Chinese energy giants drill for Shale gas

China’s energy heavyweights Sinopec and PetroChina have upgraded their outlook on the country’s shale gas industry, citing steadily declining costs, but stopped short of predicting a near-term boom.

China, estimated to hold the world’s largest technically recoverable shale resources, is hoping to replicate the shale boom that has transformed the energy landscape of the United States. Industry experts caution that it would be much more difficult for China to monetise its shale gas reserves than the US as it faces serious challenges from water shortages to complicated geological structure and a lack of infrastructure.

But top executives at China’s two biggest energy companies conveyed a bullish assessment of the country’s shale gas potential citing rapidly falling drilling costs and rising domestic gas prices. That’s a far cry from two years ago when they overwhelmingly focused on the hurdles faced by China.

“It took the US nearly four decades to achieve large-scale production. We are at the early stage, but we don’t need to spend three decades. Cost will come down sharply,” Sinopec Chairman Fu Chengyu told reporters at the firm’s interim results briefing in Hong Kong.

The cost of shale gas drilling at Sinopec’s Fuling field in southwestern China – the country’s largest shale gas project – has been falling steadily to about $9.8 million per well, Fu said. That is still double the average shale gas drilling cost in the US but represented a significant fall.

The new optimism was echoed by PetroChina’s Vice Chairman and President Wang Dongjin, who told reporters that China’s dominant oil and gas producer had decided to kick off shale gas development this year with a 7 billion yuan budget.

PetroChina is keeping its drilling cost under control and the average time PetroChina spends on shale gas drilling had fallen to 45 days per well from over 80 days.

But Fu and Wang ruled out the possibility of a shale gas boom in the near future, saying costs must come down much more and gas prices must rise further to justify a substantial step-up in investment.

China early this month halved its 2020 shale gas production target after early exploration efforts to unlock the unconventional fuel proved challenging, according to an industry website and a government source.