OREANDA-NEWS. September 10, 2014. China’s energy heavyweights Sinopec and PetroChina have upgraded their outlook on the country’s shale gas industry, citing steadily declining costs, but stopped short of predicting a near-term boom.

China, estimated to hold the world’s largest technically recoverable shale resources, is hoping to replicate the shale boom that has transformed the energy landscape of the US. Industry experts caution that it would be much more difficult for China to monetise its shale gas reserves than the US as it faces serious challenges from water shortages to complicated geological structure and a lack of infrastructure. But top executives at China’s two biggest energy companies conveyed a bullish assessment of the country’s shale gas potential this week, citing rapidly falling drilling costs and rising domestic gas prices.

That’s a far cry from two years ago when they overwhelmingly focused on the hurdles faced by China. “It took the US nearly four decades to achieve large-scale production. We are at the early stage, but we don’t need to spend three decades. Cost will come down sharply,” Sinopec Chairman Fu Chengyu told reporters at the firm’s interim results briefing in Hong Kong on Monday. “We have found that there is big room for cost reduction... Also domestic gas prices are being raised, so these two factors will lead to greater investment,” he said.

The cost of shale gas drilling at Sinopec’s Fuling field in southwestern China - the country’s largest shale gas project - has been falling steadily to about 60 million yuan (USD9.8 million) per well, Fu said. That is still double the average shale gas drilling cost in the US but represented a significant fall from 100 million yuan in China just several years ago, analysts say. Fu said he expected costs to decline to 50 million yuan per well within three to five years. “It is dropping fast. Because of better expertise and experience, there is a lot of room for further cost decreases,” he said. But some shale gas experts say the Fuling success is hard to repeat due to its unique geological structure.

Fu’s optimism was echoed by PetroChina’s Vice Chairman and President Wang Dongjin, who said China’s dominant oil and gas producer had decided to kick off shale gas development this year with a 7 billion yuan budget.PetroChina is keeping its drilling cost at 55 million yuan per well and will try to keep it under 50 million yuan, he said.