Sinopec, Conoco Agree to Study Shale Gas Development in Sichuan Basin

From The Wall Street Journal

By Wayne Ma

ConocoPhillips (COP) is joining the search for shale gas in China, adding its experience in extracting gas by unconventional means to the challenge of making hydraulic fracturing a viable development approach in China.

Conoco last week signed an agreement with China Petrochemical Corp., known as Sinopec Group, to study shale-gas exploration in the Sichuan basin, it said Tuesday on its website, marking the official entrance of a third major international oil company into China’s shale gas industry.

Royal Dutch Shell PLC (RDSB) signed a similar agreement in 2009 with PetroChina Co. (PTR) before it green-lighted a more formal production sharing contract in March. Chevron Corp. (CVX) signed a joint study agreement with Sinopec in April 2011 and began initial drilling in the first quarter. Other international oil majors such as BP PLC (BP.LN) and Total SA (TOT) have said they are studying similar agreements, but have yet to announce any partnerships.

China’s progress in developing shale-gas reserves has been slow to date, even though its energy majors have bought into shale-gas assets in North America to gain know-how in the projects and technologies that have spurred a gas boom in the U.S. Sinopec, for example, completed a $2.44 billion deal in April to buy minority stakes in five of Devon Energy Corp.’s U.S. shale oil and gas fields.

The Chinese government has targeted raising annual shale-gas output from practically nothing now to 6.5 billion cubic meters by 2015 and as much as 100 billion cubic meters by 2020. According to Wood Mackenzie, however, it could reach barely a 10th of its 2020 target–the energy consultancy says 11 billion cubic meters is more achievable.

The country also has targeted increasing natural gas’s contribution to the country’s energy mix to 10% by 2020 from less than 5% as part of efforts to cut its dependency on coal, which accounts for around 70% of its energy mix.

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