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China's oil giants gear up for shale gas boom
Last Updated(Beijing Time):2012-02-27 15:56

By Huang Xiaofang

Sinopec Group recently announced that its fully-owned subsidiary Sinopec International Petroleum Exploration and Production Corporation has signed an agreement with America's Devon Energy Corp, buying one third of the equity of Devon's 5 shale gas assets in America at a price of US$2.2 billion. 


This marks Sinopec's first foray into America's shale gas resources. Prior to that, in December 2010, CNOOC bought a 33.3 percent interest in Chesapeake's Eagle Ford Shale project in southern Texas. Chesapeake is now the second largest natural gas producer in America.  

Shale gas is a kind of unconventional natural gas that exists in organic matter-rich shale and fractures. Consisting mainly of methane, it is a clean and efficient energy resource and chemical material. In recent years America has achieved major breakthroughs in shale gas exploration and development, greatly increasing the country's energy self-supply rate and reducing its energy dependence on foreign counties. In 2015, America's production of shale gas will reach 260 to 280 billion cubic meters, accounting for one third of total natural gas production.

While going out to buy foreign shale gas assets, China is also making active efforts in exploring and developing shale gas within the country.

Chen Xianda, secretary general of China Mining Association, says that China's geological conditions are similar to those of America, and initial prospection shows that China has a reserve of about 31,000 billion cubic meters of recoverable shale gas, about the same volume of conventional natural gas reserves.  

Since 2010, China has been making breakthroughs in shale gas exploration, and progresses have been made in marine shale stratum in southern China and in Mesozoic continental shale stratum in Ordos Basin and Sichuan Basin. As of June 2011, out of the 16 shale gas exploration wells that have been spudded in, 10 wells have achieved daily production of shale gas of more than 2,000 cubic meters, manifesting the promising prospects of shale gas development.

Now, all the three major oil companies have started exploration and production of shale gas. In December 2011, CNOOC's shale gas exploration project in west Xiayangzi District of Wuhu city in Anhui province started seismic operations. This project is CNOOC's first approved on-land oil and natural gas (shale gas) exploration project, which covers an area of over 4,800 square kilometers.

It is told that Sinopec has completed more than 10 wells in southeastern Guizhou, southeastern Chongqing, western Hubei, northeastern Sichuan, Biyang, Jianghan, and southern Anhui. Industrial gas has been acquired in 6 of these wells, and one horizontal well has been completed and fractured. CNPC has completed more than 10 wells in four carefully selected regional blocks, namely Weiyuan, Changning, Zhaotong, and Fushun-Yongchuan, in southern Sichuan and northern Yunnan and Guizhou. Industrial gas has been obtained in 7 of these wells, and one horizontal well has been completed and fractured, with numerous others being drilled or having completed.

As oil companies are making more efforts in shale gas exploration and development, there has been some favorable news for shale gas on policy level recently. In late December 2011, the State Council approved shale gas' status as a new independent mineral resource, making it China's 172nd independent mineral resource.

Also, at the end of December, 2011, National Development and Reform Commission and the Ministry of Commerce jointly published the Industries Guiding Catalog for Foreign Investment (revised in 2011), in which the exploration and development of shale gas (limited to joint-venture and partnership) is listed in the "encouraged" category.

Currently, the Ministry of Land and Resources has completed the first round of bidding for shale gas exploration rights, leading in various investment entities to compete for the exploration rights, specifying exploration years and investment in contracts, and promoting bid-winning companies to perform the contracts through supervision. Exploration rights holders that fail to complete the exploration investment stated in the contract would be required to exit the block in part or entirely.  

It is noteworthy that strategic investigation, exploration and development of shale gas resource in China are still at the initial stage, the development level of the industry lagging greatly behind developed countries. Core technologies in such aspects as shale gas resource assessment and development have not yet been achieved, making it hardly possible for large-scale exploitation. Industrial participants point out that at the initial stage of shale gas exploration and development, the risks and the cost are high, and the government should learn from policies support for coalbed methane that were implemented a few years ago and provide policy support in such aspects as finance and taxation. 
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