A seamy tale

China Inc’ made another foray overseas last week as PetroChina joined with Royal Dutch Shell to bid more than $3 billion for the independent Australian coal seam company, Arrow Energy.

The deal brings a significant stake in Arrow’s large reserves of coal seam gas, which will be converted into liquefied natural gas (LNG) for export. But more importantly – if the bid proves successful – it also brings the technology needed to exploit China’s own reserves.

Coal seam gas (or coal bed methane), a form of natural gas found in coal deposits, is a relatively new type of energy.

China has the world’s third largest estimated reserves of coal seam gas (36.8 trillion cubic metres) but they are generally underutilised. Natural gas currently makes up 4% of China’s energy usage.

High energy prices and surplus foreign exchange reserves are fuelling China’s demand for energy resources around the world. In a statement earlier this week, the Ministry of Commerce urged Chinese companies to invest in overseas assets.

China has a mixed track record in its attempts to buy Australian natural resources companies. Chinalco’s disastrous 2009 bid for mining giant Rio Tinto still lingers in the collective Chinese corporate psyche. Indeed, it still serves as a warning to potential Chinese investors that deals to buy Australian resources firms can be difficult to pull off (see WiC19).

In this case analysts think that Shell’s involvement in the Arrow Energy bid may improve the chances of success.

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