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PetroChina to invest $6 billion to develop Sichuan shale gas

CNPC to boost China shale gas through joint ventures

China National Petroleum Corp. (CNPC or PetroChina) is to become the spearhead of China‘s new policy to boost its own shale gas exploration and production in multiplying joint ventures and strategic agreements such as with Shell, Gazprom or Sichuan Province.

China holds about triple shale gas resources of USA, but cannot develop it at the same speed because of the lack of drilling expertise and tougher geological environment.

As a result gas represented only 4% of China’s total energy consumption in 2010.

From this point, the China‘s national energy agency, the National Energy Administration (NEA) officially unveiled a target to produce 6.5 billion cubic metres (bcm) of shale gas by 2015, representing  roughly 6% of China‘s current total gas production.

In 2011, CNPC accelerated the building of demonstration zones of shale gas production at Weiyuan-Changning in Sichuan and Zhaotong in Yunnan drilling:

 – Four vertical wells

 – Four horizontal wells

Five of them were fractured out of which the Wei 201-H1 well produced 1.77 million cubic meters of natural gas in 150 days and became the first completed horizontal well that began to produce shale gas.  

The US Energy Information Administration (EIA) estimates China’s shale gas resource of Sichuan and Tarim basins at 145 trillion cubic meters (tcm) out of which 36 tcm are technically recoverable.

In 2020, China intends to produce no less than 60 to 100 bcm, even if such development would have to overcome major technical, environmental and regulatory issues.

To reach such ambitious goal, China voiced officially through Mr Zhang Yuqing, head of NEA’s Oil and Gas Department, that foreign firms can enter product sharing contracts with Chinese firms or provide engineering services.

CNPC and Shell sign wells JV and first shale gas PSC

On June 2011, Shell and CNPC signed a Global Alliance Agreement to jointly pursue opportunities internationally and in China including a well manufacturing joint venture (50% CNPC and 50% Shell).

With this joint venture Shell and CNPC intend to develop a highly automated well manufacturing system that could boost the efficiency of drilling and completing onshore wells using drilling optimization technologies.

Through this joint venture, PetroChina is expecting to benefit from Shell‘s experience accumulated US and Canada shale plays.

On March 2012, Shell and CNPC signed a product sharing contracts (PSC) for the exploration, development and production in the Fushun-Yongchuan shale gas block in the Sichuan Basin, China.

Covering approximately 3,500 square kilometers, this PSC is the first ever signed in China for shale gas.

Shell will apply its advanced technology requiring much less water consumption than conventional methods.

Shell provides also CNPC with its operational expertise and global experience from other large shale gas projects.

In addition Shell pays attention to maintaining balanced exchanges with China in procuring about $1 billion worth of equipment and services from China in 2011, of which $300 million for its China upstream operations and $700 million for its global businesses outside of China.

CNPC and Gazprom extends cooperation to Shale gas

Since 2004, PetroChina and Gazprom are partnering through their Strategic Cooperation Agreement, mainly to support the supply of gas to China from Russia.

Last June PetroChina and Gazprom were appointed by their respective Government to resume stalled negotiations on the gas trading prices agreement for the years to come.

Since then PetroChina and Gazprom are investigating how to enlarge their trading agreement to more technical cooperation in different areas such as gas storage and distribution.

On last July PetroChina and Gazprom decides to consider shale gas development as to be included in this cooperation especially around the Changning field, near by Yibin in the Sichuan province.

CNPC to double shale gas investment

Sichuan total reserves in place are estimated to 11 tcm of gas.

PetroChina holds access rights to 131 blocks in Sichuan where:

 – 113 gas fields were discovered

 – Containing 813 bcm of gas proven reserves

 – Supplying 14 gas plants

 – Producing 15 bcm/y of natural gas

Unfortunately most of these gas fields are maturing and should deplete now by 1 bcm/y.

To stop spiraling down the Sichuan gas production, PetroChina is planning to double its capital expenditure to $6 billion in order to develop the local shale gas available over the next 5 to 8 years.

CNPC to take majority stake in Sichuan Changning Natural Gas Development

To boost its local shale gas exploration and production the Government of the Sichuan Province is establishing a joint venture with CNPC (PetroChina) and some private companies.

In this Sichuan Changning Natural Gas Development  joint venture, the Sichuan Government will take a share, but PetroChina will hold the majority stake and will be the operator, while the invited private companies will have minority stakes.

The mission of this Sichuan Changning Natural Gas Development  joint venture will be to implement the ongoing exploration of the Weiyuan-Changning area running with seven experimental wells producing each one 10,000 to 100,000 cm/d.

The Weiyuan-Changning holds about 300 bcm shale gas reserves and should be able to produce 2 bcm/y of natural gas in 2015.

Bench-marking the extraordinary development of the shale gas in USA, China started in 2009 with a first phase of massive capital expenditure and acquisitions of shares in North America with companies like Cheasepeake energy, Devon Energy or Nexen, now China is triggering a second phase in multiplying joint ventures and product sharing contracts  with foreign companies in Sichuan and Yunnan.

For more information and data about oil and gas and petrochemical projects go to Project Smart Explorer

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