Exclusive: Shell strikes shale gas in China

DOHA Tue Dec 6, 2011 8:01am EST

A Shell logo is seen at a petrol station in London April 28, 2010. REUTERS/Toby Melville

A Shell logo is seen at a petrol station in London April 28, 2010.

Credit: Reuters/Toby Melville

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DOHA (Reuters) - Royal Dutch Shell Plc has found shale gas in China, a development that could cap imports in a market natural gas producers are hoping will drive demand.

An official with Shell's partner, PetroChina (601857.SS), a unit of the country's top energy group, state-owned CNPC, said drilling results from two wells Shell drilled had been positive.

"Shell has two vertical wells and they got very good primary production," Professor Yuzhang Liu, Vice president of Petrochina's Research Institute of Petroleum Exploration and Development (RIPED), said in an interview at the sidelines of the World Petroleum Congress (WPC) in Doha.

"It's good news for shale gas," Liu, who regularly represents PetroChina at industry events around the world, told Reuters late on Monday.

China currently has no commercial shale gas production.

Some industry executives doubt the explosion of shale gas in the U.S. that has revolutionized the market there could be replicated elsewhere due to difficult geology, the lack of water availability or land access issues.

Liu accepted the rock formations in China were "different" from those in the United States but denied this meant they were more challenging or less bountiful.

In less than decade, shale gas has transformed the United States from gas shortage to a point where companies are planning to export liquefied natural gas (LNG), fundamentally altering the dynamics of the international gas market.

LNG projects freeze and squeeze natural gas into liquid for export in tankers. Many producers who were targeting the United States were forced to rethink their plans, and China, with its booming energy demand, was seen as the answer to their need for a market.

A Chinese 'shale gale' as the revolution was termed in America, could jeopardize that market too.

Shell declined to confirm the find but said in a statement;

"Shell will complete drilling activities by the year end... as planned."

Chief Executive Peter Voser has previously said he has "great expectations" for Chinese shale but was cautious in his comments to the WPC on Tuesday.

"We are going through the exploration phase there and are exactly now analyzing what potential is available now in China," he told a news conference.

In November 2009, PetroChina and Royal Dutch Shell agreed to jointly evaluate shale gas reserves of the Fushun-Yongchuan block in Sichuan basin.

Earlier this year, industry sources said Shell had started drilling two shale gas exploration wells in Fushun.

A U.S. Energy Information Administration report in April said China had 1,275 trillion cubic feet of technically recoverable shale gas resources -- by far the largest in the world, followed by the United States with 862 trillion cubic feet and Argentina with 774.

(Reporting by Tom Bergin; Editing by Andrew Callus)

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