High prices stunt China’s high-tech shale exploration
By Zhang Yiping
Posted 9 September 2014 10:28 GMT
Chinese oil companies have vowed to cut shale gas drilling costs and improve profitability, but one expert says that could end up backfiring, as they will end up overlooking the advanced equipment needed to tap the unconventional gas.
“It is reasonable that the Chinese government wants to reduce the cost of developing shale gas, but they cannot reduce the initial investment. The investment strategy they’ve adopted is not right,” Wang Canyun, chief scientist of microseismic services at Schlumberger, told Interfax.
But high production costs would threaten China’s fledgling shale gas development, a researcher at Sinopec told Interfax on condition of anonymity. Costs have declined steadily for Sinopec, with Chairman Fu Chengyu stating in August the cost of drilling at the Fuling shale field has fallen to around RMB 60 million ($9.8 million) per well.
PetroChina is spending RMB 55 million drilling each well and aims to lower that to less than RMB 50 million, Vice President Wang Dongjin said last month.
Under government pressure to make more headway on shale gas, China National Petroleum Corp.’s (CNPC’s) listed unit has budgeted RMB 7 billion for shale gas development this year, with the aim of producing 100 million cubic metres in 2014, and up to 2.4 billion cubic metres in 2015.
“Many people think that PetroChina and Sinopec have a lot of money to spare, but they’ve both overspent their budget on shale gas development at this point,” said the Sinopec researcher.
“Even Fuling is not a profit generator for Sinopec despite its relatively large production volumes, which has created another hurdle in China’s shale gas development.”
PetroChina’s failure to grasp key extraction technologies is partly to blame for its lack of shale progress, said Li Yuxi, mineral reserves researcher at the Ministry of Land and Resources.
“Back in 2012, PetroChina made some mistakes in its drilling technology. However, Sinopec opted to conduct 3D seismic surveys in its Jiaoshiba block,” Li told Interfax. “In this way, Sinopec was able to drill horizontal wells after clarifying its target stratum and got better results in the end.”
But PetroChina’s sluggish shale development has also been blamed on other factors, including its preference for conventional gas and tight gas – which it considers more accessible and easier to develop than shale.
PetroChina has also been mired in a year-long corruption probe into the energy industry that forced the company to delay investments in projects. Wang suggested PetroChina may have with better results in coming years as the crackdown begins to ease.
A number of foreign companies involved in China’s fledgling shale gas industry are reducing their presence in China amid the cost-cutting drive by domestic oil companies, according to Wang. In some cases, they have retained just one sales representative in Beijing or Shanghai to cut their own operational costs.
Shell, for instance, will trim investment in its shale gas project with partner CNPC in Sichuan as progress has proved much slower than expected, Guo Changjie, from Shell China’s projects and technology division, told Interfax.
Wang added that very few Chinese companies are shooting 3D seismic because of the high cost, while American companies are already trying out 4D seismic technology. The huge technological gap is hindering China’s shale gas development.