Ed Crooks Shell plays the China card

As Royal Dutch Shell reports first quarter results – matching BP in comfortably exceeding analysts’ expectations – its chief financial officer Simon Henry has had some interesting things to say about the company’s plans in China.

Or rather, it would be more accurate to say, “with China”.

Talking to reporters on Wednesday morning, Henry talked about Shell’s joint bid with PetroChina for Arrow Energy of Australia, now recommended by Arrow’s board, as an example of the sort of tie-up he expects to become more common in future.

Analysts have argued that PetroChina needed Shell’s help to win Arrow, as a bid on its own would have faced too much political opposition from Australia. Henry said that the partnership was also good for Shell, in building a relationship with the world’s most important energy market.

The PetroChina deal includes a guaranteed market for the LNG that Shell wants to produce using Arrow’s coal-bed methane reserves, and that security is expected to give the consortium the confidence to invest in a liquefaction plant.

Henry said Shell was also very hopeful about its prospects for developing unconventional gas inside China. As today’s results press release pointed out:

In China, Shell and PetroChina, announced plans to appraise, develop and produce tight gas under a 30-year production sharing contract in an area of approximately 4,000 square kilometres in the Jinqiu block of central Sichuan Province. In addition, shale gas assessment work commenced in January 2010 in the Fushun block that covers another area of also approximately 4,000 square kilometres.

The International Energy Agency has predicted that China’s gas demand will double between 2007 and 2015, if policies remain unchanged, and almost double again from 2015 to 2030.

With China making efforts to reduce its carbon dioxide emissions, Henry said, the case for using more gas for power generation instead of coal would support demand.

As a general observation, he said:

In five to ten years, if you want to be a major player in the energy industry, you will need to be inside China, and probably working with Chinese companies outside China as well.

It is a conclusion that the other big international oil companies seem to have reached as well.

Related links:

Getting cosy with China on energy deals - FT Energy Source
Drive to tape into China spurs oil links - FT
Why do oil majors partner with China? FT Energy Source