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China’s Effort to Develop Shale Gas

Posted: August 15, 2016

China’s state-owned energy companies continue to invest in shale gas development.
Source: U.S. Energy Information Administration and Advanced Resources International, Inc

Source: U.S. Energy Information Administration and Advanced Resources International, Inc

In September, 2015, the US Energy Information Administration (EIA) reported that due to continued government investment and the decreasing costs to drill a shale gas well, China is increasing its shale gas development operations.

The country’s two largest shale gas exploration companies are China National Petroleum Corp (CNPC) and China Petroleum & Chemical Corp, also known as Sinopec.  Royal Dutch Shell Plc had a production-sharing contract with CNPC in 2012, but later opted not to pursue the project due to challenging geology and mixed drilling results. ConocoPhillips entered a joint-study agreement with CNPC in 2013, but also decided not to pursue a production agreement a year later. In late March, 2016, BP Plc signed its first shale-gas production deal with CNPC, to share in the expenses and technical expertise.

Sinopec is developing a new Sichuan basin shale field near that may produce close to 2 billion cubic meters annually. The company is moving forward with billions of dollars in investment, during a time when there is a global oversupply of gas, the geology of the region is challenging, and pipeline infrastructure is inadequate. China has a huge technically recoverable shale gas resources of 1.115 trillion cubic feet (Tcf). With a population of over 1.38 billion people, many living in highly polluted cities, natural gas is a cleaner alternative to coal energy, and natural gas development will help to protect jobs at home.

Sinopec’s Fuling unit in the Sichuan basin is expected to produce 176 billion cubic feet (Bcf) in 2016, up 70.6 Bcf from 2015, and expected to increase another 70.6 Bcf in 2017. The growth in natural gas production is expected to mitigate what’s occurring in the oil production side of business and the aging oil fields. Costs to drill a well in the Sichuan Basin in 2015 ranged from $11.3 to $12.9 million per well, a 23% reduction compared to 2013 costs. Sinopec provided a 15 stake in the Fuling unit to a local government investment firm, hoping to provide incentive for the area to help the company succeed in the region.

Shale gas production in China, whatever the amounts, will help to meet the growing demand for natural gas in China and help to limit its natural gas imports, and have the potential to jeopardize billions in planned global investments.