Shell Trims China Shale Venture on Sichuan Population Challenges

Royal Dutch Shell Plc, which signed the first shale-gas production sharing contract in China, will trim its project in Sichuan province because of geological challenges and the area’s dense population.

The Anglo-Dutch company along with China National Petroleum Corp. had planned billions of dollars in investment from this year to meet the country’s energy demand, the world’s largest. Shell now plans to focus chiefly on the development of the Changbei tight gas field in the Shaanxi region.

“In Sichuan progress has been slower and more difficult than we might have hoped: partly geological reasons, partly some of the challenges of operating in the very highly populated agricultural region,” Shell Chief Financial Officer Simon Henry told investors today in New York. “It’s likely it will be smaller than originally envisaged.”

China may miss its 2020 target for shale-gas production as a lack of infrastructure and technology hampers development of the world’s biggest reserves, a government official said in July. The nation had set a national output target of as much as 100 billion cubic meters by the end of the decade. U.S. production reached about 290 billion cubic meters in 2012.

Shell executives will travel to China next week for talks with partners, Henry said. “It’s not looking like a major part of the investment program going forward” in Sichuan, he said.

Separately, Shell plans to reduce about $500 million in capital and operating costs in North America’s exploration projects this year, Marvin Odum, Shell’s Upstream Americas director, also told investors at the same presentation.

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