UPDATE 2-China eyes tech breakthrough before shale gas leap

Fri Mar 16, 2012 5:56am EDT

Related Topics

* Eyes technology breakthrough between now and 2015

* Targets 6.5 bcm output in 2015, 60-100 bcm in 2020

* Aims to find 200 bcm proven recoverable reserves by 2015

* Second shale gas tender in April/May (Adds details, writes through)

By Jim Bai and Chen Aizhu

BEIJING, March 16 (Reuters) - China wants to identify the right technology to unlock its potentially large shale gas resource in the next few years, aiming for a leap in shale production by 2020, two years after it embarked on a search of the unconventional fuel.

Top energy agency, the National Energy Administration (NEA) officially unveiled on Friday a target to produce 6.5 billion cubic metres (bcm) of shale gas by 2015, or roughly 6 percent of China's current total gas production.

But it intends to dramatically boost output to 60-100 bcm in 2020, a level some experts say is over-ambitious as it faces techonological, environmental and regulatory roadblocks.

"The U.S. technologies may not be fully applicable in China's shale gas formation, they need to be revamped," Zhang Yuqing, NEA's head of Oil and Gas Department, said.

"The main task in the 12th five-year period is to lay a good foundation, especially some key technologies in shale gas exploration and development."

China started the shale push in late 2009, inspired by a shale boom in the United States. Its state energy firms have since then entered multi-billion-dollar shale deals in the United States with Chesapeake Energy and Devon Energy Corp.

At home companies have drilled several dozens of wells and brought in firms such as Royal Dutch Shell, Chevron Corp and Hess Corp for joint studies.

But China has yet to start commercial shale production, though it is widely believed to hold the world's largest shale resource.

The Ministry of Land and Resources revealed early this month China may hold 25.08 trillion cubic metres (tcm) of potentially recoverable shale gas resources. That compared to a U.S. Energy Informationa Agency's forecast in March 2011 at some 36 tcm.

NEA's Zhang said foreign firms can enter product sharing contracts with Chinese firms or provide engineering services.

Shell, which has done more exploration works in China than the rest of foreign firms - having drilled an estimated five wells in the southwest Sichuan basin, has yet to land a PSC contract with partner PetroChina, an industry executive has told Reuters.

China aims to complete an evaluation of national shale gas resource potential, make shale gas technology improvements, and localise the manufacture of major equipment by 2015. It will also establish industry standards and perfect government policies, according to the NEA plan.

Exploration will focus on finding 600 bcm of proven geological shale gas reserves and 200 bcm of recoverable deposits by 2015.

SECOND TENDER

China is likely to tender its second batch of shale gas blocks in April or May after awarding two out of four blocks in its first ever auction in July last year, another government official said.

"Blocks on offer will be increased and the number of qualified bidders will increase too," Xiong Bingqi, an official with the Ministry of Land and Resources, told reporters.

He said the government would require rights holders for traditional oil and gas blocks to scour shale gas as well, and could take back the development rights if shale gas exploration inputs were below certain standards.

Xiong did not specify the input standards, but some analysts doubt the rule would be strictly applied on China's powerful oil triumvirates - China National Petroleum Corp, China Petrochemical Corp and China National Offshore Oil Corp - which have claimed some 40 percent of Chinese territories. (Editing by Richard Pullin and Jacqueline Wong)

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