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Strategies & Market Trends : The Financial Collapse of 2001 and Beyond

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To: Haim R. Branisteanu who wrote (89649)4/30/2012 10:45:31 AM
From: The Jack of HeartsRead Replies (1) of 108087
 
I am thinking LT trend here.. one year trade or shorter who knows.. Look at ECA.TO recent move,,




Why does US import instead of drilling more offshore ... Again it is not all price..

Here a quick find on China..

ft.com

China’s vast shale gas potential limited by pipeline infrastructure obstacles By Anthony Kim in New York with additional reporting by Zheng Yu in Shanghai






This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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The infrastructure as well as the geological differences that exist between China and the US are likely to make the PRC’s development of its vast and largely-untapped shale gas reserves follow a slower growth curve than the boom that has recently swept through the American shale gas sector, according to a number of industry experts interviewed by mergermarket. These hard facts are likely to disappoint the many US-based, natural gas exploration and production companies as well as the many companies in their supply chain which had been eagerly anticipating a major opportunity to export their products and services to the energy-hungry, emerging economic powerhouse.

Earlier this month, China’s Ministry of Land and Resources announced its assessment of shale gas reserves in the country, having appraised potentially recoverable resources of 25.1 trillion cubic meters. The estimate is lower than previous estimates, but still believed to be the largest in the world.

The ministry also pointed out that the country’s lack of expertise in the shale gas extraction field could make production difficult, according to reports. This sentiment was echoed at a meeting of the Chinese People’s Political Consultative Conference (People’s PCC) last week.

Jia Chengzao, an academician at the Chinese Academy of Sciences and a director at China Petroleum Society, noted that Chinese energy companies already have several experimental areas in the Guizhou and Sichuan Province where dozens of wells have been drilled for shale gas. He said that these companies remained in the research stage, with the technologies not being fully managed.

“The government report said we need to accelerate the speed of overcoming obstacles in this field,” said Chengzao. “For me, the obstacles do not refer to the gas amount but the technologies.”

This technological discrepancy has been identified as a major export opportunity by the scores of US-based companies looking to leverage their competitive advantage in this new area of energy production. The technology and methods used to extract shale gas have been largely developed in the US and have created the boom in natural gas production in recent years. Gross production of natural gas from shale wells grew from 8.9% of total production in 2008, when the US Energy Information Administration first began tracking it, to an estimated 16% of total natural gas withdrawals in 2010.

Many Chinese companies are also looking for partners overseas to help them catch up technologically and be better positioned to take advantage of the country’s undeveloped shale gas reserves. For example, the Chinese pumps used in the hydraulic fracturing process – where millions of gallons of water and chemicals are pumped at high pressure into the ground to force shale formations to split and fracture – have not reached a level that is suitable for shale gas extraction, according to Cheng Yongfeng, the board secretary of the Chinese oilfield equipment manufacturer, Yantai Jereh Oilfield Services Group Co. This is just one area where Chinese companies are looking for partners abroad.

“There are two big sectors for shale gas extraction,” said Cheng. “One is directional drilling and the other is [hydraulic] fracturing. Any company who has business related to these two sectors will be greatly boosted. We are seeking new overseas partners in these two fields.”

Even so, the differences in infrastructure and geology between China and the US have become a growing cause for concern on the part of some Chinese officials and American energy companies.

Chen Mian, the Dean of China University of Petroleum’s School of Petroleum Engineering, pointed to a number of major geological differences which would limit the ability to transfer US extraction expertise to China. These included the fact that the Chinese gas was buried deeper, the formation age was older and the water resource was in greater scarcity.

“Under these circumstances, shale gas extraction in our country must be based on the reality,” Dean Mian said. “We need to establish a set of theories customized for the Chinese context, forming a solid foundation for massive commercial development.”

The scarcity of water near shale gas-rich areas, the proximity of large cities near potential well sites, the unknown geology of the shale formations and the lack of a mature pipeline infrastructure are some of the main considerations that US-based companies need to keep in mind, said Chris Faulkner, CEO of Irving, Texas-based Breitling Oil and Gas. The company has been actively seeking Chinese partners as a way of expanding its operations beyond the numerous domestic shale plays.

Faulkner believes that the lack of natural gas pipeline is the most pressing issue faced by China’s shale gas sector. He firmly believes that the country needs to invest more in virtually every aspect of its gas transportation pipe infrastructure, from midstream processing pipelines and facilities through to transmission lines collecting from sources and delivering to markets.

Pipeline infrastructure issues

America’s extensive pipeline infrastructure has been one of the main reasons that the shale gas industry has been able to develop so rapidly. There are 210 natural gas pipelines spanning 300,000 miles which run to every major market in the US, save for some areas in the Northeast and this has made it easier for producers to sell the resource. China, by contrast, only had about 22,400 miles (36,000 kilometers) of natural gas pipeline as of 2010. However, it has been reported that the government is planning to expand the network to 62,100 miles (100,000 kilometers) by the end of 2015.

The system of building and operating pipelines in China also differs greatly with the one that exists in the US. The American model operates on what is called a contractualized pipeline system - basically a deregulated and open market. Cathy Landry, a spokesperson for the Interstate Natural Gas Association of America (INGAA), explained that a pipeline operator typically asks natural gas producers to commit to a contract to pay for the right to use a certain amount of capacity in a pipeline before it is built. If no producers commit to using a certain pipeline, it usually doesn’t get built. Landry says that this system efficiently connects those areas that have abundant resources and capable producers with those markets that are in need of natural gas.

“The system works well,” said Landry. “It takes into account what the market needs and requires producers to commit.”

That market-based system also applies to the operation of the pipeline network. Most major transmission lines work much like toll roads, where a natural gas producer pays a fee to the pipeline operator to transport the resources to a desired market. The key here is that the pipeline operator does not own the resources flowing through the line.

“In the US oil and gas infrastructure, bottlenecks tend to get solved pretty quickly because it’s an open market,” said Raoul LeBlanc, senior director at global oil and gas consulting firm PFC Energy. “Projects get completed based on supply and demand and the system works efficiently. LeBlanc said that bottlenecks usually occur when you have one company owning the pipeline.

And while many new pipelines have been built to meet America’s recent flood of shale gas development, there have been occasions where the market has failed to keep up. For instance, more than one-third of the shale gas produced in North Dakota is flared – burned and disposed at the wellhead instead of transported to market – due to the lack of natural gas pipeline capacity and processing facilities in the area, according to a US Energy Information Administration report published in November 2011.

China’s pipeline system, on the other hand, follows the model generally found elsewhere in the world, where the oil and gas companies, such as the Russian energy giant Gazprom, own the pipeline and the product that flows through it. Nearly all of the country’s pipelines are owned by the three major state-owned energy players – China National Petroleum Corp. (CNPC), China National Offshore Oil Corp. (CNOOC) and China Petroleum & Chemical Corp. (Sinopec).

Private Chinese companies are now allowed to participate in exploring and producing shale gas, following a recent policy decision undertaken by China’s Ministry of Land and Resources. However, a number of US gas industry sources confirmed that they viewed the dominant position that China’s Big Three hold in the pipeline system as a cause for concern.

“It comes down to what are the motivations of the people that own the pipeline,” said Geoffrey Styles, the MD of the energy consulting firm, GSW Strategy Group. “If it is to control the market, then it will be difficult [for private companies and US-based companies]. On the other hand, if the party that owns the pipeline is more concerned about developing the market and resources, even if it is a proprietary pipeline, they might want to make it work.”

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