By BRIAN SPEGELE
BEIJING -- Royal Dutch Shell said Tuesday it had received
approval from the Chinese government for its first shale gas
production-sharing contract in China, a significant milestone
as China looks to tap potentially massive unconventional gas
reserves and achieve ambitious shale gas production
Li Lusha, a
spokeswoman for the Anglo-Dutch company, said the Chinese
government had approved its plan to explore, develop and
produce shale gas with partner China National Petroleum Corp.
in the Fushun-Yongchuan block in the Sichuan basin.
Word of the government's approval comes more than a year
after Shell and state-oil giant CNPC announced they reached a
deal in March 2012 to develop the shale reserves.
The companies haven't disclosed details of the contract, but
the approval suggests authorities in Beijing have developed the
regulatory framework needed to spur wider international
investment in developing its shale reserves.
China is looking to replicate a boom in North American
natural gas production, which has begun reshaping global energy
markets. Chinese companies need international players such as
Shell to lend technology and operational expertise
in extracting the gas trapped in shale rock formations.
Shell CEO Peter Voser told reporters in Beijing on Tuesday
that the company was gearing up for what he described as a
"significant drilling season in 2013 and in 2014."
Mr. Voser said Shell and CNPC were continuing to explore
which drilling locations were best-suited for long term
development and production, and said the company was committed
to helping Beijing achieve its ambitious shale-gas production
China has set a target of producing some 6.5 billion cubic
meters/year of shale gas by 2015 and as much as 100 billion
cubic meters/year by 2020, up from virtually zero in 2012. That
is a target some analysts have been skeptical the country can
The US Energy Information Administration has said China has
an estimated 1,275 trillion cubic feet, or 36 trillion cubic
meters, of technically recoverable shale-gas reserves, more
than Canada and the US combined.
If extracted, unconventional reserves could help alter China's
energy profile, which has become increasingly reliant on
imported oil and polluting coal to power its economic
Such massive estimates are sending Shell's international
rivals into the market as well. Chevron, for example, has
drilled at least one exploratory well in China and has plans
for more, but company executives have cited a shortage of
geological data and lacking infrastructure as among the reasons
it expected slower progress compared with North America.
Soaring gas production in North America has helped lower
fuel prices for chemical production and other industrial
activity. In addition, it has raised the prospect of LNG
exports from Canada and the US during the coming decade.
Mr. Voser reiterated earlier estimates that US exports of LNG
may eventually hit 50 million-60 million tpy, but said he
expected much of the US gas to remain at home to be used as a
replacement for coal in power generation and to build up
"I think LNG will be exported out of the United States but I
see the volume as being limited," he said.
Dow Jones Newswires