Royal Dutch Shell and China National Petroleum Corp plan to jointly develop natural gas deposits in China's Sichuan province under a 30-year production sharing agreement, Shell said in a statement on Tuesday. The two companies have submitted the PSA to China's central government for approval.
Shell said the tight gas reservoirs were located in a 4,000 sq.km area in the Jinqiu block in Sichuan. Tight gas is contained in rock that must be fractured or broken before it can flow easily to production wells. "The agreement will strengthen our partnership with CNPC in developing cleaner energy to meet China's growing needs." Malcolm Brinded, Shell's executive director of upstream international, said in the statement.
CNPC is the parent of PetroChina, which is jointly bidding with Shell to buy Australia's Arrow Energy for $3.1 billion. Shell and PetroChina are already operating Changbei, a tight gas field in the Ordos Basin in Shaanxi province, which began commercial production in March 2007 and now supplies 3 billion cubic metres per year to Beijing and eastern China.
In January, they began jointly assessing a shale gas field in Sichuan in the Fushun block that covers about 4,000 square km, the statement said. Shell Chief Executive Peter Voser said last week that the company had the resource potential to more than double production from its North American tight gas fields to over 400,000 barrels of oil equivalent per day by 2020.
"Economics are attractive in a $4 to $6 gas price range," he told analysts on a strategy update conference call, while discussing the North American assets. "As we continue with the appraisal and development programme in tight gas, we are seeing sharp improvements in drilling costs and reduced drilling time. This improves the economics of these developments, and I think there is more to come here." Shell's statement about the agreement with CNPC did not give any details of cost, investment or potential output from Jinqiu.