US links up with Chinese firm in shale gas project

The booming US shale gas industry is to embrace a new partner - China's Shenhua Energy Co Ltd, the biggest coal producer in the world.

The Chinese energy giant announced that it will join with an energy firm called Energy Corp of America to develop a shale gas project located in the state of Pennsylvania.

According to a statement released by Shenhua, the company plans to invest $90 million to set up a subsidiary for the new project.

The project, which includes 25 shale gas wells, is expected to produce 3.8 billion cubic meters of gas in its first 30 years of operation.

Shenhua had already secured a gas project in Central China's Hunan province at the beginning of this year. It plans to expand its shale gas business in Southwest China's Guizhou province, the statement said.

However, Shenhua has never been involved in foreign shale gas projects before, and neither have other coal firms in China.

Spurred by the application of new technology, including hydraulic fracturing and horizontal drilling, US unconventional gas production has been on a continuous rise starting from 2007.

David Sandalow, assistant secretary for policy and international affairs at the US Energy Department, said earlier this year that the US spent 20 years before the shale gas industry achieved commercialized production driven by investment from the government.

Like other industries, innovation is the key to solving environmental problems during shale gas exploration, he said.

Earlier this month, the National Energy Administration said China has made much progress in shale gas development in Chongqing city, which is expected to reach a capacity of 5 billion cubic meters of the energy source by 2015.

Shenhua is not the first Chinese company to invest in North America's shale gas business. At the beginning of 2012, State-owned China Petroleum & Chemical Corp, otherwise known as Sinopec Co, acquired one-third of Devon Energy Corp's stake in five shale projects in the US.

A Sinopec expert who declined to be identified said that by the end of 2015, the company's shale gas output will reach 2 billion cubic meters, accounting for one-third of the country's shale gas production target.

Wang Xiaokun, an energy analyst at domestic commodities consultancy Sublime China Information Group Co Ltd, said China will have a natural gas shortage of about 10 billion cubic meters this year, which has led to accelerated development of shale gas projects.

"Shale gas is an important unconventional natural gas resource. It has to be researched and developed in China under the current energy structure," she said. "Furthermore, more attention should be paid to the development of the downstream businesses of the shale gas industry."

The International Energy Agency, the Paris-based adviser to oil-consuming countries, predicts that the US, fueled by booming output from shale resources, will overtake Russia and Saudi Arabia to become the world's top energy producer by 2015 and be close to energy self-sufficiency within two decades.

China's Ministry of Land and Resources estimates that the country holds around 25 trillion cubic meters of shale gas reserves, which is 32 percent bigger than that of the US.

However, the huge resource remains untapped because of geological complexity and technological obstacles.