There's an easier path for China than struggling to buy energy resources from the West. Companies from the People's Republic and elsewhere have encountered political resistance when pursuing U.S. and Canadian enterprises that hold oil and gas rights. A smarter strategy could be to snag the know-how needed to unlock ample reserves at home.
Rising energy demand is feeding the Middle Kingdom's appetite for foreign energy. The country's national oil companies last year scooped up about $18-billion (U.S.) of overseas oil and gas assets. At $15.1-billion, Nexen would be the biggest bite yet. A nationalist backlash in Canada to CNOOC's approach, however, speaks to the growing resistance. Similar sensitivities have forced previous retreats, including CNOOC from an $18.5-billion advance on Unocal in 2005. Much of the opposition stems from the idea of ceding land and national resources.
A change in tactic could smooth China's path. Especially when it comes to gas, the country has plenty of its own hydrocarbons and lacks only the know-how to extract them. In fact, at about 36 trillion cubic metres, China's shale gas reserves are estimated by the U.S. government to be 50 per cent larger than those of the United States. Acquiring services and technology companies would help increase domestic output.
Targeting a giant like Halliburton might stir the same sort of resistance China experiences now. There are, however, plenty of smaller rivals that probably wouldn't. The $7-billion Weatherford International is one that could help China unlock some of its shale trove as well as revitalize its aging oil wells. China's crude output stagnated in 2011 at 4.1 million barrels a day, after climbing by almost 25 per cent over the past decade, according to data from BP. Even less conspicuous quarry would be fracking specialist C&J Energy Services.
China's quest for hydrocarbons won't end any time soon. Swooping on U.S. service companies, however, could prove a more productive way to achieve a similar result.