OREANDA-NEWS. November 06, 2014. PetroChina Co., the country’s biggest oil and gas producer, is on course to surpass a 2.6 billion cubic meter target for shale gas production in 2015 from fields in the southwest province of Sichuan.

“Based on the production of our test wells, we are very confident to achieve or even beat our estimates for 2015,” Xie Jun, deputy general manager of unit Southwest Oil & Gasfield Co., said last week at the provincial capital Chengdu. The estimate is “very conservative” and newer technology may push the number much higher, he said.

PetroChina’s success in drilling for shale gas is good news for China, which is seeking to replicate the boom in the U.S. China’s hopes have rested on China Petroleum & Chemical Corp. (386), known as Sinopec, which operates the nation’s largest shale-producing project in Fuling. The country halved its target of producing 60 billion cubic meters by 2020 because of geological challenges.

PetroChina aims to produce 5 billion cubic meters by 2017 and 12 billion cubic meters by the end of the decade, Xie said. Output this year may reach 200 million cubic meters and large-scale commercial production will begin in the first quarter of next year, he said.

The company has nine shale gas exploration rights in Sichuan and Chongqing. Four have started or are close to commercial production.

‘Behind Sinopec’

“We are about a year and a half behind Sinopec in shale gas exploration because we concentrated our resources on the Longwangmiao natural gas project in Sichuan,” PetroChina President Wang Dongjin said in August. “We officially begin our shale gas exploration this year, and hopefully we will catch up in exploration production.”

Geographical structures in PetroChina’s fields in southern Sichuan are more difficult to drill through than the Fuling project and gas reservoirs have been smaller, Xie said.

PetroChina will invest 13 billion yuan (USD2.1 billion) on Sichuan shale gas exploration and production this year and the first six months of next year. Drilling cost per well in the region is about 65 million yuan at present, which should come down following large-scale drilling and better understanding of the geology, said Zhou Zhibin, deputy general manager at Southwest Oil & Gasfield.

The company has about 3.9 trillion cubic meters of shale gas reserves in Sichuan and Chongqing, of which 1.5 billion cubic meters are buried in areas less than 4,000 meters (13,124 feet) deep. It will concentrate on exploring for the fuel in those relatively easy depths in the short term, Xie said.

Gas Pipelines

PetroChina owns about 27,000 kilometers (16,781 miles) of oil and gas pipelines in Sichuan and Chongqing, allowing it to transport the fuel to nearby markets, Zhou said. Shale gas output will be complimented by natural gas. The Longwangmiao site in southeast Sichuan will have the annual capacity to produce as much as 11 billion cubic meters of natural gas once construction is completed in August, he said.

PetroChina has signed a production-sharing contract with Royal Dutch Shell Plc (RDSA) in Sichuan and is in talks with ConocoPhillips (COP) for a similar partnership. Daren Beaudo, a spokesman for ConocoPhillips, declined to comment. PetroChina and ConocoPhillips signed an agreement to study the development of unconventional energy resources in the Sichuan basin last year.

Shell Chief Financial Officer Simon Henry said in September that the company may trim its China shale venture because of geological and population challenges in Sichuan.

PetroChina hasn’t received any official communication from Shell and believes the company has made good progress in its assigned area, Xie said.

‘Challenging Geology’

“We have completed most of the drilling work and the drilling of additional wells will continue into 2015,” Shell China spokesman Shi Jiangtao said in an e-mailed response to questions. “We see that the Sichuan geology is challenging and we are approaching this at the appropriate pace. We continue to evaluate and should know more towards the end of 2014 or first quarter 2015, when we will decide how to move forward with each of the projects.”