SPT turns bullish on shale gas outlook

Oil and gas drilling firm expects bigger revenue contribution from unconventional natural gas after positive results from industry leaders

PUBLISHED : Monday, 25 November, 2013, 3:52am
UPDATED : Monday, 25 November, 2013, 3:52am


SPT Energy, a provider of oil and gas drilling services, expects the percentage contribution from shale gas projects to its revenues to triple in three years, as the development of nascent energy resource becomes more mature.

Wang Guoqiang, chairman of the Beijing-based company, which went public in Hong Kong two years ago, said revenues related to the drilling of shale gas - an unconventional natural gas that adheres tightly to shale rocks thousands of metres underground - would make up more than 10 per cent of revenues by 2016. This compares with 3 to 5 per cent currently.

"Industry people had anticipated large-scale production would come at least three to five years after wells drilling first started [two years ago]," he said. "Given the good drilling results [obtained recently by industry leaders PetroChina and Sinopec], we may get there earlier than expected."

A senior official at China Petroleum & Chemical (Sinopec), who declined to be named, said that despite the larger-than-expected amount of gas produced at some exploration wells, more wells needed to be drilled before the feasibility of large-scale production could be ascertained.

Development of unconventional gas sources requires advanced technology first commercially deployed in the United States. It includes the drilling of wells horizontal to the Earth's surface and the injection of water, sand and chemicals to fracture underground rocks for the gas to be released.

This requires the drilling of multiple wells that go in different directions underground to increase the surface area for gas to flow up, whereas conventional gas flows out easily from the drilling of a single vertical well.

PetroChina and Sinopec have drilled more than 70 exploration wells in Sichuan province and near Chongqing, where they have been asked by Beijing to build pilot projects to show mass production of shale gas can be economical.

China was believed to have the world's largest shale gas resources of 36.8 trillion cubic metres, 50 per cent more than those in the US, said the US Energy Information Administration.

The US shale gas industry, which ramped up output from a negligible level in the past seven years, made up 31 per cent of total gas production last year. China is only expected to start commercial production next year.

Water shortage, hilly topography, insufficient pipeline networks, a lack of landowners' rights and little private participation in the industry have been identified as factors that may hold back the pace of development of shale gas in China.

Despite concerns that drilling has been too slow, Wang said he was optimistic the mainland would be able to meet the shale gas output target of 6.5 billion cubic metres in 2015. It produced 107 billion cubic metres of natural gas last year.

"The key is whether factory-style large-scale drilling can happen quickly, so that production cost can be lowered enough to justify commercial production," Wang said.

Beijing has launched two rounds of bidding for shale gas exploration rights, in mid-2011 and then a year ago. The third round is expected by the end of the year.

Only state firms were invited to bid for four exploration areas in the first round, and two won the rights. In the second round, 16 firms won rights to drill in 19 areas and had to commit to spending 1.8 billion yuan (HK$2.3 billion) on drilling in three years.

Meanwhile, Wang said he was confident SPT would meet its goal to grow revenues by at least 30 per cent this year from 1.82 billion yuan last year.