Business

Shell inks China’s first shale gas deal

March 23, 2012

BEIJING, March 23 — Global oil major Royal Dutch Shell said it signed a production sharing contract with China National Petroleum Corporation (CNPC) to develop a shale gas block in China, the first deal of its kind in the country.

China is in the very early stages of tapping its potentially large shale gas resources and the government wants to identify the right technology to unlock them in the next few years, aiming for a leap in shale production by 2020.

China is in the very early stages of tapping its potentially large shale gas resources. — Reuters file picChina is in the very early stages of tapping its potentially large shale gas resources. — Reuters file pic“China has huge shale gas potential and we are committed to making a contribution in bringing that potential into reality,” Shell CEO Peter Voser said in the statement.

China’s top energy agency, the National Energy Administration (NEA) officially unveiled on Friday a target to produce 6.5 billion cubic metres (bcm) of shale gas by 2015, or roughly six per cent of China’s current total gas production.

It intends to dramatically boost output to 60-100 bcm in 2020, a level some experts say is over-ambitious as it faces technological, environmental and regulatory roadblocks.

Zhang Yuqing, head of NEA’s Oil and Gas Department, has said foreign firms can enter product-sharing contracts with Chinese firms or provide engineering services.

Shell has already conducted some exploration work on the Fushun-Yongchuan block covering 3,500 square kilometres in the southwestern province of Sichuan, the statement said, without giving further details.

China is likely to tender its second batch of shale gas blocks in April or May after awarding two out of four blocks in its first auction in July last year, Xiong Bingqi, an official with the Ministry of Land and Resources, has told reporters.

China started the shale push in late 2009, inspired by a shale boom in the United States. Its state energy firms have since then entered multi-billion-dollar US shale deals with Chesapeake Energy and Devon Energy Corp.

At home companies have drilled several dozen wells and brought in firms such as Shell, Chevron Corp and Hess Corp for joint studies.

However China has yet to start commercial shale production, though it is widely believed to hold the world’s largest shale resources.

CNOOC Ltd, China’s largest offshore oil producer, started seismic operation of a shale gas project in the eastern province of Anhui in December, the company’s first onshore exploration project in China. The block covers 4,800 square kilometres.

Executives of China Oilfield Services Ltd, one of CNOOC Ltd’s sister companies and China’s largest oil service company, which derives nearly 30 per cent of its revenue overseas, said on Wednesday that it would provide logging services for the Anhui shale gas project.

But China Oilfield chief executive officer and president Li Yong said prospects for shale development in China remained uncertain because of technical and environmental challenges.

“I have more faith in coalbed methane,” Li told Reuters after the company’s results briefing in Hong Kong on Wednesday. “The environmental impact from shale development has not been assessed yet.” — Reuters

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