With emerging markets in the Asia-Pacific region driving global demand growth, market participants focus a great deal of attention on China’s economic growth and seemingly insatiable demand for all manner of vital resources, from energy commodities to industrial metals.

Source: Energy Information Administration

China’s three major state-run oil companies–China National Petroleum Corp (PetroChina), China Petroleum & Chemical Corp (Sinopec) and China National Offshore Oil Corp (CNOOC)–have all embarked on aggressive overseas acquisition programs to meet rising domestic demand, gain experience in deepwater and unconventional onshore plays and diversify their supply base.

The national oil companies also have a strong financial incentive to pursuing this strategy: Purchases are also critical to reducing the losses suffered by their downstream (refining and marketing) operations, which must pay elevated prices for imported oil and sell the resulting products at rates fixed by the central government.

Over the past five years, China’s national oil companies and their publicly traded arms have completed 46 deals worth a total of USD69.34 billion, about 80 percent (USD55.4 billion) of which targeted assets related to exploration and production.

Source: Bloomberg

North American investors should be keenly aware of this phenomenon: China’s state-owned oil companies have spent USD29.72 billion over the past five years on mergers and acquisitions targeting Canadian assets.

Several factors have made Canada a prime destination for China’s national oil companies, including a stable political environment, reserves of “heavy” oil (a price-advantaged feedstock) and a regulatory regime that welcomes foreign investment. The capital-intensive nature of producing oil sands and policymakers’ recognition of China as a key end market for Canada’s abundant resources reinforce this mutually beneficial arrangement.

Recent oil sands deals include PetroChina’s USD673 billion acquisition of the remaining 40 percent interest in the Mackay River project from Athabasca Oil Sands Corp (TSX: ATH), a transaction that makes the endeavor the first large-scale development in the region that’s wholly owned by a Chinese enterprise. In August 2009, PetroChina acquired its initial 60 percent stake in the project for USD1.7 billion. CNOOC also splashed out USD2.1 billion to buy bankrupt Opti Canada, a company’s whose principal asset is a 35 percent interest in Alberta’s Long Lake oil sands.

Outside the oil sands Chinese companies have also sought exposure to Canadian shale gas plays, with an eye toward exporting hydrocarbons and valuable operating experience to the Mainland. Sinopec in October 2011 acquired Canadian operator Daylight Energy and its roughly 300,000 net acres in shale oil and gas plays in a deal valued at USD2.1 billion, while Royal Dutch Shell (LSE: RDSA, NYSE: RDS A, RDS B)  in early February sold PetroChina a 20 percent interest in its Montney Shale acreage in northeast British Columbia.

Although some Americans may have been unaware of the shopping spree going on north of the border, China’s national oil companies have also closed a number of joint ventures in US shale oil and gas plays, providing much-needed capital in exchange for experience and incremental production growth.

CNOOC in October 2010 paid USD1.1 billion to acquire a 33 percent stake in Chesapeake Energy Corp’s (NYSE: CHK) acreage in the Eagle Ford Shale and in January 2011 followed up the deal by paying USD1.3 billion for a one-third interest in Chesapeake’s 800,000 acres in the Niobrara Shale.

More recently, Sinopec paid a total of USD2.5 billion for a one-third stake in five of the Devon Energy’s (NYSE: DVN) emerging shale plays: 300,000 net acres in the Niobrara Shale, 210,000 in the Mississippian Shale, 235,000 in the Ohio portion of the Utica Shale, 340,000 in the Michigan Basin and 265,000 in the Tuscaloosa Marine Shale.

Under the terms of the deal, Devon Energy will receive USD900 million in cash and USD1.6 billion in the form of a drilling carry that should be realized by the end of 2014.

Although China’s appetite for energy resources and its national oil companies’ blockbuster deals attract the most attention, investors shouldn’t overlook South Korea’s efforts to build its resource base and achieve a measure of energy independence.

With a dearth of domestic resources and its access to pipeline natural gas blocked by North Korea, South Korea’s oil and gas companies plan to invest substantial sums to add equity exposure to international hydrocarbon reserves. These efforts have become imperative in recent years as rapid economic growth in China and other emerging markets has intensified competition for regional resources and sent prices higher.

According to South Korea’s Ministry of Knowledge Economy, South Korea’s energy companies plan to spend USD11.8 billion on international acquisitions in 2012 as part of the nation’s effort to supply 20 percent of its oil and gas demand from resources owned by domestic operators. At the end of 2010, the nation had achieved an energy self-sufficiency ratio of 10.8 percent.

Elevated oil prices, coupled with increasing competition for liquefied natural gas cargoes with China and Japan, increase South Korea’s energy costs substantially in 2011. These trends likewise incentivize Korea National Oil Corp (KNOC) and Korea Gas Corp (KOGAS) to offset downstream losses by adding upstream (production) assets that will benefit from rising energy prices.

Whereas KNOC in the past has closed several mergers and acquisitions in Canada and has pursued opportunities in Iraq, Korea Gas Corp has expressed interest in adding exposure to North American shale oil and gas plays.

The moral of the story: China and other emerging market’s aggressive investments to secure the energy supply needed to fuel domestic growth puts pressure on developed countries within and outside the Asia-Pacific region. Expect the competition for incremental oil and gas production growth to heat up in coming years.

Around the Portfolios

To gain regulatory approval for the deal, Kinder Morgan Inc and Conservative Portfolio holding Kinder Morgan Energy Partners LP (NYSE: KMP) must divest a handful of assets, including two pipelines, gas processing and treating facilities and its 50 percent stake in the Rockies Express Pipeline.

Investors with a position in Kinder Morgan Energy Partners LP shouldn’t panic about this news; management has confirmed that these divestments will be immediately offset by drop-down transactions from Kinder Morgan Inc. Buy Kinder Morgan Energy Partners LP when the unit price dips to less than 80.