China digs a hole to Canada

Posted Jun 29th 2007 10:55AM by Douglas McIntyre
Filed under: Forecasts, Competitive Strategy, China, PetroChina Co Ltd ADR (PTR), Canada, Oil

China National Petroleum Corp, parent of PetroChina Comapny, Ltd. (NYSE: PTR) has gotten rights from the Canadian province of Alberta to drill for oil. But the company plans to do it the hard way.

One of the hopes for replacing dependence on current oil reserves is to drill into tar sands. The ground contains a substance that can be converted to oil, but the process of separating out the material that can be refined is very costly. Then again, so are oil prices. As the price for crude sits near $70 a barrel and China looks to the need for oil and gas to keep its economy moving, tar sands drilling may actually make economic sense.

According to Wikipedia: "Oil sands may represent as much as 2/3 of the world's total petroleum resource." If oil demand continues to rise, tapping this resource may become critical.

Right now, China has no way to get much more than its share of the world's oil production. The economies of Europe, Japan, and the U.S. need the fuel just as much as the big Asian country. But if China is willing to make the investment, it could start to change the game. The communist government does not have the public company P&L issues that big oil companies do. It can put down huge sums of money if it thinks tar sands could solve its problem in the decades ahead.

And that would give China an edge.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Tags: canada, china, oil sands, OilSands, petrochina, ptr, tar sands, TarSands

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Reader Comments (Page 1 of 1)

7-01-2007 @ 2:49PM

PG said...

I assume you're aware that Canadian companies have been exploiting the Athabasca oil sands deposits for decades; that there are now three major producers who have invested tens of billions already. And that several others are far along in developing additional projects that will more than double the current 600,000 bbl/day output.

That said, I fail to see any relevance to your comment: "The communist government does not have the public company P&L issues that big oil companies do. It can put down huge sums of money if it thinks tar sands could solve its problem in the decades ahead."

This sector has been booming for years, tens of billions are commented and much, much more will be commented regardless of China's getting into the game at this late stage.

7-01-2007 @ 11:05AM

douglas mcintyre said...

The major oil companies have been unwilling to make a commitment to this process because of cost to their public shareholders.

The government in China does not have that problem.

The amount of oil coming from these deposits now is tiny compared to daily global oil production.