Shell Says Early Shale-Gas Drilling in China Encouraging

Shell Says Early Shale-Gas Drilling in China Encouraging

KUALA LUMPUR - European oil major Royal Dutch Shell PLC said Tuesday that the results of early drilling for shale gas in China are encouraging and it expects shale-gas development in the country to be a profitable proposition.

Shell in March became the first foreign company to sign a production-sharing contract to explore, develop and produce shale gas in China, a move that reflects China's strategy of using foreign technical and operational expertise to develop its untapped shale-gas reserves, which are projected to be massive.

"We are very pleased with the progress there," Chief Executive Peter Voser said at a news conference.

The explosion in shale-gas production in North America over the past decade has revolutionized the global natural gas industry, sending U.S. prices to multi-year lows and turning oil majors' focus toward China, which by some estimates has greater shale-gas reserves than the U.S. In addition to Shell, Total SA and Chevron Corp. are also seeking to exploit shale-gas reserves in China.

"It is geologically more complex [in China], but I think we can achieve similar cost optimization and progress like we have done in North America. We think we can make this a profitable proposition, and that's what we're seeing with the encouraging results so far," Mr. Voser said.

Under the agreement signed earlier this year, Shell will apply its technology, operational expertise and global experience to jointly develop shale gas with state-controlled China National Petroleum Corp. over a 3,500-square-kilometer area in the Fushun-Yongchuan block in the Sichuan Basin.

International oil majors are investing billions of dollars to develop natural gas reserves as growing resource nationalism worldwide limits access to new crude oil reserves.

Shell this year will produce more natural gas than crude oil for the first time, a milestone that reflects the industry's shift toward the cleaner-burning fuel, which was once considered a waste product encountered during oil drilling.

Much of the shift is the result of growing global capacity to ship gas as liquefied natural gas, breaking the industry's previous dependence on pipelines to transport natural gas.

Shell, one of the world's largest LNG players, has an LNG production capacity of 20 million metric tons a year and another 8 million tons in various stages of development.

Mr. Voser said Shell will make a final investment decision on adding another 15 million tons of capacity in the near future.

Copyright (c) 2012 Dow Jones & Company, Inc.


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