State firms seek tech help to tap China shale gas

Mainland SOEs are forming partnerships to gain fracturing expertise in a bid to access vast energy resources trapped in rock formations

PUBLISHED : Monday, 25 August, 2014, 3:33am
UPDATED : Monday, 25 August, 2014, 3:49am

State-backed oil and gas firms are increasingly looking to tap the expertise of technology companies - mainly in the private sector - to enhance their technical capabilities, operating efficiency and profitability.

China Petroleum & Chemical Corp (Sinopec), the mainland's second-largest oil and gas firm, has taken the lead in the trend, forming partnerships with foreign firms which have technology that could help it tap the mainland's vast shale gas resources. It is also looking at potential cooperative ties with internet firms that could open up revenue streams for its vast petrol station network.

PetroChina, the mainland's largest oil and gas producer, has taken a less direct approach, tapping into domestic suppliers which have partnerships with foreign firms with advanced drilling technology, or entering into joint ventures with foreign oil and gas firms that already work with suppliers with such technology.

Beijing has tasked both with enhancing national energy security by lifting domestic output of hard-to-extract unconventional oil and gas, with the help of advanced foreign technology.

They have also been asked to co-invest with private domestic and foreign firms as part of Beijing's state-owned enterprise reform push to make them more efficient and better governed.

President Xi Jinping told a central government energy policy meeting in June that the mainland should "follow closely the trend of international energy technological revolution".

The US has led the world in shale oil and gas production by deploying advanced technology, and is projected by the International Energy Agency to surpass Saudi Arabia and Russia as the world's biggest oil producer by next year and become energy self-sufficient in two decades.

In June, Sinopec's parent, China Petrochemical Corp, agreed to form a 15-year joint venture with FTSI International of the US that would see Sinopec benefit from FTSI's expertise in fracturing underground rock formations to release oil and gas trapped in shale rocks.

The deal came three weeks after Switzerland's Weatherford International and China Petrochemical agreed to form a joint venture to provide technology-intensive products and services to tap China's shale gas resources, estimated by the US Energy Information Administration to be the world's largest.

Sinopec has developed the mainland's first commercial-scale shale gas project in Fuling, Chongqing.

Sanford Bernstein senior analyst Neil Beveridge said in a research report: "China will do everything possible to make shale gas successful. This will require a major increase in capital expenditure for exploration, appraisal and development of new shale plays."

He estimated the mainland's oil and gas majors might spend up to US$10 billion a year until 2020 on this.

PetroChina has not announced similar tie-ups but is tapping alliances with drilling services providers that cooperate closely with foreign firms.

Sinopec chairman Fu Chengyu met Martin Lau Chi-ping, the president of internet giant Tencent Holdings, earlier this month to discuss a potential co-operative deal.

Tencent and e-commerce giant Alibaba Group Holding are among a number of companies that have reportedly shown interest in investing in Sinopec's fuel distribution unit, Sinopec Sales, which it plans to separately list on the stock market.

Sinopec said on Friday it had signed a preliminary agreement with "online supermarket" platform operator 1haodian to potentially cooperate on joint merchandise procurement to cut costs. The pact may also see 1haodian's 70 million registered users pick up merchandise at Sinopec's 30,500 petrol stations and for Sinopec to fuel up 1haodian's delivery vehicles.