If there are two words that make China’s oil behemoths worry and wonder, it’s shale gas.
The cleaner fuel is muscling in on their preserve, laying obstacles to their continued profitability.
Advances in shale gas exploration are making the alternative energy more accessible, helping push down oil prices.
That is hardly the big picture. The real story is that the United States will surpass Russia and Saudi Arabia as the world’s top oil producer by 2015 and be close to energy self-sufficiency in the next two decades thanks to shale gas.
Advanced drilling techniques and hydraulic fracking have unlocked shale formations in North Dakota, Texas and other states. Before long, the US will no longer be one of the world’s largest energy importers. That has a direct correlation to oil prices.
But even before such an eventuality, international crude oil prices have been seeing upheaval in recent years. They have been down for six consecutive weeks, their longest losing streak in 15 years.
Reflecting falling crude prices, the National Development and Reform Commission last week announced another round of cuts in retail fuel prices, the third in a row and the first time since China adopted a new pricing mechanism in March.
These price cuts have been eating into the oil giants’ profit. They are expected to leave a black mark in their fourth-quarter results. In addition, their share prices have been taking a hit. CNOOC (00883.HK) and PetroChina (00857.HK) have given up 6 percent and 16.5 percent respectively, in the year to date.
How will China’s oil giants tackle these fundamental changes?
There are no quick answers but their more nimble units see some salvation in diversification. Kunlun Trust, a subsidiary of PetroChina, has signed a framework agreement with Goldpoly New Energy (00686.HK) to acquire 500 megawatts of solar power plants across western China through 2015.
PetroChina itself is taking baby steps into the photovoltaic industry after CNOOC and China Petroleum & Chemical Corp (00386.HK). Separately, CNOOC has won the right to build liquefied natural gas export terminals in Canada.
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