Royal Dutch Shell has agreed to a production sharing contract with state-run China National Petroleum Corporation (CNPC) to explore and produce shale gas in the southwest of China.
The project will concentrate on the 3,500 square kilometer Fushun-Yongchuan shale gas block in Sichuan province. The deal is the first venture to be signed with a foreign company in China’s shale gas industry and is subject to approval by Chinese authorities.
The financial and commercial details of the contract have not been released.
China’s advances in shale gas had previously been stalled by a lack of direction on how to implement production sharing contracts.
High Hopes For Shale
The world’s second-largest economy is targeting annual shale production levels of 6.5 billion cubic meters by 2015, with projections of 60 billion to 100 billion cubic meters by 2020.
It also says it plans to increase natural gas production levels to 10% of the country’s energy mix by 2020 to reduce dependency on coal, which currently accounts for some 70% of energy production.
Industry experts have expressed doubts as to the feasibility of these targets, considering current shale gas production levels are virtually zero, and natural gas production was below 5% of the country’s total energy mix last year.
However, Shell’s confidence in the project has been clear for several years. In 2010, the company entered into a joint assessment deal with CNPC to weigh the development and production potential in the Fushun-Yongchuan block.
According to Shell CFO Simon Henry, last year the company invested over $400 million in shale gas projects with CNPC and plans to drill up to 25 wells in 2012.
Shell chief executive Peter Voser praised the milestone in strategic cooperation between the two companies and said the future was bright, adding: "China has huge shale gas potential, and we are committed to making a contribution in bringing that potential into reality."
China’s Massive Shale Gas Reserves
China’s state-owned Sinopec Group, the most prominent oil refiner in Asia, will also invest $158 million in shale development, and aims to produce around 2 billion cubic meters by 2015 – over 30% of the government’s target.
The United States is currently the world’s largest producer of gas, thanks largely to hydraulic fracturing, which cracks open rocks far beneath the ground.
But advances in China’s shale gas industry could soon see it jump to the front. The US Energy Information Administration says China has around 36 trillion cubic meters of technically recoverable shale gas – up to 50% more than the United States.
Key Statistics - Shale Gas in China (source: Chinese Ministry of Land and Resources)
- China holds over 25 trillion cubic meters of recoverable onshore shale gas reserves.
- The country has more than 134.42 trillion cubic meters of total gas reserves.
- Recoverable shale gas reserves may top 200 billion cubic meters by 2015.