Shell, CNPC to jointly seek shale gas in Sichuan Basin

Energy conglomerate Royal Dutch Shell Plc is committing to a "substantial investment" in exploring for conventional and unconventional gas in China to quench the growing thirst for clean energy in the world's second-largest economy.

The company will continue its exploration of shale gas in the Sichuan Basin, where it landed the first contract with State-owned oil giant China National Petroleum Corp, Huibert Vigeveno, executive chairman of Shell in China, said on Tuesday.

"We are now in the exploration phase by drilling various wells and testing underground pressure in these areas. Some parts of the projects have moved into the appraisal stage, and it will take time before we determine our next step," he told China Daily in Shanghai.

Shell expects to have a thorough knowledge of local geology by the end of 2014 into early next year, when Shell and CNPC will determine in tandem what the next steps are, Vigevino noted.

He did not disclose the amount of the company's investment. But the firm had pledged earlier to spend $1 billion annually in developing the country's vast shale gas reserves.

Vigeveno's words came amid concerns that oil majors in the United States are spinning off shale assets after struggling to profit from the prolific sector and that a similar retreat might occur in China.

But experience drawn from the North American market has helped accelerate drilling in China, making the exploration more efficient and effective, said Matthias Bichsel, Shell's director of projects and technology.

Chinese shale may hold 36.1 trillion cubic meters of technically recoverable gas, or 12 times the country's conventional gas deposits, data from the US Energy Information Administration showed.

China, believed to have one of the world's largest shale deposits, has drawn international heavyweights, including Shell, Exxon Mobil Corp and Total SA, to search for the unconventional gas, with Shell being the first to secure a production sharing contract.

The country plans to produce 6.5 billion cu m of shale gas by 2015, according to the industry's 12th Five-Year Plan (2011-15), the official blueprint.

Prospects for exploration have been rosier than expected, with daily output in some areas reaching 2 million cu m, the National Energy Administration said in January.

China Petroleum and Chemical Corp has vowed to mass-produce 5 billion c m of shale gas by the end of 2015, Chairman Fu Chengyu said.

Shell also is making inroads into downstream business segments. It opened a lubricant technical center in Shanghai on Tuesday, the biggest such hub in the Asia Pacific and an integral part of its global research and development network.

China's annual gas consumption will increase by 20 billion cu m every year to 230 billion cu m in 2015 the National Energy Administration said.

One of Shell's strategic priorities is to team up with Chinese energy giants in overseas markets and bring oil back to the country, Vigeveno said.

For instance, the company has collaborated with CNPC on exploration of unconventional resources in Canada and Australia, is seeking opportunities in Gabon with a second State-backed oil producer, China National Offshore Oil Co.