CNPC and Hess sign mainland shale gas deal

The two companies have agreed a production sharing deal to exploit shale resources in northwest China.
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CNPC, parent of PetroChina, is the country's biggest energy company
<div style="text-align: left;"> CNPC, parent of PetroChina, is the country's biggest energy company </div>

China National Petroleum Corp has signed a production-sharing agreement with Hess, a US energy company, to jointly develop unconventional gas reserves in northwest China.

Hess will provide expertise gained from its experience in North Dakota’s shale formations to help CNPC, the parent company of PetroChina, to drill the Malang block in the Santanghu Basin in Xinjiang. The two companies have already studied the 800-square-kilometre area and their agreement is the first for a shale resource in China.

Other Chinese oil and gas companies are also exploring the possibility of developing shale as a new source of energy for the country to exploit. The promise is that China could replicate the US shale boom, but the potential for this type of unconventional gas production is widely contested.

Estimates of technically recoverable shale gas resources in China vary widely, from less than 10 trillion cubic metres up to as much as 36 trillion. McKenzie Wood, an energy research firm, has a central estimate based on the various studies of about 18 trillion, with shale accounting for about 36% of recoverable resources of unconventional gas (which also includes tight gas and coal-bed methane).

But the feasibility of getting this stuff out of the ground profitably is not well understood. Companies such as Hess can bring technical knowhow, but questions remain about the ability of China’s national oil companies to deploy capital efficiently, not to mention the challenges involved in putting a supply chain in place, building the infrastructure and securing land rights.

Even in the US, unconventional gas has proven difficult to exploit, despite more than 150 years of commercial drilling experience. The industry in China faces a steep learning curve.

Even so, Hess is keen to get involved in China. It is also studying the Daqing field in the Songliao basin in partnership with PetroChina and the Shengli field in the Bohai Bay basin with Sinopec.

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