China still long way from shale gas extraction

PUBLISHED : Thursday, 29 March, 2012, 12:00am
UPDATED : Thursday, 29 March, 2012, 12:00am


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China's development of its vast shale gas resources is at an exploratory stage and significant commercial output is a long way off, according to CNOOC, the nation's dominant offshore oil and gas producer.

Li Fanrong, who became the firm's chief executive in November, said China was still working on understanding its shale gas resources and that 'it will take quite some time for it to reach commercial exploitation like in the US'.

Asked whether, because of differences in the geology of China's gas fields compared to those in the United States, US technology might not easily be used in China, he said applying the principal drilling technology was not difficult, though each project might require different methods.

Trapped in sedimentary rock formations, shale gas' low permeability means it cannot be extracted unless the formations are fractured, which can be done through modern drilling technology. US firms have produced shale gas in large quantities.

China has the world's largest recoverable shale gas resources, amounting to 36.1 trillion cubic metres, according to a report by the US Energy Information Administration. This is about 50 per cent more than those of the US, the second-largest holder, although the report did not cover Russia, Central Asia or the Middle East.

CNOOC, the China National Offshore Oil Corp, has exploration rights for shale gas in a 4,800 square kilometre area of Anhui province and began gathering seismic data in December.

It has committed to spend over US$3 billion on shale oil and gas projects operated by the US' Chesapeake Energy in the US states of Wyoming, Colorado and Texas, in deals struck in 2010 and last year.

The American projects are expected to ramp up production in the next few years from currently low levels, with their combined output accounting for 6.5 per cent of CNOOC's total output in 2015, according to projections by US brokerage Sanford Bernstein.

CNOOC posted a net 29.1 per cent rise in net profit last year to 70.3 billion yuan (HK$86.3 billion), 1.1 per cent ahead of the 69.5 billion yuan average estimate of 35 analysts polled.

Sales grew 29.5 per cent to 189.28 billion yuan on the back of a 40.8 per cent jump in oil's average selling price to US$109.75 a barrel and a 14.7 per cent rise in gas' selling price.

Oil output slid 1.9 per cent to 258.5 million barrels due to the shutdown of a big field in Bohai Bay in northeastern China after oil spills, while output of gas surged 11.5 per cent to 12.11 billion cubic metres. Production costs rose 25 per cent last year to US$30.58 a barrel due to higher taxes and material and services costs.

Total oil and gas output was close to the low end of its earlier guidance.

Li said a proposal to revamp the development and environmental protection of the Bohai Bay field had been submitted to Beijing.


CNOOC's oil and gas output, in barrels of oil equivalent (boe), last year. It is targeting 330 million to 340 million boe this year