Falling oil prices will not affect Chinese shale drilling – Sinopec says

Drilling rig in China
Source: DollarPhotoClub

Plummeting oil prices will not stop China’s attempts at shale exploration – according to Xue Chengjin, deputy director of special operations at Sinopec Oilfield Service.

While U.S. shale drillers are scaling down production and desperately looking for efficiencies to boost squeezed margins, China is working hard to meet its target of 30 billion cubic meters of shale-gas a year by 2020, up from the current level of 1.3 billion cubic meters. That is a 23-fold increase in output in just five years.

“Last year, China drilled 200 new wells [bringing the total to 400], and we’ll add a few hundred a year for sure. No problem,” Chen Weidong, energy expert and research chief at China National Offshore Oil Corp., told the delegates at the International Petroleum Week conference on Wednesday.

162 of these wells were drilled in the Fuling shale gas block in Chongqing municipality, which produced 1.14 billion cubic metres in 2014. The Fuling field has so far been the only major success when it comes to shale in China, even though the country is estimated to have 31,573 billion cubic metres (1,115 trillion cubic feet) of gas – the largest shale gas reserves in the world.

It is small wonder then, that it is the Fuling filed that is expected to make the greatest contribution to the ambitious shale gas target. By the year 2020 – under a 2015-2020 industry development plan laid out by the local government – 20 billion cubic metres (bcm) out of the target 40 bcm of gas is expected to come from the Fuling field.

Shi Yuanhua, technical director of well-logging at Jianghan Petroleum Administration Bureau, told InterFax he was confident Chongqing could achieve its target of 20 bcm/y by 2020. He noted that Sinopec already aims to produce 7 bcm/y from 10 bcm/y of production capacity at Fuling by the end of 2017.

“CNPC is quite ambitious at the Weiyuan block and will definitely try its best to catch up with us,” said Shi. “In the meantime, I heard China Huaneng Group has made some breakthroughs in its Qianjiang Block. If Huaneng can make a breakthrough in its horizontal wells, it will be able to contribute an output of 2 bcm by 2020. If you add these numbers together, you should be optimistic about the target.”

However, not everybody is as optimistic as Mr Yuanhua, or the heads of Sinopec. Many analysts believe that falling oil prices will, after all, have an adverse effect on Chinese shale exploration.

“The low oil prices may further delay the progress in China’s shale gas fields,” UOB Kay Hian said in January. “The cost of China’s unconventional resources is high at RMB 1.5-2.0 per cubic metre [$6.59/MMBtu] at the moment (versus RMB 0.5-1.2/cm for conventional), which is apparently not attractive for E&P players for now,” the brokerage said.

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