China Is Doing It Again -- Ready to Buy More US Energy Reserves?

Updates

Later, 2: 10 p.m.: Forbes weighs in on the proposed deal.

According to the Wall Street Journal, Sinopec aims to invest as much as $1 billion in a west Texas clean coal project. The idea is to capture the carbon dioxide emissions from burning the coal for power, then piping the CO2 around to be injected into old oil fields to coax out more stubborn crude.

In fact, it’s in the Permian Basin fields where more carbon dioxide is used for enhanced oil recovery than anywhere else in the world. A thought: wouldn’t it make just too much sense for Sinopec to be looking for ways to secure a long-term carbon dioxide supply before it announced a deal for Chesapeake’s Permian assets? Just speculation, but it fits.

The Permian Basin: "more CO2 is used for EOR than anywhere else in the world." All this cocktail chatter and no cocktail parties to go to.

Original Post

From the Wall Street Journal:

A Chinese group that includes major oil company Sinopec is in advanced talks to put up to $1 billion in a Texas clean-energy project, in what would mark one of the biggest investments by Chinese companies in the U.S. power sector.

China Petrochemical Corp., known as Sinopec, together with Chinese banks are in talks to acquire an equity stake in and provide financing to the roughly $2.5 billion Texas Clean Energy Project, said people familiar with negotiations.

Such a move would be significant for Sinopec, which is looking to build favor in the U.S. as it aggressively acquires energy reserves and seeks U.S. production expertise, currently through minority stakes and partnerships with Western companies

The project has already secured $450 million in grants from the U.S. Department of Energy, in addition to tax benefits. It also has the necessary permits and contracts, including a contract with San Antonio to buy its electricity for 25 years.

Wow, there are a lot of story lines here:

1. China knows that time is on its side.
2. China continues to buy US energy reserves, but more importantly -- the technology that comes with these partnerships.
3. The world will need coal for a long, long time. We read every day about "peak oil"; we never read about "peak coal."
4. China needs a lot of energy resources. And China likes coal. A lot. [So does India; so does Japan.]
5. China has a lot of cash. A log. 
6. Ideology: Massachusetts vs Texas. Texas using cheap clean coal; captures 90% of CO2 production; Massachusetts is forcing consumers to buy very, very expensive wind energy (Cape Wind).
7. Economics: the Texas clean-energy project has already secured $450 million in grants from US DOE
8. Economics: the Texas clean-energy project has one of the fastest-growing cities in the nation as a customer; global warming will result in ever-hotter south Texas; more air conditioning; more electricity; more coal

Don, thank you for the link.