Drilling furiously: Chinese energy giants turn upbeat on shale gas

HONG KONG Fri Aug 29, 2014 2:19am EDT

Related Topics

HONG KONG Aug 29 (Reuters) - China's energy heavyweights Sinopec Corp and PetroChina have upgraded their outlook on the country's shale gas industry, citing steadily declining costs, but stopped short of predicting a near-term boom.

China, estimated to hold the world's largest technically recoverable shale resources, is hoping to replicate the shale boom that has transformed the energy landscape of the United States. Industry experts caution that it would be much more difficult for China to monetise its shale gas reserves than the U.S. as it faces serious challenges from water shortages to complicated geological structure and a lack of infrastructure.

But top executives at China's two biggest energy companies conveyed a bullish assessment of the country's shale gas potential this week, citing rapidly falling drilling costs and rising domestic gas prices. That's a far cry from two years ago when they overwhelmingly focused on the hurdles faced by China.

"It took the U.S. nearly four decades to achieve large-scale production. We are at the early stage, but we don't need to spend three decades. Cost will come down sharply," Sinopec Chairman Fu Chengyu told reporters at the firm's interim results briefing in Hong Kong on Monday.

"We have found that there is big room for cost reduction... Also domestic gas prices are being raised, so these two factors will lead to greater investment," he said.

The cost of shale gas drilling at Sinopec's Fuling field in southwestern China - the country's largest shale gas project - has been falling steadily to about 60 million yuan ($9.8 million) per well, Fu said.

That is still double the average shale gas drilling cost in the U.S. but represented a significant fall from 100 million yuan in China just several years ago, analysts say.

Fu said he expected costs to decline to 50 million yuan per well within three to five years. "It is dropping fast. Because of better expertise and experience, there is a lot of room for further cost decreases," he said.

But some shale gas experts say the Fuling success is hard to repeat due to its unique geological structure.

NEW OPTIMISM

Fu's optimism was echoed by PetroChina's Vice Chairman and President Wang Dongjin, who told reporters on Thursday that China's dominant oil and gas producer had decided to kick off shale gas development this year with a 7 billion yuan budget.

PetroChina is keeping its drilling cost at 55 million yuan per well and will strive to keep it under 50 million yuan, he said. He said the average time PetroChina spends on shale gas drilling - a process known as hydraulic fracturing - had fallen to 45 days per well from over 80 days.

But Fu and Wang ruled out the possibility of a shale gas boom in the near future, saying costs must come down much more and gas prices must rise further to justify a substantial step-up in investment.

Indeed, China early this month halved its 2020 shale gas production target after early exploration efforts to unlock the unconventional fuel proved challenging, according to an industry website and a government source.

Citing Wu Xinxiong, the head of China's National Energy Administration, industry website www.cpnn.com.cn reported that China aims to pump 30 billion cubic metres (bcm) of shale gas by 2020, versus an earlier goal of 60-80 bcm mapped out in 2012.

At Fuling, where Sinopec is building the first phase of the project, the company aims to put in annual production capacity of 5 bcm by end-2015, Fu said. By end-2017, Sinopec will double it to 10 bcm.

PetroChina's Wang said his company will have annual shale capacity of 2.6 bcm by end-2015 and overtake Sinopec in terms of shale gas output in the next few years.

"We are confident we will have a breakthrough in shale gas development in China," he said. (Editing by Ryan Woo)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.