Building For The Future: Shell And PetroChina Forge An Ambitious New Partnership

petrochina-1As the search for sustainable resource supplies intensifies, a number of companies have turned to partnerships to support their ambitious plans. One company that has recently announced the formation of new partnerships to support its long term growth is Royal Dutch Shell. Recently, Royal Dutch Shell announced that it is deepening ties with China's largest state-run oil and gas operator, PetroChina. In particular, Shell is planning on signing a memorandum of agreement and commercial partnership contract with PetroChina; an agreement that will enable both entities to jointly invest in new development projects in China - as well as Canada. Interestingly, while many experts have recognized the potential that China holds as a future leader in oil and gas production, few companies have had success pursuing lasting partnerships with Chinese based organizations. While the reasons are varied, it appears that this new partnership, which is supported by inter-organizational linkages at all levels of the corporate and political spectrum, will be a significant sustainable win for Royal Dutch Shell. Currently, the International Energy Agency (IEA) forecasts that China will account for 20% of global energy use by 2035. By inking this agreement, the new relationship will ensure that Shell is positioned at the forefront of future Chinese development and growth. Moreover, while PetroChina, has previously been unenthusiastic about the pursuit of international partnerships, this new relationship will directly support the company's long term growth plans. In particularly, PetroChina stands to make significant technological gains through its relationship with Shell; gains that - over time - will help transform China's state-owned companies from cash-rich acquirers to technology-rich leaders within the global energy industry.

petrochina-2While the agreement between Shell and PetroChina is symbolic, it is clear that both partners are anxious to act; and act quickly. Following the signing of the initial agreement in Beijing by PetroChina's Chairman Jiang Jiemin and Shell CEO Peter Voser on November 9, both parties announced their intention to quickly to co-invest in a number of key projects. In particular, initial announcements indicate that both companies will begin jointly developing the Daning coal bed methane (CBM) block in Northern China, while also making significant investments in various oil-sands project in Canada. Additionally, both Shell and PetroChina have announced plans to direct new investment towards the development of the Changbei tight gas field in Shaanxi province. This project, in which Shell holds a 50% operating stake, is now producing about 3 billion cubic metres annually. In addition to the Changbei project, Shell and PetroChina are expected to accelerate the development of the shale gas extraction project currently operating in the Jinqui and Fushun blocks in south-west China's Sichuan province.

petrochina-3While the new agreement will significantly increase the rate and pace of investment within China, the new relationship will also increase the scope of co-operation between PetroChina and Royal Dutch Shell in non-Chinese markets. For example, effective immediately, both companies will continue co-operating on gas exploration and oil & gas export projects in Qatar and Australia. Additionally, both companies have indicated the desire to aggressively explore sustainable energy and resource projects in various locations. Overall, while the full details of the partnership agreement have not been released - and the scope of future investment in sustainable energy and resource projects has not been clearly presented - the new partnership between PetroChina and Royal Dutch Shell looks certain to pay dividends for both companies, investors, and related stakeholders. Moreover, with initial reports indicating that Shell and PetroChina are planning on spending upwards of US $60 billion on foreign acquisitions over the coming 5 years, it is reasonable to expect that both organizations will  continue to exert significant influence on the global oil, gas, and energy segments.

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