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Malaysia’s Petronas is paying M$3.32bn ($1.1bn) for a half share in three Canadian shale gas fields in an attempt to catch up with Asian rivals who have invested earlier in the booming North American unconventional energy sector.

The state owned Malaysian oil and gas producer said the deal with Canada’s Progress Energy Resources also allowed for the construction of an LNG gas export terminal on the British Columbia coast in which it would have an 80 per cent interest.

The terminal would be aimed at potential export markets in Asia as an alternative to piping the gas to eastern Canada and the US, where prices have fallen sharply because of massive investment in new shale gas fields.

However, Petronas said the terminal would only go ahead if a feasibility study showed it was viable. Several other oil and gas producers have also indicated an interest in establishing gas export terminals on Canada’s west coast, including Royal Dutch Shell and Apache Corporation, though none have been given the go-ahead.

Although the Canadian deal marks a fresh strategic departure for Petronas, oil and gas producers in emerging Asia have invested more than $20bn unconventional energy projects in North America in the past two years.

Big Asian investors in shale gas include PetroChina, which paid $5.4bn last year for a 50 per cent stake in a project owned by Canada’s Encana, and India’s Reliance Industries, run by Mukesh Ambani, which has invested $3.2bn in three US projects run by Atlas Energy and Chevron, Pioneer Natural Resources, and Carrizo Oil & Gas.

Korea Gas has a one-third stake in a US project owned by Anadarko Petroleum, acquired for $1.6bn, and China’s Cnooc has invested $1.7bn in projects owned by Chesapeake Energy. Australia’s BHP Billiton Petroleum paid $4.75bn in February for part of Chesapeake’s Arkansas gas business.

Some of the investment is intended as a way of acquiring the technical skills to develop similar resources in Asia. China, for example, has technically recoverable shale gas reserves of about 1,275 trillion cubic feet – nearly 50 per cent larger than the US – according to a recent report by the US Energy Information Administration. India has 63 tcf.

However, the investors are also running significant risks by investing in shale gas, which is produced from shale rock through a technically complex combination of horizontal drilling and high pressure chemical injection known as hydraulic fracturing, or fracking.

Critics allege that fracking contaminates fresh water drinking reserves, and there have been several court cases in the US seeking to shut down projects. Steven Chu, the US energy secretary, said last year that fracking could be linked to pollution, and that federal regulations were inevitable.

State legislatures have also begun to tighten regulations. The Texas House of Representatives agreed last Sunday to require fracking drillers to make public the chemicals they use, while regulatory bills have been introduced in California, Pennsylvania, New Jersey and New York in the past month.

There has also been substantial Asian investment in oil sands – highly viscous bitumen coated sand deposits found mainly in Canada. Major investors include China National Offshore Oil Corp, which bought 17 per cent of Canada’s MEG Energy for C$100m in 2005, and Sinopec, the Chinese group, which acquired 9 per cent of Syncrude Canada for $4.6bn last year.

The growth prospects of oil sands have been underpinned by the crude oil prices, encouraging other recent deals involving CIC, the Chinese sovereign wealth fund, which has spent $2.3bn on stakes in two projects, and KNOC, South Korea’s national oil corporation, which paid $1.7bn in 2009 for the Black Gold project.

But there is also serious opposition to the industry in Canada, where extraction is being challenged by environmentalists, and the US, where much of the oil has to be refined and sold. Transporting the oil requires long pipelines that critics say are prone to spillages because of the product’s corrosive nature.
Related reading:
States take action on shale gas ‘fracking’ – FT
Asia’s American oil venture could be costly – FT
Sinopec buys Conoco’s 9% stake in Syncrude – FT
Interactive graphic: The future of US energy – FT
Energy Source – FT
Malaysia file – Beyondbrics