Shell May Withdraw from China Oil Shale Search

BEIJING (Dow Jones Newswires), October 16, 2008

Shell has failed to find viable oil shale reserves in Jilin province in northeastern China after three years of exploration and may be withdrawing from the project.

A pullout from the Jilin project could discourage more foreign investors from entering oil shale projects, which would prove to be a significant setback to China's encouragement of foreign investment in unconventional oil as domestic production of conventional crude oil stagnates. "We haven't found oil shale (in Jilin) which has the proper thickness for our technology," spokeswoman Liu Xiaowei said.

Shell is currently in talks with partner Jilin Guangzheng Mineral Development Co. on the future of the project, Liu added.

Two people familiar with the situation said Shell has decided not to proceed and has already withdrawn staff from Jilin.

"It's normal to end an exploration project if no proper reserves have been found and investment finished," one of the persons said.

Shell's joint venture with Jilin Guangzheng Mineral Development Co., which wasn't immediately available for comment, was set up at the beginning of September 2005 to develop the oil shale project.

Liu declined to comment on the size of the investment in the Jilin project so far. A Xinhua News Agency report in 2005 said Shell planned to invest $150 million on exploration in Jilin.

Falling oil prices are making the development of oil shale resources globally less attractive as such projects are costlier than exploring and producing conventional crude oil reserves.

Jilin has 17.4 billion metric tons of proven reserves of oil shale, Xinhua said.

Jiang Jinmin, of the Energy Research Institute under the National Development and Reform Commission, said in a May presentation there were 27 areas with domestic oil shale resources. Of these, Jilin, Liaoning province and the Xinjiang region had the most reserves.

China has more than 47 billion tons of oil shale reserves, including more than 16 billion tons of exploitable reserves and recoverable volumes of 12 billion tons, Jiang added.

Shell was the only foreign company involved in developing oil shale reserves in China.

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