Stage Set for China to Begin Tapping into Shale Gas

Date: June 7, 2012

After years of meticulous planning, it would appear that the stage for shale gas exploration and production has been set for China’s Big Three oil companies: China National Petroleum Corp (CNPC), China Petrochemical Corp (Sinopec), and China National Offshore Oil Corp. (CNOOC). Make no mistake; these three energy juggernauts in the Chinese economy are serious about this venture. Their aggressive expansion into this relatively untouched area of Chinese energy has translated into enlisting foreign companies for technological expertise and experience.

For quite some times now, the Big Three have been conducting operations in North America as a part of their continuing effort to learn as much as they possibly can before introducing the refined progress in China. CNPC bought 20% interest in the Shell shale gas project in Canada earlier this year in February. In 2011, CNOOC has partnered with US-based company Chesapeake Energy Corp while Sinopec obtained 2.2 billion USD equity of Devon Energy Corp’s five gas blocks.

While there has been skepticism as well as hesitancy in the Ministry of Land and Resources (MLR), particularly about potential supply of shale gas and the risk that a boom in drilling may rise up with insufficient yield to justify the expenditures, those skepticism may have been laid to rest with Sinopec announcing the official launch of operations in the Jianghan Oil Field in mid-May.

However, there are many issues that must be tackled. The most prominent one is the geological structural difference between China and North America. The Chinese geological structure is far more complicated and far more brittle than that of North America, making technologies used in North America inefficient and sometimes ineffective in China.

Currently, the only one of the Big Three with a significant advantage in the field of shale gas is CNPC, which has established a partnership with Green Dragon Gas, one of the pioneering leaders of the industry specializing in CBM (coalbed methane) exploration, mining, and distribution. Green Dragon Gas has mastered the LiFaBriC (Lined Faulted Brittle Coals) drilling technique, allowing the company’s efforts to be efficiently spent towards gas acquisition. This industry advantage will allow CNPC and Green Dragon Gas to gain a significant foothold in the shale gas energy sector while Sinopec and CNOOC continue exploring methods of effective drilling.