Shell, PetroChina to Develop Shale Gas in Sichuan

SHANGHAI (Dow Jones), Nov. 27, 2009

China has begun its first joint development project in shale gas, in a bid to tap into an unconventional source of cleaner-burning fuel to meet the nation's rising demand.

Energy major Royal Dutch Shell PLC (RDSB) and China's top listed gas producer PetroChina Co. (PTR) have signed an agreement to jointly develop shale gas resources in southwestern China's Sichuan province, China National Petroleum Corp. said Friday.

The agreement to jointly evaluate shale gas in the Fushun-Yongchuan block was signed Nov. 10 in Beijing, the state-owned parent company of Hong Kong- and Shanghai-listed PetroChina said in a report on its Web site.

Shell China spokeswoman Li Lusha confirmed the agreement, adding it came after PetroChina and Shell had successful cooperation in gas production in the Changbei gas field in Shaanxi province.

This marks the nation's latest effort to tap shale gas resources after the launch of a Sino-US Shale Gas Resource Cooperation Initiative earlier this month during U.S. President Barack Obama's first state visit to China.

The initiative is expected to assess China's shale gas potential through joint technical studies with reference to American experience with shale gas. Development of shale gas in China lags far behind the U.S., where it's a major contributor to the energy mix.

Shale is a sedimentary rock composed of very small particles of clay, mud and sand. It has a low permeability, meaning it releases trapped gas very slowly, and can be expensive to develop.

Developing shale gas resources in the Sichuan basin has much further room for foreign cooperation and could potentially alleviate tight gas supplies faced by China, CNPC said.

Beijing wants natural gas to account for 10% of the nation's energy mix by 2020, up from 3% in 2005.

Low temperatures amid rainy and snowy conditions since early November led to soaring gas demand and severe shortages across the nation, especially in Wuhan and Chongqing in central China and Nanjing and Hangzhou on the east coast.

Shell has a joint venture with PetroChina on the Changbei natural-gas field in northwestern China, which was pumping 10 million cubic meters of gas a day as of September 2008, according to the latest data immediately available.

But Shell, which set up its office in Beijing in 1980, has so far experienced a bumpy road in developing unconventional energy resources in China.

Lim Haw-Kuang, executive chairman of Shell China, said in April that because of the economic downturn, the company had decided to postpone a joint venture with Shenhua Group, China's top coal producer, to turn coal into liquid fuel.

Shell executives have also said they won't pursue a foray in northern China into oil shale, a costly and technologically challenging type of oil to produce, even as the company seeks to develop the technology elsewhere.  

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