China is Angling to Access More Canadian Natural Gas

Rumor has it that China’s largest refiner is looking to take a stake in a Canadian LNG project.

| More on:
The Motley Fool

China continues to lock up its access to global natural resources. The country’s energy companies have been actively acquiring Canadian energy companies.  However, the next target, according to the Wall Street Journal, appears to be an investment in a Canadian LNG export project.  The Journal says that Sinopec is already in talks with Apache (NYSE: APA) to buy a minority stake in the Kitimat project.

A closer look at Kitimat

The proposed Kitimat project is currently jointly owned with Chevron (NYSE: CVX). However, this wouldn’t be the first time a new investor joined in on the project. In fact, Chevron bought its stake just last year from EnCana (TSX: ECA) (NYSE: ECA) and EOG Resources (NYSE: EOG). Neither of those previous partners had the financial capacity or the desire to invest in LNG, which is why the decision to sell to Chevron made sense.

Chevron already has experience building LNG export facilities as it’s partnering on two in Australia, including Wheatsone where Apache is a minority investor. Because of this, it already has well-developed relationships with potential Asian
customers.

The issue, however, is the overall cost of the project. Current estimates suggest the project will cost more than $15 billion to build. That’s substantially more than the $3 billion that Apache, EnCana and EOG Resources initially estimated
just a few short years ago. This is where Sinopec would come into play as its investment would help offset some of the costs of the project. Further, it could open the door for Sinopec to also become a buyer of the LNG that’s produced from the project.

Why it matters for Canada

America’s shale boom has really hurt the Canadian natural gas industry as our industry had been a supplier to our neighbour to the south. With the U.S. already approving several LNG export facilities, Canada needs to get its own projects up and running if it expects to compete in the global energy marketplace.

While the oil sands get all the press, Canada has vast natural gas resources. The primary purpose of Kitimat will be to export gas from two major plays in British Colombia: Liard Basin and Horn River. It is believed that these two plays hold 50 trillion cubic feet of resource potential. That’s enough gas to meet the needs of 50 million households for 15 years. Because both the U.S. and Canada have more than enough natural gas to meet domestic needs, the only way to grow production is to export it.

Final thoughts

It’s no surprise that Sinopec is interested in helping Apache bankroll the project. The pair have a close relationship and earlier this year Apache sold a 33% stake in its Egyptian assets to Sinopec. It wouldn’t be surprising to see a deal announced that likely will included a stake in Kitimat as well as a long-term LNG supply agreement.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt DiLallo does not own a position in any of the companies mentioned.  The Motley Fool owns shares of EOG Resources.

More on Investing

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

Clean Energy Play: Is Brookfield Renewable a Good Stock for a TFSA?

Add this top renewable energy stock to your self-directed TFSA portfolio for significant long-term and tax-free wealth growth.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

financial freedom sign
Investing

2 Stocks With Millionaire-Maker Potential

These two top Canadian stocks are among the best on the TSX, and each has the potential to be millionaire-maker…

Read more »

Piggy bank next to a financial report
Stocks for Beginners

Is It Finally the Right Time to Buy Bank Stocks?

Canadian bank stocks are some of the most secure investments out there, but of them all, this bank stock is…

Read more »

clock time
Investing

3 Blue-Chip Stocks Every Canadian Should Own

Want some reliable blue-chip Canadian stocks to buy and hold for the next 10 years? These three stocks are worth…

Read more »