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Eni and PetroChina join forces

Shale-gas deal may see asset sale

ITALY’S Eni has signed a memorandum of understanding (MOU) with PetroChina to develop unconventional energy resources in China and internationally. The two will also focus on jointly expanding their conventional and unconventional operations in Africa, Eni says.

State-owned PetroChina may buy some of Eni’s assets, although the Italian firm did not specify which ones. Eni will also share its knowledge of shale-gas developments in North America, giving PetroChina expertise for use in China’s quest to develop its own unconventional-gas resources.

Eni insiders expressed excitement at what they believe to be a highly prospective and wide-ranging agreement, but said the initial focus would be on developing Chinese shale-gas opportunities. Coal-bed methane, an ample resource in the country but one dogged by confusion over development rights, is not a target.

Eni’s unconventional presence in North America includes a 28% stake in Quicksilver Resources’ Barnett Shale acreage, which the Italian company bought in May 2009. In China, Eni works with CNOOC and Chevron, producing 12,000 barrels of oil equivalent a day in the South China Sea.

The deal is a chance for Eni to expand its presence in Asia, a “very prospective and attractive region” because of its rapidly growing markets, the company says.

Shell, Statoil and other Western firms have also sought to build a position in China’s unconventional-gas sector in recent months, lured by an outlook for steep demand growth. The International Energy Agency predicts China will need to import 40% more natural gas in 2035 than it did in 2008. The country’s National Petroleum and Chemical Planning Institute says a shortfall in supply of 5bn cubic metres a year (cm/y) could emerge as early as 2015, unless domestic unconventional-gas production takes off.

China has relatively small conventional gas resources – estimated at 2.8 trillion cm by Cedigaz – so the government hopes to exploit the country’s estimated 150 trillion cm of shale-gas reserves. China wants output to reach 30bn cm/y by 2020.

PetroChina has been the most active of the state-owned firms in trying to tap these riches, joining Shell to explore the Sichuan basin’s shale-gas prospects, but has also signed upstream deals in Australia and Texas.

Its domestic peers are charting a similar course. PetroChina’s parent company, CNPC, agreed last year to fund most of Encana’s development costs for projects in western Canada’s prolific shale-gas plays. And Sinopec is also making significant unconventional-gas investments in China, saying around $15m will be needed for exploration of every 100,000 square km of land. It says China’s “great potential” will justify such spending.

Sinopec has identified six large prospective areas and has begun drilling an unnamed seventh area.

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