China's CNPC Extends Global Reach with Deals

China National Petroleum Corp. (CNPC) announced two major overseas acquisitions in mid-December as the oil giant continued its accelerated pace of global expansion.

State-run CNPC said Dec. 12 it would buy a 10.2% stake in the Browse liquefied natural gas (LNG) project in Australia for $1.63 billion from the mining company BHP Billiton.

Just two days later, CNPC announced that it had partnered with Canadian natural gas producer Encana Corp. to develop shale-gas fields in northern British Columbia. The Chinese company paid nearly $2.2 billion for a 49.9% share in a joint venture with Encana.

These agreements and deals earlier in the year brought total overseas oil and gas acquisitions by Chinese companies to $34 billion in 2012, according to the CNPC Economics Technology Research Institute.

CNPC plans to continue its shopping spree for at least two years. The company wants its foreign wells to produce 200 million tons of oil a year by 2015, or about twice its 2012 overseas production level.

A CNPC investor relations official said the company is especially keen on investing in politically stable, low-risk countries such as Australia and Canada. He said the latest deals involve projects that will complement the company's existing businesses.

Down under

The CNPC-BHP Billiton deal is expected to win the Australian government's approval, particularly since the Chinese company is providing capital and mainland customers for the natural gas. It's the first CNPC gas project in Western Australia and encompasses the largest undeveloped gas reserves Down Under.

Another plus for the project is that its other major stakeholders — Royal Dutch Shell and a Mitsubishi Corp.-Mitsui & Co. joint venture — have a history of successful oil and gas partnerships, according to the consulting firm PFC Energy.

For example, last May they partnered with CNPC and Korea Gas to build a LNG plant at the Kitimat port in Canada. They're also working with CNPC on a natural gas plant in Sichuan Province.

But uncertainties remain. Like many LNG projects in Australia, the Browse production schedule has been delayed.

A study was launched in February 2010 and initial government approval obtained last July. But a date for finalizing plans has been pushed back several times, most recently to June 2013.

Moreover, foreign investors have expressed concerns about the project based on climbing labor costs and the rising value of the Australian dollar against the U.S. dollar.

Nevertheless, in the face of strong demand for LNG in China as well as Japan and South Korea, energy companies have been flocking to the eastern and western coasts of Australia. Three LNG plants have been finished in recent years and another 12 are under construction.

When the building boom is finished, Australia will likely replace Qatar as the world's largest LNG exporter, with an annual production rate of about 110 million tons.