Foreign Investment in America’s Shale Gas: Is it Good or Bad?

One of the main arguments in favor of Marcellus shale gas drilling is that America can become more energy independent—less dependent on the energy (oil and gas) from other countries. It is an argument that strikes a chord with many Americans. The argument also goes that much of the gas produced in the region will stay “local” and cause natural gas prices to remain low for consumers. But what if foreign companies and foreign-backed government entities start buying leaseholds and come here and drill? Will the gas remain here, or will it be exported?

A leading player in the natural gas grab is China, whose thirst for energy to fuel its industrial explosion is growing rapidly. Others include the governments of South Korea and India, and companies in Great Britain, the Netherlands, Norway, Japan and Australia.

Last year, Warrendale-based East Resources sold its Marcellus interests to Royal Dutch Shell for $4.7 billion. Last month, Statoil [Norway], which has a $3.375 billion partnership agreement with the largest Marcellus leaseholder, Oklahoma City-based Chesapeake Energy, said it might drill as many as 17,000 Marcellus wells over two decades.

Other foreign companies with Marcellus shale interests are Mitsui and Sumitomo from Japan, the BP group from Great Britain, Atinum from Korea and Reliance Industries from India.*

China has done a number of business transactions with Chesapeake Energy recently:

In November, Chesapeake announced it would sell a third of its holdings in a Texas shale oil field called Eagle Ford to CNOOC [Chinese National Offshore Oil Corporation] for $2.2 billion. Statoil and Korea National Oil Corporation recently invested in Eagle Ford.

This year, CNOOC took a one-third share of Chesapeake’s leases in two oil and gas fields in Colorado and Wyoming for $1.27 billion in direct costs and drilling expenses.

The Chinese have more connections to Chesapeake, but the extent isn’t known. Chesapeake spokesman Jim Gipson said the company generally limits disclosures to those required by regulators.*

The argument against allowing foreign companies to invest in shale gas is that if shale gas gets liquefied and exported out of the U.S., the price of the gas for U.S. consumers will go up. It’s simple economics—if there’s more supply, the price will go down.

The argument in favor of allowing foreign companies to invest is that it will bring in much-needed capital. The example some use was the expansion of the railroads in the 19th century which saw a good deal of foreign investment in this country. They argue the investments in the railroads turned out just fine.

Is foreign investment and exporting shale gas from the U.S. a good thing? Or a bad thing? Leave a comment and share your thoughts.

*Pittsburgh Tribune-Review (Apr 10, 2011) – Marcellus shale gas may head overseas