Beyond China's Coal Fields: Expanding Its Gas Resources

Husky Energy's Recent Gas Discovery Spurs More Exploration Activity

It is not for lack of trying. In June, Husky Energy announced a deep gas discovery beneath the South China Sea, about 155 miles south of Hong Kong. The area had been abandoned decades earlier when shallower wells had come up dry. Fu Chengyu, Chairman of Husky's Chinese partner China National Offshore Oil Corp (CNOOC) called the gas discovery "a tremendous breakthrough for us." The find may reportedly contain 3.5 tr illion cubic feet of gas. Last week, Husky Energy and CNOOC signed three new production-sharing contracts to drill for oil and gas in deepwater blocks in the eastern and western South China Sea.

advertisement

While Husky Energy may be Calgary-based, it remains controlled by Hong Kong billionaire Li Ka-shing. China's big announcement in mid July invited the more autonomous foreign oil companies to explore in as many as nine blocks in northwestern China. The target is the Xinjian's Tarim Basin, which has proven reserves of six billion tons of oil and eight trillion cubic meters of natural gas. Analysts heralded this as China's biggest step forward in cooperating with major foreign oil and gas companies since 1994. China is eager to move these projects further in order to keep its 2200-mile natural gas pipeline running at capacity to supply its major coastal cities in eastern China.

Australian LNG Helping China's Energy Mix

In late September, the city of Shenzhen, in China's southern province of Guangdong, will begin generating electricity powered by Australian gas. Northwest Shelf Australia LNG PTY plans to annually ship over three million tons of Liquefied Natural Gas (LNG) for the next 25 years. The LNG contract valued at $25 billion is Australia's largest resource contract. It angered many Australians when CNOOC became the first foreign country to own a stake in Australia's gas reserves. The gas had been allocated for domestic use in Australia. The deal entitled the Chinese firm to own about 1.1 trillion cubic feet of gas and another 210 million barrels of liquids of Western Australia's gas project. Because of previous long-term contracts with Japan, China may not be able to sign new gas deals with Australia until after 2010.

"Right, we see in the LNG (liquefied natural gas) business a kind of unprecedented situation: unprecedented demand from not only new emerging buyers China and India, but also the U.S." China plans to build over a dozen more new LNG terminals along its southern coast similar to the one in Guangdong province, which will serve cities in the Pearl River Delta, Hong Kong and power plants in the Delta region. Several LNG projects, under construction or waiting for approval, would impact Shanghai, Beijing and other multi-million population centers. Despite the size of this and other deals, it is not enough. "The actual demand is so big that neither onshore nor offshore gas or LNG will be able to meet the demand on its own, said Azfar Shaukat, director of Mott MacDonald Group's oil and gas studies. "It has to be a combination of them."

Disclaimer: The views and opinions expressed in the articles and columns published are those of the individual writers and not necessarily those of Investorideas.com, or any of the industry sector portals . At the time of publication, writers may hold positions in the stocks or companies mentioned.
Investorideas.com or any of the industry sector portals cannot assure accuracy of content from freelance articles and content. Investors are encouraged to research and verify facts and under no circumstances is Investorideas.com endorsing the content as a recommendation to buy or sell stock.

TOP