By Jacob Gronholt-Pedersen
China is unlikely to replicate the shale gas boom of the United
States in speed or scale, but low drilling costs and high local gas
prices make it attractive to drill for unconventional gas reserves,
says the top executive at one of the few foreign companies drilling
for gas in China.
China has ambitious plans to sharply increase natural gas output
in the coming decade by following in the footsteps of the U.S.,
where hydraulic fracturing has spurred a shale gas boom in recent
years.
It recently set a target of producing 6.5 billion cubic meters
of shale gas annually by 2015, up from virtually zero this year. It
is also aiming to rapidly increase production to 60 billion-100
billion cubic meters a year by 2020.
However, these targets could be difficult to achieve due to a
lack of technology and geological information about the reserves,
Paul Atherley, managing director of AIM-listed Leyshon Resources
Ltd. (LRL), told Dow Jones Newswires Thursday.
"If they want to reach those targets, they need to get out there
and drill. And that's just not happening at the moment."
Initial estimates by the U.S. Energy Information Administration
show China's shale gas reserves are even larger than those of the
U.S.
However, the economics of drilling for gas "are very
attractive," he said.
Drilling an exploration well costs only around $1.5 million,
about a third compared with Eagle Ford, Texas, he added.
Australia-based Leyshon this year acquired the right to explore
for unconventional gas in the Ordos Basin in Shanxi province in
central China.
The company plans to complete drilling the first two wells this
year and has committed $25 million to drill a total of 13 wells in
the block by 2014.
According to initial estimates, the block holds potential
reserves of up to 3.8 trillion cubic feet of unconventional
gas.
A tender for 20 shale gas blocks announced last month marked the
first time China allowed foreign companies to participate in joint
venture bids as minority partners. The first round in June 2011 was
limited to state-owned companies.
The prospect of drilling for possibly the largest unconventional
gas reserves in the world has already drawn interest from
international majors such as BP PLC (BP), Chevron Corp. (CVX),
Total SA (TOT), ConocoPhillips and Eni SpA (E).
In March, Royal Dutch Shell PLC (RDSB.LN) signed the first major
production-sharing contract, with China National Petroleum Corp.,
for exploration of a shale gas deposit in the Sichuan Basin.
Under a similar pact, the gas produced by Leyshon Resources will
be sold to a local distributor at a fixed price of $7.2 per 1,000
standard cubic feet. In comparison, U.S. gas prices are below $3
now.
State-owned PetroChina holds an option to buy 40% of any project
if Leyshon finds commercial gas reserves.
Write to Jacob Gronholt-Pedersen at
jacob.pedersen@dowjones.com
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