Given what little information has been released, it’s hard to know what to make of EnCana Corp.’s announcement June 21 that it was backing away from its blockbuster $5.4-billion deal with PetroChina announced in February. Had the deal closed, the sale of a half-interest in the Cutbank Ridge shale gas play would have been the largest investment of any kind by a Chinese state-controlled firm in Canada and the biggest reason to expect to see Asia-bound liquefied natural gas tankers docking on the West Coast in the not-too-distant future.
EnCana would only say that the parties reached an impasse over terms that included the joint operating agreement.
Where does that leave other offshore companies, notably Korea Gas Co., Mitsubishi and Petronas, that have invested lesser but still impressive sums in B.C.’s shale fields, almost certainly for the purpose of eventually importing LNG back across the Pacific? That trend line has already been set and it’s unlikely that one big fish’s decision to change direction will reverse the current. The fundamentals still point to a natural gas surplus in North America—especially in B.C. and Alberta, distant as they are from major consuming regions—and a relative shortage in Asia. Secondly, major producers such as Apache Corp., EOG Resources, EnCana and Shell are working on developing export capacity independently of Asian equity partners.
We witnessed an analogous situation in 2005 when PetroChina invested in Enbridge Inc.’s Northern Gateway oil pipeline project, then withdrew its support two years later (whereupon Enbridge shelved the project). As a vice-president of parent company China National Petroleum Corp. explained at an oil and gas industry conference in Calgary, the company felt it was being shut out of Canada’s oilsands by political pressure from the U.S. and had lost confidence in Enbridge’s ability to manage aboriginal opposition to the line. And yet by 2009, Gateway was once again a going concern and one of the backers turned out to be Sinopec, another Chinese state oil company and one of the owners of oilsands producer Syncrude Canada. So just because PetroChina goes away for a time does not mean all of Asia has lost its taste for Canadian resources.
For any number of reasons individual deals fall apart. But EnCana made it clear this and other B.C. natural gas assets are on the market for the right partner. Other companies are activity pitching their reserves too. The movement to develop Western Canadian shale gas and export it across the Pacific has suffered a setback, but its time will come.