TRIPLETT: Red dragon in North American oil patch

Beijing is quietly buying up U.S. energy assets

Of the three shale plays that are transforming American onshore oil and gas production, the Eagle Ford in South Texas is perhaps the least well-known outside the industry. Beginning roughly at Laredo on the Mexican border, it runs more or less northeast through 30 Texas counties, ending east of San Antonio. Since the oil field infrastructure demands are so high, the actual impact of the Eagle Ford activity extends south to the Port of Corpus Christi on the Gulf of Mexico and even as far east as Houston, where the oil companies and their suppliers are mostly headquartered. The entire South Texas brush country has been impacted by an unprecedented economic boom.

Union Pacific’s rail line from San Antonio to Corpus Christi runs through family property. About five miles up the track from us, in Pleasanton, Texas, FTS International, usually known as “Frac Tech,” has built a railroad siding to bring in chemicals for its hydraulic fracturing support of Eagle Ford drilling operations. The China Investment Corp., Beijing’s sovereign wealth fund, already owns a substantial piece of Frac Tech. Both the China National Offshore Oil Corp. (CNOOC) and the China Petroleum Corp. (CPC) are competing with Middle Eastern interests to expand their Frac Tech holdings. With Beijing’s almost unlimited financial resources, it is not impossible that China could soon have a controlling interest in the firm. Access to Frac Tech’s technology would be a “major step towards tapping resources in China and elsewhere,” theWallStreetJournal noted in December.

Driving south on I-37 from San Antonio, it is impossible not to note the convoys of heavy trucks bringing sand for the fracking operations up from Corpus Christi and empty trucks heading back down. According to local news accounts, the sand is imported from China.

Outside of Corpus Christi in the town of Gregory, the Tianjin Pipe Company of China broke ground for a $1 billion oil pipe plant. Reportedly, it is the largest Chinese investment in the United States. The Obama administration directed a million taxpayer dollars to infrastructure support for the plant. The CEO of Tianjin accompanied Chinese Vice President Xi Jinping on his recent U.S. tour.

Beijing’s drive for critical American oil and gas technology doesn’t end with Frac Tech. The China National Oil Co. (CNOC) announced in December it is going to establish a “research institute in Houston, Texas, to help build up the company’s expertise in finding and developing oil and gas.” It would be unfair, without proof, to associate CNOC with the kind of rampant technology theft that other Chinese state-owned enterprises (SOEs) are so famous for, but American businessmen don’t call their dealings with Chinese SOEs “Chinese take-out” for nothing.

PetroChina, China’s largest oil producer, has paid Shell more than a $1 billion for a stake in its Canadian shale operation. The Chinese are looking to drain off Shell’s expertise in oil- and gas-drilling techniques.

The incredible economic development in the American oil patch takes billions of dollars to secure drilling rights, drill the oil and gas, transport it and refine it. So, who is paying for it?

Former Sen. Frank Murkowski, Alaska Republican, who is also a former banker, once said in another context, “If they don’t buy our goods and services, and they don’t, they will buy our assets.” That seems to be what is happening both in the United States and in other oil- and gas-producing countries as Beijing is turning its $3 trillion in foreign exchange into a bottomless pocketbook for asset purchases. As detailed in “Bowing to Beijing,”CNOOC got the ball rolling in the fall of 2010 with a $1.1 billion purchase of 200,000 acres of Texas oil and gas. By January 2011, CNOOC had laid out another $1.3 billion for shale-rich land in Colorado and Wyoming. Last month, China Petrochemical announced a $2.5 billion investment in the operations of an Oklahoma City oil and gas company. By the fall of 2011, CNOOC was bragging that its U.S. operations would produce 3 million barrels of oil that year and it expects to control 8 million barrels of American oil production per year as they make further investments. To this point, Chinese SOEs have invested more than $16 billion in Canadian oil and gas production.

This is China’s soft grab for American energy. Such a clever strategy takes them well below Washington’s radar screen. It may be a shock when we discover the oil and gas between our feet is Chinese, the technology to produce it is Chinese-owned and the pipeline to transport it is Chinese.

William C. Triplett II is co-author, with Brett M. Decker, of “Bowing to Beijing,” (Regnery, 2011).

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