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

  • Jim,

    I’m surprised that you and the Pittsburgh paper seem to have joined many many seekers of a seemingly good argument against shale gas — by allowing yourselves to be so fooled by the propagandist’s sleight of hand in this instance.

    Here’s the proof: If you were a foreigner with the motive of importing natural gas from North America, then why the heck would you go to all the trouble of investing in an American drilling project? How does that help you? American natgas is already for sale! Lots of it! And — like oil, coal, corn, food, or Walmart crap from Asia — we have, and we allow, and there are pluses and minuses to, a relatively unfettered international marketplace.

    But in the case of moving around North American natural gas… the only trouble is… the thing of it is is… any overseas buyer will have to pay the extra cost of cooling, pressurizing, and liquifying the gas in order to fit it onto those ships.

    I’m not saying it will never happen to any significant degree (it might). I’m not saying it will be a bad thing when and if it does happen (some might call it re-balancing our out-of-whack trade imbalance).

    But I *am* saying that foreign investment in domestic drilling has absolutely zero relevance to the implied motive of grabbing American natgas. Like so much else in this ongoing, over-the-top street ruckus over hydraulic fracturing, the aspersions cast against foreign investment represent just another creative emotional appeal, seeking desperately to attach itself to a few stray facts.

    Foreign investment is instead tied to old-fashioned motives: making money now, and climbing the learning curve of this technology in order to make more money later on.

  • RHouck

    Natural gas is a commodity for which there is an international market. Just like oil or wheat. The price is set by world-wide supply and demand. The gas may go abroad, but the income is likely to be spent closer to home. One problem with oil from the ME is that we sell very little that oil rich Arabs want. They spend their wealth in London and Switzerland and on BMW’s and airports built by Germans. We sell them arms and Boeings. Not much else, I suspect.

  • Sherry

    NYShaleGasNow is right on with his comment. The last time I checked there was on one LNG export terminal and it was located at the upper region of Alaska. Only two or three companies export from it and none of those are players in the Marcellus region, nor probably in the US. Although there has been another one under construction or conversion (can’t remember which – sorry) now for a couple of years, I don’t know how close to completion it is. Just imagine if we have enough to provide for the United States needs and have enough left over to transport – we could become a world market player again and strengthen our own economy – what a concept! However, at this point, that concept is a ways off in the future.

  • Sherry

    Oops, sorry, one other thing… My understanding is part of the reason for foreign investment is so those companies who are investing have access to every part of the extraction process so they can take what they learned from here and apply it to extracting resources from their own countries using tried and true technologies and techniques to do so. Many of the investing companies have resources under their own countries and would not need to export from America.

  • Otegogas

    I’m not sure you have the whole story – here is an article just out on developing liquified natural gas facilities to export US natural gas: “Marcellus shale gas may head overseas” – Pittsburgh Tribune-Review //

  • throwthebumsout

    It is understandable that these energy companies are selling leases to foreign companies for economic reasons. It seems to be a win-win-win situation:

    1. they get to make some cash and reduce some capital;

    2. foreign companies get to learn and invest in new technologies;

    3. more gas exports should drive up the cost of natgas in the US, eventually.

    I just think it’s wrong to hype drilling with the phrases “more energy independence” and “more gas for Pennsylvanians (insert Philadelphians here)”, when there’s no way we’ll ever be energy independent, and the vast majority of this gas is being piped to the East Coast megalopolis; this is especially disturbing when there are multiple companies now pursuing LNG facilities to export natgas.

  • yanke_welding

    No one is suggesting that they are going to export the oil or gas from this country, all they need to do, to protect their investments abroad, is to control production here. In other words keep prices were they are with linited production.

  • if you think is good for local economy then look down south of the border where foreign investment rules and fuel generating product is exporter to the rest of the world leaving very little to be part of the economic cycle resulting in inflation due to the lack of supply and the great demand never to be available to the consumers of the country where the exploitation of the minerals or gases are been mined. Cerrejon in Colombia should have brought prosperity to the country where if the capital had stayed changing hands in it’s economy inflation had have gone to a single digit perhaps 0 well it has not, which brings me to remind many of the high prices of gasoline and petroleum in this country, foreign investment is a direct result of this price speculation and the government is allowing it because of the vast tax gain not from the corporations but from the consumer because no matter what so how much we complained we will not stop going to the pump it’ll be the day that all of us will leave the car home and use public transportation, as one that lived in south america many times vegetables and fruits were bought at extreme high prices because the large corporations of the world owned the farm lands where the crops were harvest not to be consume there but for export purpose weakening the local economy and fueling political corruption to the highest level where only the chosen ones have access to the best, I can see that happening in this country more often by the minute, so chew on that for now!

  • production is controlled now and before for that matter anytime the corps. wanted to elevate the prices to put a happy face on the stock holders

  • nahhhhh, guess what they do export it and the sad part about it is that we have to buy it back from them, here in Boston every so many weeks an LNG tank comes into port form Algeria or another country just not long ago they allow the dock of a ship that his home port was in a country that was considered an “unfriendly” to bring a supply of it and there is a hidden price with that cargo because since Sept. 11 the ship have to be under extreme security by the new Homeland Police to protect it from any threats, the ship travels under the Tobin bridge which it was closed to traffic every time it came in, thank god they stopped that, by the way LNG does not explode it lacks oxygen, to be flammable the process has to be reversed, so that is another senseless tax payers expenditure.

  • for that you need for the money to allllllllllllllllllllllllll USA investors, or regulate the amount of foreign investors so that the US has complete control of the supply and the dollars stay in this country to bring down our inflation rate