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Highlights

Recent progress at shale gas projects operated by China's state-owned giants Sinopec and China National Petroleum Corp. suggest the country is on track to meet the 2015 production target set by the central government, analysts said Monday.

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China is targeting shale gas output of 6.5 billion cubic meters/year by 2015 and 60 billion-100 billion cu m/year (5.8-9.7 Bcf/day) by 2020 under its official plans.

Analysts had earlier criticized these targets as unrealistic given the huge challenges facing operators in China's nascent shale gas sector.

The country's total shale gas output in 2013 was just 200 million cu m, the Ministry of Land and Resources said in January.


Sinopec, or China Petroleum and Chemical Corp., said Monday it has signed a strategic cooperation agreement with the municipal government of Chongqing to work on exploration, development and construction of transmission and distribution infrastructure.

The pact was signed Saturday and included an agreement on the Fuling project, located in the Sichuan Basin in Chongqing in southwest China.

Sinopec is planning to produce 5 billion cu m/year of shale gas from the project by 2015, after raising its target last year from an original 1 billion cu m/year by 2015. Output at Fuling, coupled with production from other projects, should make the 2015 target achievable, said one upstream analyst in Singapore.

"By then CNPC should be able to produce 1 billion-1.5 billion cu m/year of shale gas," he said, referring to China National Petroleum Corp., China's largest upstream producer.

CNPC's listed subsidiary PetroChina had said in August 2013 that it expects to produce 1.5 billion cu m/year of shale gas by 2015, out of total unconventional gas output of 27.8 billion cu m/year.

Last Thursday, Shanghai Securities News reported that CNPC has completed the preliminary development plan at its Changning-Weiyuan block in Sichuan province. The block had originally been established as a shale gas development demonstration zone in March 2012.

Nine wells are currently in trial production and eight more are expected to be brought online this year, the report said. By 2015, 110 new wells are likely to be commissioned at Changning-Weiyuan. LONGER-TERM TARGET STILL UNCERTAIN

While there is now more optimism about the 2015 production target, uncertainty still looms over China's longer-term ambition to produce up to 100 billion cu m/year of shale gas output by 2020.

The current focus of Sinopec's shale gas efforts has been on the Fuling shale gas project and the company was very lucky to find gas, the analyst said. "It is not that it has made technological breakthroughs that can be applied in other areas."

"Aside from these two projects, the long-standing challenges with developing shale gas in China remain," another Beijing-based analyst said.

Both domestic and foreign companies have had to grapple with both above and below-ground risks in China, including complex geology, deep reservoirs, midstream bottlenecks such as inadequate access to pipelines and government price controls on natural gas which make development financially challenging.

Progress made by foreign companies has not been as encouraging as by their state-owned counterparts.

Chevron recently said it drilled two shale wells in the Qiannan Basin in Guizhou province but both were disappointing.

Shell is believed to be still progressing appraisal work at its Fushun Yongchuan block in partnership with CNPC nearly two years after it signed a production sharing contract for the acreage. That was the first PSC for a shale gas block in China and none has been awarded since.

--Song Yen Ling, yenling.song@platts.com
--Edited by Wendy Wells, wendy.wells@platts.com