OREANDA-NEWS. March 18, 2014. Sinopec plans to plough around USD4 billion into its Fuling shale gas project in the Sichuan Basin of southwest China, in the latest sign China’s shale gas sector is beginning to pick up steam.

The state-owned refiner intends to invest RMB 24 billion (USD 3.9 billion) in the first phase of development to speed up progress at Fuling in Chongqing, having spent more than RMB 2 billion in recent years.

Fuling has emerged as the centrepiece of China’s shale gas efforts. Under a strategic cooperation agreement signed with Chongqing’s government on Saturday, Sinopec expects to build shale gas production capacity of 5 billion cubic metres per year by 2015 and 10 bcm/y by 2017.

“The 10 bcm/y capacity in 2017 is possible, judging by current conditions,” Shi Yuanhui, a technical director with the well-logging department of Sinopec’s Jianghan Oilfield Co., told Interfax.

Capacity at Fuling could reach 3 bcm/y in 2014, said Shi. That would be a six-fold increase from 500 million cubic metres (MMcm) in 2013.

Sinopec plans to drill another 100 horizontal shale gas wells in Jiaoshi town in the Chongqing district of Fuling this year, said Shi, adding that one development well can produce 60,000-200,000 cubic metres per day.

“The Fuling/Jiaoshiba project is definitely an important breakthrough for both Sinopec and China – particularly for Sinopec, as it is the first time that high productivity shale gas accumulation has been found in China,” IHS upstream analyst Huang Xinhua told Interfax. “That demonstrates solid progress made in Chinese shale gas exploration.”

The early success at Fuling has raised hopes China can achieve a shale target of 6.5 bcm/y by 2015. “Fuling can significantly help China to hit the 2015 shale gas target, although we still need to watch out for drilling results in 2014,” said Huang.

“Sinopec has been progressing better than PetroChina so far. Apart from company strategy, Sinopec has drilled more exploration wells and geologically they possibly have the right blocks.

“It should be added that Sinopec’s success is down to many factors. Luck is one of them, but a very important one. Geological breakthroughs sometimes don’t need technological breakthroughs, although Sinopec is also working hard on technology applications.”

Making progress

Jianghan Oilfield has built 32 drilling platforms and drilled 130 wells in Jiaoshi, Chongqing media reported this week. Output at Fuling has surged from 1.5 MMcm/d to 2.2 MMcm/d – more than the 2 MMcm/d the National Energy Administration (NEA) said China was producing at the start of 2014.

The subsidiary intends to increase the number of drilling platforms to 42 and drill another 100 wells in Fuling this year. In a sign of the project’s growing importance, Jianghan Oilfield will establish a shale gas subsidiary in Fuling in the near term to boost production and management of the unconventional fuel.

Sinopec has made a “strategic breakthrough” in shale gas exploration at Fuling, Chairman Fu Chengyu said last month. The project was designated a state-level shale gas development demonstration zone in 2013.

Chongqing will have first rights to buy output from Fuling to meet its gas demand from industries, residents and LNG production under the strategic cooperation agreement.

Output from Fuling is being transported 22 km via pipeline to the Baitao Industrial Park in Zhong county of Chongqing, and priced around RMB 2.3 per cubic metre, said Shi. Output is also sent along the Sichuan-Shanghai Pipeline to eastern markets, Shi added.

The signing of the agreement means Chinese shale gas has entered a new development phase, Fu said in a news release issued by the State-owned Assets Supervision and Administration Commission.

The next step for Sinopec will be to encourage more outside ownership in the shale gas industry chain, including development, transport, sales and other segments, according to Fu.

Beijing raised expectations of economic reforms last November when it said it would overhaul state-owned companies and encourage a mixed-ownership economy. Sinopec took a step in that direction last month when it said it would open up its domestic oil marketing and distribution operations to outside investors, allowing them to take up to a 30% stake.

Chongqing has 12.75 trillion cubic metres of proven shale gas geological reserves, 2.05 tcm of which are technically recoverable. China’s shale gas output reached 200 MMcm in 2013, and the NEA expects that to rise to 1.5 bcm in 2014.