Shell and CNPC sign China's First Shale PSC

abarrelfullabarrelfull wrote on 28 Mar 2012 06:37
Tags: china cnpc shale shell

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Back in 2011, the EIA published a report which claimed that China had the world's largest shale gas reserves. Based on intelligent guess work, it has big margins for error, but none the less it caused a stir.

Now Shell and CNPC have signed the first PSC for shale gas production in China

China National Petroleum Corporation (CNPC) and Shell China Exploration and Production Company Limited (Shell) today signed a Production Sharing Contract (PSC) for shale gas exploration, development and production in the Fushun-Yongchuan block in the Sichuan Basin, China. Subject to government approval, this is the first shale gas PSC ever signed in China. The contract area covers approximately 3,500 square kilometres.

This is the most substantial news to come out of China concerning shale, but it is not the first. Sinopec has completed drilling of its first horizontal well for shale gas back in August last year.

Whilst it will be a while before we know whether the project is a success or not, and longer before its clear whether the success can be repeated elsewhere, it is just possible that we have witnessed the first rock of a major landslide.

If China really has major shale gas resources then we can expect the following things to happen.

  1. China will have a dash for gas on an unprecedented scale
  2. Australian LNG producers could be in trouble
  3. The natural gas liquids could drive a petrochemical revolution, like that happening in the USA
  4. Demand for alternatives like coal & fuel oil will fall

Due to the amazing switching opportunities that exist the impact on global oil prices will be significant as well.

  • According to BP Statistics, China burns nearly 700,000 bpd of fuel oil
  • Total light distillates is nearly 2.5 million bpd of which:
  • China's naphtha consumption is about 600,000 bpd

Direct switching from fuel oil to gas, switching from naphtha to ethane and processing condensate instead of crude, could put a significant dent in China's crude oil imports. Enough to impact crude prices worldwide.

As a side benefit, a China which gives up coal for natural gas would be the single biggest reduction in CO2 that is currently possible.

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