CNPC, Shell sign shale gas contract in China's Sichuan basin

China National Petroleum Corp. (CNPC) and Shell China Exploration & Production Co. Ltd. signed a production-sharing contract for shale gas exploration, development, and production on the Fushun-Yongchuan block in China’s Sichuan basin.

Shale gas exploration and exploitation in China is still at an early stage although China is vigorously promoting shale gas development (OGJ, Mar. 5, 2012, p. 60). Shell and CNPC already work together on tight gas projects in China.

Gas accounted for 4% of China's total energy consumption in 2010. The US Energy Information Administration estimates China’s shale gas resource of Sichuan and Tarim basins at 145 trillion cu m, and the technically recoverable shale gas resource at 36 trillion cu m. The CNPC-Shell shale gas PSC, subject to government approval, covers 3,500 sq km.

During a signing ceremony in Beijing, Royal Dutch Shell PLC Chief Executive Officer Peter Voser called the agreement a new “milestone in our strategic cooperation with CNPC,” adding, “China has huge shale gas potential, and we are committed to making a contribution in bringing that potential into reality.”

On June 20, 2011, Shell and CNPC signed a Global Alliance Agreement to jointly pursue opportunities internationally and in China. The two parties also signed an agreement to establish a well manufacturing joint venture (50% CNPC and 50% Shell).

The joint venture plans to develop a highly automated well manufacturing system that could boost the efficiency of drilling and completing onshore wells using drilling optimization technologies that Shell has used in its US and Canada tight gas operations. Shell has onshore tight gas production in China, the US, and Canada.

An earlier PSC by CNPC and Shell covers efforts to potentially develop tight, basin-centered gas reservoirs on the 4,000-sq-km Jinqiu block east of Chengdu in central Sichuan Province under a 30-year contract (OGJ Online, Mar. 23, 2010).

Shell and PetroChina, a CNPC subsidiary, already operate Changbei, another tight gas field in the Ordos basin near Yulin in China’s Shaanxi Province. Commercial production at Changbei started in March 2007, and it supplies 3 bcm/year to Beijing and other cities in eastern China.

CNPC started shale gas exploration and development in 2006, becoming the first Chinese company to begin work in the sector.

In November 2009, Shell signed a joint assessment agreement with PetroChina for shale gas cooperation in Sichuan. Assessment work began in January 2010 on the Fushun-Yongchuan block.

Contact Paula Dittrick at paulad@ogjonline.com.

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