China's NOCs Best Suited for Ushering Innovation in Shale Gas Sector

China’s National Oil Companies (NOCs) are the country’s best hope for overcoming the innovation problem faced by the shale gas industry, says a research report by Resources for the Future, a think tank.

The report titled Stimulating Shale Gas Development in China: A Comparison with the US Experience published last week, argues that China has to go through an innovation stage because of the complex geological features of its shale gas plays, and country’s policy of opening up shale gas development to new entrants (e.g., Chinese firms other than China’s national oil companies (NOCs)) will not help overcome the innovation problem, even though it may help scale up production after the innovation problem has been overcome.

“We contend that China’s NOCs are the country’s best hope for overcoming the innovation problem. China’s NOCs enjoy overwhelming advantages over new entrants in terms of technology, experience, financial resources, and policy. The question is how to motivate the NOCs to invest in shale gas drilling. Supporting our conclusion is a recent announcement by China Petrochemical Corporation (Sinopec 2014), one of China’s NOCs, that it made significant breakthroughs in the exploration and development of a shale gas field in China’s Sichuan province, where it plans to build an annual production capacity of 5 billion cubic meters (Bcm) by 2015,” the authors of the report say.

In an important development last week, Sinopec’s Fuling field was verified by Chinese government as country’s largest shale gas play paving the way for official launch of commercial development of the field. China’s Ministry of Land and Resources verified proven reserves of nearly 107 billion cubic metres (bcm) in the Fuling shale gas field in Chongqing municipality.

In March, Sinopec announced that Fuling field is projected to have an annual production capacity of 10 billion cubic meters by 2017.

The Fuling shale gas field has reserves of 2.1 trillion cubic meters and Sinopec expects the annual capacity of Fuling shale gas field to reach 1.8 billion cubic meters by the end of 2014 and 5 billion cubic meters by 2015, a ten-fold increase than previously planned.

China has been aggressively looking to exploit its shale gas reserves in order to reduce dependence on foreign energy and also to reduce usage of coal.