| HONG KONG
HONG KONG Aug 29 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
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.
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)