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Shell Plans to Spend $1 Billion a Year on China Gas

Royal Dutch Shell Plc will spend $1 billion a year developing China’s unconventional gas reserves, including shale deposits, according to Peter Voser, the company’s chief executive.

Shell has won government approval for its production sharing contract with China National Petroleum Corp., the nation’s biggest oil and gas company, Voser said in an interview in Beijing today. He didn’t specify details for the $1 billion investment.

China is working with overseas partners to introduce hydraulic fracturing, the technology known as fracking that breaks open underground shale rocks to release natural gas, as it seeks to boost domestic consumption of the cleaner-burning fuel. Shell and CNPC had drilled 24 wells by November and planned a further 14 this year, Maarten Wetselaar, executive vice president of Shell Upstream International, said Nov. 15.

“I welcome the aggressive target of the government in the 12th five year plan and its long-term objective to make gas a significant component of its energy mix,” Voser said today. “This is the right energy source for the longer term for China given its advantage from the perspectives of carbon dioxide versus coal and oil.”

China’s annual gas consumption will increase by 20 billion cubic meters every year to 230 billion by 2015 under the 12th five-year plan, the Beijing-based National Energy Administration said in a Dec. 3 report. About 250 million urban residents, or 18 percent of the population, will use gas by 2015, the report showed.

Production Sharing

Shell and CNPC, the state-controlled parent of PetroChina Co., agreed to explore, develop and produce shale gas in the Fushun-Yongchuan block in the Sichuan basin, an area covering about 3,500 square kilometers (1,350 square miles), London-based Shell said in a statement on its website in March 2012.

Chinese shale may hold 1,275 trillion cubic feet of technically recoverable gas, or 12 times the country’s conventional gas deposits, data from the U.S. Energy Information Administration show. That’s almost 50 percent more than the 862 trillion cubic feet held by the U.S., according to the EIA.

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