Replies to post #474 on The Rising Influence of Rising Affluence

[DewDiligence]

China Wakes Up to Shale-Gas Potential

[#msg-43984089 is a companion read.]

http://online.wsj.com/article/SB10001424052748703615104575328200873180036.html

›JUNE 25, 2010, 6:19 A.M. ET
By DAVID WINNING

China is playing catch up to Asian rivals in the race to buy into North America's shale gas sector, underlining how the world's second-largest energy consumer is waking up to the potential of a technology that could unlock a massive resource at home.

In a week when India's Reliance Industries Ltd. placed its second big bet on shale gas—a $1.36 billion deal for a 45% stake in Pioneer Natural Resources Co.'s Eagle Ford asset in the U.S.—China made a less high-profile move.

China National Petroleum Corp., China's biggest state oil company, signed an initial agreement Thursday with Canada's Encana Corp. that could lead to the companies jointly investing in the development of shale gas reserves in British Columbia.

"CNPC would invest capital to earn an interest in the assets and gain an advanced understanding of unconventional natural gas development through an ongoing sharing of technical knowledge," Encana said in a statement.

The move is significant as the International Energy Agency estimates China has reserves of 26 trillion cubic meters of shale gas, which it hasn't been able to access due to a lack of drilling know-how. Shale gas is trapped in relatively impermeable rock, and producers need to crack the tight rock formations using streams of water and chemicals.

Up to now, China has focused on persuading other countries to share this technology, arguing that a better use of its own energy resources would ease pressure on tight global markets. A Sino-U.S. Shale Gas Resource Cooperation Initiative was launched during U.S. President Barack Obama's first state visit to China last year.

China has also flirted with opening up its tightly controlled onshore gas sector to foreign companies in order to exploit its shale gas reserves. In November, Royal Dutch Shell PLC and CNPC's listed unit, PetroChina Co., signed an agreement to evaluate shale gas in southwestern China's Sichuan province [#msg-43984089].

But a reluctance by China's state companies to share a resource that could become a major growth area for output and profits is hindering talks with foreign companies for further deals.

This is creating problems—China's Ministry of Land and Resources wants annual shale gas output capacity to reach 15-30 billion cubic meters by 2020, from negligible levels now.

Boosting output would aid China's efforts to cut its reliance on crude oil and reduce greenhouse gas emissions, and could help avoid a repeat of widespread natural gas shortages earlier this year that led to the rationing of supplies to industry.

Beijing wants natural gas to account for 10% of the nation's energy mix by 2020, up from 3% in 2005. It now accounts for around 4%.

The CNPC-Encana framework agreement signals China's state companies are starting to take a more aggressive approach to acquiring expertise in shale gas development to ensure it meets these goals.

Investment from well-heeled Chinese companies in shale gas is likely to be attractive to North American producers, especially those with small market capitalizations, as it would help them to keep drilling despite restricted cashflow from low natural-gas prices.

Randy Eresman, Encana's president and chief executive officer, said a joint venture with CNPC has the potential to lower costs, reduce risks, improve project returns and tap natural gas opportunities "that would otherwise remain dormant for some time."

A delegation headed by CNPC President Jiang Jiemin and Vice-President Wang Dongjin visited ConocoPhillips' Barnett shale gas development in Texas in mid-April, CNPC stated on its website.‹

[DewDiligence]

Shell Inks China's First Shale-Gas PSC

http://www.reuters.com/article/2012/03/22/shell-cnpc-shale-idUSL3E8EM0EC20120322

›Mar 22, 2012 3:46am EDT

BEIJING, March 22 (Reuters) - Global oil major Royal Dutch Shell said it signed a production sharing contract with China National Petroleum Corporation (CNPC) to develop a shale gas block in China, the first deal of its kind in the country.

China is in the very early stages of tapping its potentially large shale gas resources and the government wants to identify the right technology to unlock them in the next few years, aiming for a leap in shale production by 2020.

"China has huge shale gas potential and we are committed to making a contribution in bringing that potential into reality," Shell CEO Peter Voser said in the statement.

China's 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.

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

Zhang Yuqing, head of NEA's Oil and Gas Department, has said foreign firms can enter production-sharing contracts with Chinese firms or provide engineering services.

Shell has already conducted some exploration work on the Fushun-Yongchuan block covering 3,500 square kilometres in the southwestern province of Sichuan, the statement said, without giving further details.

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 auction in July last year, Xiong Bingqi, an official with the Ministry of Land and Resources, has told reporters.

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 U.S. shale deals with Chesapeake Energy and Devon Energy Corp.

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

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

CNOOC Ltd , China's largest offshore oil producer, started seismic operation of a shale gas project in the eastern province of Anhui in December, the company's first onshore exploration project in China. The block covers 4,800 square kilometres.

Executives of China Oilfield Services Ltd, one of CNOOC Ltd's sister companies and China's largest oil service company, which derives nearly 30 percent of its revenue overseas, said on Wednesday that it would provide logging services for the Anhui shale gas project.

But China Oilfield chief executive officer and president Li Yong said prospects for shale development in China remained uncertain because of technical and environmental challenges.

"I have more faith in coalbed methane," Li told Reuters after the company's results briefing in Hong Kong on Wednesday. "The environmental impact from shale development has not been assessed yet."‹