To gain hegemony over shale, PetroChina would have to go through its main rival: Sinopec.
China is looking to cash in on the world’s largest shale gas reserves giving PetroChina the incentive to augment its own profits.
The company is planning on drilling 154 new shell wells in Sichuan in the next couple of years.
China’s leading oil and gas company PetroChina (NYSE:PTR) hasn’t been doing particularly bad of late. It posted a 15% profit hike in Q2, taking net profits to 33.9 billion yuan ($5.5 billion), which was an increase of almost 4.5 billion yuan as compared to Q2 of 2013. The overall increase in profits during the first half of the year was over 4%, taking the company’s 1H profits to 68.1 billion yuan (US$11.1 billion). Most of these lucrative numbers are owing to impressive upstream earnings, amelioration in refining margins and Beijing’s fuel price reforms.
Yet there’s a realm that the Chinese oil king hasn’t conquered, one that it desperately wants to control: shale gas. And to gain hegemony over shale, PetroChina would have to go through its main rival: Sinopec (NYSE:SHI).
Sinopec’s Shale lead
“We are about a year and a half behind Sinopec in shale gas exploration,” said Wang Dongjin, the president of PetroChina, last week. And the primary reason behind this lag is twofold. First the, PetroChina’s concentration of resources on the Longwangmiao project in Sichuan; and secondly, the fact that the company has only started shale gas exploration this year and is hence leading the chasing pack behind Sinopec. The fact that the company took longer than Sinopec to respond to government measures that are targeting more competitive markets, also gave Sinopec the head start in shale gas exploration.
Sinopec has been hogging the limelight of late, and is planning on raising around $16 billion through sales of the company’s fuel retailing unit, which have whetted the investor appetite of 37 buyers. Meanwhile PetroChina took more than its fair share of time in recovering from the state’s anti-corruption campaign. However now is the time for China’s top oil company to surge forward.
China’s shale expectations
One of the reasons Sinopec has had a head start in shale exploration is that it has been developing equipment, and training personnel to develop shale gas in China, most of which is present in difficult-to-explore formations. This is precisely why US firms like Halliburton have been alerted to the opportunities in China, since their technological expertise would be needed in Xinjiang and Sichuan, where the opulent shale basin lies in a deeply faulted region.
The impact of shale gas can be measured by the fact that not too long ago, the U.S. was supposed to become the world’s largest natural gas importer. The county is now one of the largest fossil fuel exporters following enhancement in shale gas production. China is following suit, with the government looking to cash in on the world’s largest shale gas reserves of 30 trillion cubic meters. This has given PetroChina the incentive to up the ante on shale gas exploration and capitalize on the massive reserves in China, and in turn augment its own profits.