The deepwater regions of the northern South China Sea have big gas exploration potential and are only in an early stage of development, a senior manager of Husky Energy, which discovered the mainland's first major deep-sea natural gas field, said yesterday.
Analysts say drilling has been limited by the availability of drilling rigs and high operating costs.
Robert Hinkel, Husky's chief operating officer for the Asia-Pacific, said only about 25 wells had been drilled in the northern South China Sea, with one major discovery already made, whereas 180 wells were drilled before the first commercial discovery in deepwater areas of the North Sea.
"It is very early days for a huge area," Hinkel said, adding that Husky and its partner, CNOOC, the mainland's dominant offshore oil and gas producer, had done well to have drilled 11 wells and made three discoveries, compared with an average 10 per cent success rate internationally.
Each well costs the firms US$25 million to US$100 million, with later ones costing just a quarter of the first one.
Husky, the Canadian oil and gas unit majority owned by Li Ka-shing and conglomerate Hutchison Whampoa, said on Monday its Liwan natural gas project, discovered about 300 kilometres southeast of Hong Kong in 2006, had just started commercial production.
The first of its three fields is expected to produce 2.58 billion cubic metres of gas a year initially, rising to 3.1 billion in the second half of this year when the second field starts up. A third field is projected to come on stream by 2016 or 2017, raising the total output capacity of the project to between 4.13 billion and 5.16 billion cubic metres.
The peak output of about 5.16 billion cubic metres is expected to last five years, after which production will decline gradually.
The first two fields will serve Guangdong, helping to meet the mainland's gas demand, which has been rising about 15 per cent a year and amounted to 167 billion cubic metres last year. No sales contract has been fixed for the third field, with Hong Kong being one potential market.
With domestic output trailing growth in demand, the mainland's dependency on imported gas surged to almost 30 per cent last year from zero in 2006.
Hinkel said Husky had signed an 18-year deal with CNOOC to sell the output from the first two fields to CNOOC Gas & Power, a unit of CNOOC's parent China National Offshore Oil Corp.
For the first five years, a price of 2.40 yuan (HK$3) to 2.85 yuan per cubic metre has been set. Prices will be based on Guangdong's market price after that.
Husky is entitled to 75 per cent of revenue from the fields in the first year so that it can recover its US$800 million in exploration costs, after which the entitlement will fall to 49 per cent, with 51 per cent going to CNOOC. The development cost of the three fields totals US$6.5 billion.
China National has signed more than a dozen South China Sea deepwater exploration co-operation deals with global oil majors including BP, BG, Chevron, Husky and Kerr-McGee.
CNOOC said last month it had made a discovery, while BG said in 2010 that it made a discovery, although no commercial production plan has been announced.