After Keystone Pipeline Failure, Canada Running to China for Crude Oil Deals

After 1949 when the Communists defeated the Nationalists for control of China, the mournful refrain from Washington, D.C. was “Who Lost China?” This arrogant display of superpower Cold War finger pointing ended with a number of careers destroyed and an unfair smear on the U.S. State Department that in some ways has never been entirely eradicated.

In today’s highly charged political climate, it will come as no surprise when some U.S. politicians come down hard on the Obama Administration for what will no doubt be described as driving Canada’s energy sector into the arms of China:

Cnooc Ltd. (883)’s $15.1 billion cash takeover bid for Nexen Inc. (NXY) signals a Canadian shift toward China and away from the U.S. as the nation’s traditional oil and natural gas partner and main export market.

Canada’s oil sands reserves, the third-largest recoverable crude deposits in the world, were developed in part by U.S. money as companies such as California’s Richfield Oil Corp. brought technology to extract bitumen from boreal peat bogs half a century ago. Now, for the first time, a Chinese company will own and operate oil sands crude production as well as Nexen’s shale gas assets in British Columbia, along with leases in other parts of the world.

Chinese oil producers have turned more frequently to Canada after political opposition in the U.S. derailed Cnooc’s $18.5 billion bid for Unocal Corp. in 2005, and after TransCanada Corp. (TRP)’s Keystone XL pipeline route south to Texas was blocked by President Barack Obama’s administration last year. 

The Nexen deal is important for two reasons. First, it potentially represents some absolution for CNOOC, which is best known in foreign investment circles as the company which botched the 2005 U.S. UNOCAL takeover, not taking into account American politics and the need for a public relations strategy. As the Nexen deal will require regulatory approval in several jurisdictions, we will see what lessons CNOOC has learned from the failed UNOCAL bid.

Second, as Bloomberg points out, the deal represents a further shift by Canada away from the U.S. towards China. Another deal involving Sinopec and Talisman Energy was announced yesterday as well, and there have been other recent transactions, including CNOOC’s takeover of Nexen partner Opti Canada.

Why is this happening? Read the entire article > "After Keystone, Canada Running to China for Oil Deals"

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Natural Gas Rig Count Briefly Drops Below 600

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The natural gas rotary rig count, as reported by Baker Hughes Incorporated, rose by 2 this week to 600, after falling to a 10 year low of 598 last week. After increasing modestly to 936 active rigs in the fall of 2011, the natural gas rig count has dropped sharply. The oil rig count, currently at 1,382, has generally risen steadily since 2009, largely in response to increasing crude oil prices.

Natural gas rigs are currently down about 31 percent from their level at the same time last year, while oil rigs have risen by 45 percent over the same period. However, increased productivity from shale gas formations (generated by horizontal drilling and hydraulic fracturing) and rising associated production from expanding oil directed development activity have helped maintain robust natural gas production.

Oil and Natural Gas Rigs, 2002 - 2012

number of rigs

Source: Baker Hughes Incorporated

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Oil Tankers to Lose Money on Saudi - U.S. Route Through 2012

The U.S. is importing the smallest amount of Persian Gulf crude in 14 years as demand weakens and domestic production climbs, signaling that tankers on the route will lose money for at least another year.

The world’s biggest oil consumer bought 1.7 million barrels a day from Saudi Arabia and six other Persian Gulf states in the first half, the least since 1997, according to the latest Department of Energy data. Daily U.S. output averaged 5.58 million barrels, the most since 2004, the data show. Some owners have paid clients to charter their tankers on the route since March and will probably have to keep doing so until at least the end of 2012, Arctic Securities ASA in Oslo estimates.

The U.S. is boosting output of oil, shale gas and ethanol as President Barack Obama seeks to cut the nation’s dependence on foreign fuel. Fewer cargoes from the Middle East to the U.S., the world’s second-biggest tanker route, mean an expanding vessel glut. There are about 25 percent more supertankers than cargoes available in the Persian Gulf, the most since October, according to Bloomberg surveys of shipbrokers and owners.

“The U.S. is awash with domestic oil and increasingly divorced and less reliant on foreign imports,” said Andreas Vergottis, the research director at Tufton Oceanic Ltd. in Hong Kong, which manages the world’s largest shipping hedge fund. “Not only is end use of oil shrinking, but domestic production of crude oil is rising rapidly”......Read the entire article.

What Everyone Should Know About Shale Gas

It's no secret that natural gas will play a big role in the U.S. energy needs in years to come. And we need to understand where these sources will come from to make money investing and trading the new sources of natural gas. One of those is shale gas. Shale gas refers to natural gas that is trapped within shale formations. Shales are fine grained sedimentary rocks that can be rich sources of petroleum and natural gas. Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. The production of natural gas from shale formations has rejuvenated the natural gas industry in the United States.

Does the U.S. Have Abundant Shale Gas Resources?
Of the natural gas consumed in the United States in 2009, 87% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas will further allow the United States to consume a predominantly domestic supply of gas.

According to the EIA Annual Energy Outlook 2011, the United States possesses 2,552 trillion cubic feet (Tcf) of potential natural gas resources. Natural gas from shale resources, considered uneconomical just a few years ago, accounts for 827 Tcf of this resource estimate, more than double the estimate published last year. At the 2009 rate of U.S. consumption (about 22.8 Tcf per year), 2,552 Tcf of natural gas is enough to supply approximately 110 years of use. Shale gas resource and production estimates increased significantly between the 2010 and 2011 Outlook reports and are likely to increase further in the future.

Where is Shale Gas Found?
Shale gas is found in shale "plays," which are shale formations containing significant accumulations of natural gas and which share similar geologic and geographic properties. A decade of production has come from the Barnett Shale play in Texas. Experience and information gained from developing the Barnett Shale have improved the efficiency of shale gas development around the country. Another important play is the Marcellus Shale in the eastern United States. Surveyors and geologists identify suitable well locations in areas with potential for economical gas production by using both surface level observation techniques and computer generated maps of the subsurface.

Check out this EIA article for facts on Shale Gas Formations in the U.S.

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