CHINA, estimated to hold more gas trapped in shale than the United States, will open new areas to exploration as PetroChina and Cnooc seek drilling technology through partnerships and acquisitions.
The government aims to sign contracts with Chinese explorers this month to develop two blocks offered in the country's first auction, and a second sale is planned later this year, Zhang Dawei, the deputy director of oil and gas strategy research at the Ministry of Land and Resources, said.
China National Petroleum Corporation, PetroChina's parent, has agreed to form a venture with Royal Dutch Shell to improve its drilling efficiency after taking 11 months to complete the country's first shale well. Baker Hughes, the world's third-largest oilfield services provider, says it has helped US shale developers to cut drilling time to about 16 days a well.
"What they're doing now is trying to assess the reserves under ground and see how feasible it is to extract them," a global gas markets researcher at Cambridge Energy Research Associates, Adam Wang, said.
"I don't think China will be able to start producing shale gas [in substantial quantities] until after 2020."
Chinese shale may hold 1275 trillion cubic feet of gas, or 12 times the country's conventional natural gas deposits, the US Energy Information Administration said in April. China's "technically recoverable" reserves were almost 50 per cent more than those held by the US.
The two countries account for 32 per cent of the world's recoverable shale reserves of 6622 trillion cubic feet, according to EIA data.
Annual shale-gas output in China may reach 706 billion cubic feet by 2020, Pan Jiping, a researcher at the land ministry, said. That's less than 15 per cent of US production in 2010. China currently doesn't produce any shale gas.
Overseas explorers, barred from bidding in Chinese auctions of shale areas, are in discussions to forge local ventures. Chevron and BP are in talks with China Petrochemical, while Norway's Statoil is in negotiations to buy stakes in shale-gas assets in China. Shell is exploring the Jinqiu block in south-western Sichuan province with CNPC.
Chinese companies have invested in overseas ventures to gain access to technology for drilling horizontal wells in shale formations and to extract the fuel through hydraulic fracturing, which uses water, sand and chemicals to release the gas.
Cnooc agreed in February to buy a 33.3 per cent stake in Chesapeake Energy's Niobrara shale project in Colorado and Wyoming for $US570 million, after paying $US1.1 billion last year for one third of a Chesapeake shale venture in Texas.
China offered domestic explorers four areas last month in the country's first auction of shale blocks. Contracts will be signed for the Nanchuan and Xiushan blocks in south-west China, which each attracted at least three bidders.
With domestic shale gas production yet to start, Chinese energy companies are ramping up extraction of conventional deposits and contracting liquefied natural gas supplies from Australia to help meet the government's goal of doubling the use of gas to 8 per cent of energy demand by 2015.
The world's biggest energy consumer imported 11.4 billion cubic metres of gas in the first five months, nearly double that of a year earlier, the National Development and Reform Commission said last month. Domestic output rose 6.7 per cent to 43.2 billion cubic metres.
China Petrochemical agreed in April to buy LNG over two decades from a project planned by ConocoPhillips and Origin Energy. The state-owned parent of China Petroleum & Chemical also agreed to purchase a 15 per cent stake in the Australian venture for $1.5 billion.
China National Offshore Oil Corp agreed last year to buy LNG from BG Group's development in Queensland. PetroChina signed a 2009 pact with Exxon Mobil to buy the gas from the Gorgon venture.
Arrow Energy, acquired last year by PetroChina and Shell, is planning another LNG project on Queensland's central coast.
Frequently Asked Questions about this Article…
How big are China's shale gas reserves and how do they compare to the United States?
According to the US Energy Information Administration cited in the article, China's shale gas may hold about 1,275 trillion cubic feet (tcf) of gas — roughly 12 times the country's conventional natural gas deposits — and its technically recoverable shale reserves are reported to be almost 50% more than those held by the US.
When can investors expect China to produce shale gas in meaningful volumes?
The article notes that China currently produces no shale gas and experts quoted expect China will not produce shale gas in substantial quantities until after 2020. A government-linked researcher forecast annual shale-gas output could reach about 706 billion cubic feet by 2020, but that would still be well below recent US production levels.
How are Chinese companies gaining the drilling technology needed for shale gas?
Chinese energy firms are securing drilling know‑how by forming partnerships and buying stakes in overseas shale projects. Examples in the article include PetroChina's parent CNPC forming a venture with Royal Dutch Shell to improve drilling efficiency, and Cnooc buying stakes in Chesapeake Energy shale projects in the US. The article also notes Chinese investment overseas to learn horizontal drilling and hydraulic fracturing techniques.
Can foreign oil and gas companies bid directly in China's shale auctions?
No — the article says overseas explorers are barred from bidding directly in China’s shale block auctions. Instead, international firms such as Chevron, BP and Statoil are in talks to form local joint ventures or buy stakes in Chinese assets to gain access to those opportunities.
Which Chinese companies are most active in shale and related LNG deals mentioned in the article?
The article highlights several state and private players: China National Petroleum Corporation (CNPC) and its listed unit PetroChina, Cnooc (China National Offshore Oil Corp), China Petrochemical (Sinopec) and China National Offshore Oil Corp are all active. Examples include CNPC’s venture with Shell, Cnooc’s stakes in Chesapeake projects, and China Petrochemical’s long‑term LNG purchase and equity stake in an Australian project.
What shale blocks has China recently offered and which areas attracted bidders?
China offered four areas in its first auction of shale blocks. Contracts were to be signed for the Nanchuan and Xiushan blocks in south-west China, and each of those two blocks attracted at least three bidders, according to the article.
How is China meeting growing gas demand while domestic shale production is still developing?
With shale production not yet underway, Chinese energy companies are boosting conventional gas extraction and contracting liquefied natural gas (LNG) supplies from Australia and other sources. The article notes imports rose to about 11.4 billion cubic metres in the first five months of the year, while domestic gas output increased about 6.7% to 43.2 billion cubic metres.
What should everyday investors know about investment opportunities and risks related to China's shale gas push?
The article suggests potential opportunities in companies gaining technology and asset exposure (for example, PetroChina/Shell ventures or Cnooc’s US stakes) and in firms tied to LNG supply deals. Important risks highlighted include a long timeline to commercial shale output (experts expect substantial production only after 2020), technical and efficiency challenges (China's first shale well took 11 months), and restrictions on how foreign firms can participate in auctions, which may limit direct foreign exposure.
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