For Chevron and Others, China's Energy Revolution Is Welcome News

China's push to use cleaner energy is a boon for Russia, Chevron, and U.S. big oil.

May 31, 2014 at 11:17AM

The recent natural gas deal between Gazprom and PetroChina's (NYSE:PTR) parent China National Petroleum Corp is reported to be worth around $400 billion. This monster deal is yet another sign that China's influence on the world energy market is increasing. Western oil companies are not directly involved in this deal, but a number of firms, including Chevron (NYSE:CVX), are involved in similar projects that will directly benefit from Russian or Chinese growth. 

The Russian side
ExxonMobil (NYSE:XOM) and Russia's Rosneft are working together on a number of big growth projects. One of the promising developments is an LNG export facility with an annual capacity of 5 million tons. This plant's location on Russia's Eastern seaboard provides good access to China along with other big LNG purchasers like Japan and South Korea. 

The project has not gone off as smoothly as was hoped. A counter-project backed by Shell and Gazprom was recently approved by Putin, and Rosneft accuses Gazprom of blocking access to a key supply pipeline. Thankfully, ExxonMobil has other interests in unconventional interests in China and is starting to explore a number of basins in the Eastern Russian Arctic Sea.

In the first quarter of 2014, Asia was already ExxonMobil's biggest liquids producing region at 666 mbpd (thousand barrels per day). Asia was also its largest natural gas producing region in the quarter, with an average of 4,519 mmcfpd (million cubic feet per day).

The Chinese side
Chevron is an important part of China's plan to move away from coal and into natural gas. The $6.4 billion Chuandongbei unconventional gas project is a joint venture with PetroChina. While the project has experienced a number of delays, it is expected to reach first gas around the middle of 2014. Eventually it will produce 7.6 billion cubic meters of gas per year.

This will be a big venture for Chevron as its Asian gas production is focused on Bangladesh, Thailand, the Philippians and Indonesia. That being said, in the first quarter of 2014, Chevron's Kazakhstan/Eurasia segment produced 499 mmcfpd. Kazakhstan shares a border with China, making it a play on Chinese growth.

PetroChina is also working with ConocoPhillips (NYSE:COP) to develop unconventional gas in the Sichuan Basin in exchange for interests in a number of Australian exploration assets.  ConocoPhillips is also active in China's Bohai Sea. It plans to drill in the Bohai Sea in 2014 to meet appraisal targets.

ConocoPhillips' direct Chinese natural gas production is a work in progress with production of 3 mmcfpd in the first quarter of 2014. After accounting for production from equity interests and other Asian neighbors, the entire region including the Middle East produced a total of 1,195 mmcfpd. This number is quite significant as it accounts for more than one quarter of the company's total first quarter 2014 natural gas production.

Buying PetroChina is one of the easiest ways to invest in Chinese energy growth, but it also comes with its own risks. China's recent anti-corruption push has taken its toll on China National Petroleum Corp. Corruption charges stemming from the investigation lead to the sacking of PetroChina's former Chairman.

By investing in Chevron or ConocoPhillips instead of PetroChina, you can get a piece of China's upstream industry and developing unconventional gas fields with U.S. investor protection laws.

Go for long-term growth
Improving Russian-Chinese relationships are positive and negative for ExxonMobil. Gazprom's established natural gas exports mean that the Gazprom-Shell LNG export project may be favored instead of the ExxonMobil-Rosneft project. On the positive side, more export capacity will help ExxonMobil's Russian upstream developments.

Both Chevron and ConocoPhillips are involved in China's upstream gas industry, though Chevron's Chuandongbei project will hopefully come online this year. In contrast, ConocoPhillips does not plan to drill in Sichuan in 2014 and it was recently announced that Shell is going to start working on the basin. Chevron is one of the top U.S. big oil firms, and its direct exposure to Chinese natural gas makes it even more attractive.

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Joshua Bondy has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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