Shenhua Energy to set up shale gas company in US

China Shenhua Energy Co Ltd (Shenhua) will invest $90 million to set up a company in the US which will cooperate with Energy Corporation of America (ECA) in developing shale gas, said a filing released Tuesday on the Shanghai bourse.

The new company will be a subsidiary of Shenhua Overseas Development & Investment Co Ltd (Shenhua Overseas). which is a wholly owned subsidiary of Shenhua, according to the filing.

The shale gas project, which has 25 gas wells, is located in Pennsylvania and is expected to produce 3.8 billion cubic meters gas in the first 30 years.

The total investment will be around $146 million, including the $90 million investment from Shenhua and the rest shared by Shenhua Overseas and ECA.

Given the short history of shale gas production, Shenhua claimed the project contains high risks, therefore, Shenhua Overseas has taken some necessary actions to control this risk.

Shenhua's objective is to learn about exploiting technology and business models of shale gas through the project, preparing for shale gas development in China, according to a research note of GF Securities on Tuesday.

Before the shale gas development plan in the US, Shenhua had already won the bidding for a shale gas project in Central China's Hunan Province at the beginning of this year, and Shenhua also plans to develop shale gas business in Southwest China's Guizhou Province, the report said.

Shenhua has signed agreements with enterprises in Mongolia, Russia and the US since October, speeding up its overseas development, according to the report.