The hilltop city of Yulin, about 500 miles southwest of Beijing, was once a strong point in the defensive wall that protected the Chinese heartland from the tribes to the north.
An ancient fortress survives in the old part of the city, the Chinese characters for “Suppress the Barbarians” carved over its gate. Today, Yulin’s a boomtown in the oil- and gas-rich Ordos Basin.
In the streets not far from the fortress walls, where men sell roasted goat heads from carts, young boys hand out brochures for apartment towers built for newly wealthy oil workers and coal miners. If fresh characters were carved into the old fortress gates now, they might say “Resource Barbarians Welcome!”
Or they might simply be a pair of corporate logos: one for PetroChina (PTR), the publicly traded wing of CNPC, China’s largest oil company, and a second for its foreign partner, Royal Dutch Shell, the second-largest Western oil company.
A half-hour drive from the city is a new, white building that stands out in the desert scrubland. Clean and bright, it has offices, conference rooms, and a big second-floor terrace overlooking acres of neatly arranged tanks and piping. This is the Changbei gas field.
An estimated $1.3 billion joint venture, the field is managed by Shell for PetroChina and produces more than 3 billion cubic meters of gas a year.
Over a lunch of stir-fried chicken and snow peas, tangy local peaches, and green tea in the building’s high-ceilinged commissary, the plant’s two bosses, General Manager Xu Lin, a Shell man, and PetroChina veteran Xu Yanming, his deputy, banter about Changbei. Xu Yanming, dressed more like a local merchant than an oil man—in slacks and a dark windbreaker—ribs Shell’s Xu, who has a degree from Oxford University and wears the standard blue, one-piece Changbei boiler suit.
“Shell has had four managers—and the whole time it has just been me,” Xu Yanming says. An earlier Shell manager, whom he dubbed a yangren—old-fashioned slang for Westerner—assumed ridiculously high costs, including $20 per diems for Chinese staff.
Shell had also factored in exorbitant costs for water. “Some at Changbei think PetroChina had stronger cost controls than Shell,” Xu Yanming chuckles.
Changbei is the most visible playing field for a tricky high-stakes game Shell has entered into with the Chinese behemoth, an engagement that mirrors the larger global shift of power from the big petro majors to the fast-rising national oil companies.
PetroChina wants Shell’s expertise to unlock the unconventional gas and oil resources, such as shale gas, that require new techniques to extract. Shell wants PetroChina’s help in gaining access to the mainland, China’s newly hot gas fields, and its energy-hungry consumers.
The U.S. Energy Information Administration said in April that Chinese shale may hold 1,275 trillion cubic feet of gas, 12 times the country’s conventional natural gas. The “technically recoverable” reserves are almost 50 percent greater than the 862 trillion cubic feet estimated for the U.S., the EIA also said.
Last year, China became the largest energy consumer in the world, surpassing the U.S., according to BP’s (BP) Statistical Review of World Energy.
China is expected to account for almost half the world’s growth in oil consumption in the next two decades, becoming the largest market for oil, and it is trying to more than double the use of gas in its economy, to 8 percent of the energy mix, by 2015.
Shell isn’t just angling for the natural gas and domestic Chinese market. As China and Asia surge in importance, the company wants to use its Chinese partnerships to help gain influence over the flow of all global resources destined for China, from the Middle East to Australia.
“It is a foreshadowing of the new energy landscape,” says a former Shell executive. “If you asked Shell 15 years ago if they would do a strategic partnership with CNPC, they would have laughed.”
businessweek.com
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