, the rising Yen has allowed firms to diversify their overseas interests. Recently, Mistubishi Corp acquired a 40% stake in Encana Corp’s British Columbia gas assets for $2.9 billion, a deal that PetroChina walked away from in 2011 due to a disagreement over terms.
At a recent gas conference in Kuala Lumpur, president of the state-run Korea Gas Corp, Kangsoo Choo, remarked “there are no limits – wherever there is gas, we will go” and expects the company to invest $2.5 billion to develop oil and gas projects this year.