The potential for British Columbia to develop an offshore export market for its swelling natural resources was given a considerable boost last week with PetroChina's announcement it wants to spend $5.4 billion to buy half of EnCana Corp.'s Cutbank Ridge resource in the province's north east.

In the short term, the deal -the biggest investment to date by a Chinese company in the North American energy sector -is about finding capital to develop gas fields at a time when low commodity prices aren't providing companies with enough cash flow to do it as quickly as they want to.

PetroChina, in its news release, said it expects the joint venture to "unlock greater value for our shareholders, and will strengthen the competitiveness of [the] Canadian natural gas business."

"For years, PetroChina has been looking for opportunities to work with major Canadian oil and gas companies in areas including LNG and oilsands in Canada, and projects in China," the company added.

In the long term, however, B.C. Energy Minister Steve Thomson sees it as another step toward eventual shipments offshore.
Thomson noted that Apache Canada and EOG Resources are moving toward a final construction decision for their proposed KM LNG natural gas liquification plant at Kitimat, which would be key to opening exports.

Eoin Treacy's view This article by Derrick Penner for the Vancouver Sun may be of interest to subscribers. Here is a section:

The potential for British Columbia to develop an offshore export market for its swelling natural resources was given a considerable boost last week with PetroChina's announcement it wants to spend $5.4 billion to buy half of EnCana Corp.'s Cutbank Ridge resource in the province's north east.

In the short term, the deal -the biggest investment to date by a Chinese company in the North American energy sector -is about finding capital to develop gas fields at a time when low commodity prices aren't providing companies with enough cash flow to do it as quickly as they want to.

PetroChina, in its news release, said it expects the joint venture to "unlock greater value for our shareholders, and will strengthen the competitiveness of [the] Canadian natural gas business."

"For years, PetroChina has been looking for opportunities to work with major Canadian oil and gas companies in areas including LNG and oilsands in Canada, and projects in China," the company added.

In the long term, however, B.C. Energy Minister Steve Thomson sees it as another step toward eventual shipments offshore.
Thomson noted that Apache Canada and EOG Resources are moving toward a final construction decision for their proposed KM LNG natural gas liquification plant at Kitimat, which would be key to opening exports.

My view - As we have said on a number of occasions over the last two years, unconventional natural gas is a game changer for the energy industry. Natural gas remains an ideal fuel for many industrial, domestic and transport purposes. North American supply is extremely abundant which is helping to keep prices low. This will, in time, foster new uses for the fuel.

China has a voracious appetite for energy and has been aggressively acquiring resources for much of the last decade. $5.4 billion appears a reasonable price for access to a promising West coast opportunity. This is a deal which should also work for Canada. Unlike the sale of Potash Corp, a Canadian company remains in control of the resource and the investment helps to unlock additional value through funding development of a fresh resource. Accessing more natural gas west of the Rockies also opens up the potential for exports to Asia which it has previously lacked. This would offer a valuable opportunity to diversify its customer base.

EnCana is not among the leaders in the unconventional gas sector. (Some of these were reviewed in Comment of the Day on February 10th.) It has been ranging since late 2008 and a sustained move above C$35 would be required to indicate a return to medium-term demand dominance.