Joint ventures between China’s three main oil and natural gas companies and the supermajors have not progressed as quickly. Royal Dutch/Shell signed a production-sharing contract with China National Petroleum Corp. for developing the Fushun-Yongchuan block and Shell spent $1 billion in 2013 in the Sichuan basin, focusing on exploratory and appraisal drilling and learning the geology. Shell is spending the year continuing this program before making a final decision on whether or not to move forward with the production-sharing contract to fully develop the block.
In general, the supermajors have struggled in China, and their investments have not always been profitable. For example, Chevron’s big investment in China was the $6.4 billion, 12 billion cubic meters per year Chuandongbei natural gas project. It was originally slated to come online in 2010 before being delayed to 2015 because of its geological complexity and disagreements with Chevron’s partner, China National Petroleum Corp., and the Chinese government on how to implement the project. The delays plus cost overruns (36 percent over original estimates) have made it a difficult investment.
China, hoping to change its image and increase profitability for joint ventures in its shale gas sector, is in the process of setting up an extensive incentive program. These measures include a value-added tax refund, waivers on import tariffs for equipment, direct subsidies and a resource tax waiver. One of the most important incentives will be a complete deregulation of prices. On Sept. 1, the wholesale price for imported liquefied natural gas, shale gas and coalbed methane will be completely independent of government control. China is also raising the wholesale price for non-residential users by 20.5 percent to help the profitability of deep water and tight gas production.
There have also been several important partnerships between China’s national oil companies and key Western oil service companies. These types of contracts are just as important as foreign majors’ participation in bringing in the equipment, know-how and technology to develop these resources. In June, Sinopec signed a joint venture deal with FTS International, one of the largest well completion services in China. This joint venture will include the manufacture of pumps and equipment in the United States optimized for well completion and stimulation in China’s shale basins.
Sinopec has also announced the formation of a joint venture with Weatherford International to collaborate on advanced drilling tools, such as those used in high temperature and high pressure wells, and well completion. In July, Halliburton Co. formed a joint venture with Petrotech (Xinjiang) Engineering to provide hydraulic fracturing and other advanced oilfield services in Xinjiang province, home to one of China’s other massive shale deposits, the Tarim basin.