UPDATE 1-PetroChina hikes shale gas spending to more than $1.6 bln -sources

Fri Apr 18, 2014 7:09am EDT

Related Topics

* PetroChina to triple spending from $500 mln past few years

* Raises shale gas output target for 2015 to 2.6 bcm (Adds company official comment, cost-cutting challenge)

By Chen Aizhu

BEIJING, April 18 (Reuters) - Chinese state energy giant PetroChina plans to spend more than 10 billion yuan ($1.6 billion) on shale gas this year, sources with knowledge of the matter said, as domestic competition heats up after rival Sinopec announced a commercial find.

Faced with high drilling costs and the complexity of tapping shale gas, China has struggled to revolutionise its energy supplies. The top energy consumer wants to unlock what could be the world's largest shale gas reserves by emulating the hectic success of the U.S. shale boom.

PetroChina's decision to triple its shale gas spending from expenditures on the unconventional fuel over the past few years comes just months after Sinopec Corp lifted hopes that China is near a breakthrough by announcing a commercial find.

PetroChina, Asia's largest oil and gas producer, has also lifted its 2015 shale gas output target to 2.6 billion cubic metres (bcm), up from the previous 1.5 bcm, according to a company official and a government source.

That would represent only about 2.3 percent of China's total natural gas output of around 113 bcm last year.

"PetroChina wants to play catch up after Sinopec's success," said a government source who has been briefed on PetroChina's plans.

Since around 2010, PetroChina has spent about 3 billion yuan ($482.39 million) total on pilot shale drilling, according to both sources. The state giant, which makes up around 70 percent of China's total natural gas output, has so far largely focused on growing its conventional oil and gas portfolio.

PetroChina will focus on two pilot zones - Weiyuan-Changning in southwest Sichuan basin and Zhaotong in Yunnan province.

"PetroChina has over the past four years improved understanding of the shale resources and achieved some technological breakthroughs," said Mao Zefeng, joint company secretary of PetroChina.

"We're stepping up shale gas development this year," he said.

Sinopec's shale work has been concentrated in the Fuling area of Chongqing municipality in southwest China, also part of the Sichuan basin, one of the most promising geological zones for the unconventional fuel. Sinopec has drilled nearly 30 pilot shale gas wells in the Fuling area.

HIGH DRILLING COST

The main challenge for both Sinopec and PetroChina is to cut the drilling cost per well to under 50 million yuan ($8 million), half the current hefty rates averaging around 80-100 million yuan, experts say.

That requires a factory-style operation and technological improvements to shorten the drilling period for each well.

At Fuling, Sinopec is now able to drill up to six wells simultaneously from one platform, cutting down the drilling time for a single well to 89 days from 100 days.

Even so, Sinopec has only managed to reduce its per-well costs to about 80 million yuan, an amount that is economic only with a government subsidy of 0.40 yuan per cubic metres of production, industry officials said.

China pumped about 113 bcm of natural gas last year, of which shale gas was a meagre 200 million cubic metres, according to official data.

The government has set shale gas production targets at 6.5 bcm for 2015 and at 60-100 bcm for 2020. ($1 = 6.2190 Chinese Yuan) (Reporting by Chen Aizhu; Editing by Tom Hogue)

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