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Shell to Start Chinese Shale Gas Project Development From 2014

Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, said its shale gas project in China will require billions of dollars in investment from 2014 before it can supply the domestic market.

Along with China National Petroleum Corp., Shell plans to take a final investment decision by the end of next year after carrying out exploration work at the Fushun-Yongchuan block in the Sichuan basin. The partners have so far drilled 24 wells and plan a further 14 next year, said Maarten Wetselaar, executive vice president of Shell Upstream International.

“Before you have serious shale gas production you need hundreds of wells,” Wetselaar said in an interview this week. The project will require “billions, it’s a very substantial” investment.

Chinese may hold 1,275 trillion cubic feet of technically recoverable gas, almost 50 percent more than that of the U.S., according to a U.S. Energy Information Administration forecast in April. The nation’s gas demand will rise five times through 2030, according to Shell’s estimates.

“In China we’ve been able to go down faster than even in the U.S. relatively speaking,” Andy Brown, Shell’s director of international production, said in an interview last month. “Our costs have come down more dramatically as we’ve drilled more wells, but still got some way to go.”

Shell’s Chief Financial Officer Simon Henry in February forecast that China’s shale gas potential could be “very powerful.” In March, Shell signed the first shale-gas production sharing contract in the country covering an area of about 3,500 square kilometres (1,350 square miles).

‘High Hopes’

“Chinese government has high hopes for shale gas and is putting a lot energy policy behind it,” Wetselaar said.

China will need to extend pipelines to transport gas to customers, Matthias Bichsel, the company’s global director of projects and technology, said in an interview in Abu Dhabi Nov 11.

“It will take a little longer than it would in the U.S.,” where the pipeline grid is in place, Bichsel said. “Though China is very good at building infrastructure quickly, so I would not want to commit on a timeframe.”

Shell operates the Changbei gas field, its largest production project in China. In July, Shell and CNPC agreed on the new development phase for the field to increase pumping from a current plateau rate of 320 million cubic feet a day of tight gas, which is difficult to recover.

“It takes time before we could get substantial volumes from China shale gas and tight gas,” Brown said. “There will also be a quite significant need for import of LNG” to meet expanding local demand for energy.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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