Shale Gas M&a Activity in US, Argentina and China on the Rise

June 11, 2012 /

Many analysts are calling shale gas a “game changer” for world energy markets. A KPMG International report on merger and acquisition activity (M&A) in the US, Argentina and China reveals there is substance to that assertion.

Compared to traditional fuels, shale gas has recently been touted as a low-cost, carbon-friendly alternative. Significant deposits are being discovered throughout the world, and the fuel is poised to supply a rising proportion of the world’s energy needs.

In a KPMG Global Energy Institute poll of oil and gas industry executives, primarily in the US, more than 80 percent agreed they would call shale gas a “game changer.” More than 93 percent predict that investment in shale gas exploration and development will increase significantly.

“Based on recent M&A activity in the sector, that prediction is right on the mark,” said Wayne Chodzicki, KPMG’s global head of Oil and Gas. “About US$46.5 billion in shale gas transactions were conducted in 2011 in the US alone.”[2]

The KPMG report M&A Trends in the Shale Gas Industry zeroes in on factors and issues affecting M&A in the shale gas sector in the three countries with large known recoverable reserves—each at quite different stages in developing their shale gas industries.

US

A maturing shale gas industry here is seeing consolidation, repositioning and the entry of new domestic and foreign investors into the sector. Long-term pricing considerations are primarily driving current US M&A transactions, according to 46 percent of respondents to the KPMG Global Energy Institute survey.

A large portion of US shale reserves have been discovered. As these reserves are depleted, US investment in domestic shale gas will peak and investors will look for replacement reserves. Most respondents (52 percent) believe that US investments in shale gas will move cross-border in 5to 10 years; 25 percent believe this will happen even sooner.

Argentina

Argentina is on the cusp of large-scale production, and its local producers are looking for joint venture partners to help develop the industry’s tremendous potential. The Argentine government actively promotes foreign investment in its shale gas industry and offers substantial government support.

Analysts are optimistic that Argentina’s shale gas industry is poised to emulate the success of the US shale gas industry. According to 76 percent of respondents, South America will become the destination of choice for companies investing in shale gas outside the US, trailed by the Asia Pacific (13 percent) and Europe (9 percent). Early indications suggest that the country is already drawing a larger share of shale gas investment.
China

If current estimates are accurate, China’s shale gas reserves are a dozen times greater than its conventional gas reserves and could be the world’s largest. As a newcomer to the shale gas industry, China is exploring its reserves and seeking equipment and know-how through international partnerships.

But compared to other locations, China appears less open to foreign investment in shale gas development. More than 50 percent of respondents believe that China’s restrictions on foreign investment will hold back shale gas development in the country.

Mr. Chodzicki said, “In a world of rising energy prices, pressure to reduce harmful emissions and geopolitical instability, each of these countries has a huge stake in developing its shale gas production and distribution capabilities.”

“In reality, we believe this transition from mature markets, like the US, to other markets where shale gas has yet to reach its potential, has already begun,” said Mr. Chodzicki. “International shale gas investors who have been focusing on the US are already looking beyond its borders. Given the abundance of shale gas reserves, investors have a world of choices as to where they invest next.”

 

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