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Shale Gas Development to Be Highlight of This Year for CNPC and Sinopec, Capital to Be Raised From Multiple Parties to Make Concerted Efforts
Author:    Readnum:4113       Datetime:2014-05-09 19:55

China’s shale gas development has long been something that the noise is greater than the nuts. Although the prospect is bright, the road ahead has twists and turns.

On March 4th, Sinopec announced to build the first shale gas base with 10 million m3 capacity. This news was like a sound of thunder, breaking the fair silence of the shale gas market. Then the whole market began to boil up.

It is worth noting that not only Sinopec but also CNPC is enhancing development of shale gas. Now, CNPC’s basic scheme of pipeline transportation has taken an initial form for Changning-Weiyuan Block, a key block for CNPC’s shale gas exploitation.

An insider disclosed that the breakthrough of Sinopec was mainly on the progress of exploration technology and financing method. As a country short of oil and gas, China is now in a period of energy transition. Shale gas is evidently within the expectation of China. So shale gas development shall be the highlight of Sinopec and CNPC.

With Sinopec as the Leader, Shale Gas Development Enters the Running Stage

On March 24th, Sinopec announced that the company’s shale gas exploration and development had made a major breakthrough and that it would build the first shale gas field with a capacity of 10 billion m3 – Fuling Shale Gas Field.

This news boiled the market up. You know that before this, the shale gas development in China basically rested on exploration.

The shale gas development has found a slow progress in recent years, due to the factors such as complicated geographical structure, weak technology, scarce water resources, insufficient infrastructure, limited policy & system and uncertain investment profits. Since 2011, China has organized two rounds of exploration right bid inviting for shale gas. The progress, however, has been slower than expected.

According to the current geographic materials and productivity evaluation, Fuling Shale Gas Field, with the estimated 21 trillion m3 potential resource, shall be built into a shale gas field with an annual productivity of 10 billion m3, equal to a 10 million-ton large-scale oil field. It has been estimated that Fuling Shale Gas Field will have achieved an annual capacity of 1.8 billion m3 by the end of 2014 and 5 billion m3 by the end of 2015, which will be 10 times of that of the original plan.

The above two data are really astonishing, for just on the same day, Ministry of Land and Resources announced that China’s shale gas output in 2013 was 0.2 billion m3.

In addition, the 12th five-year target for shale gas by the Energy Bureau is 6.5 billion m3, while the output of shale gas of Sinopec itself can be estimated 5 billion m3.

FU Cheng-yu, Director of Sinopec, held that the target of the 12th five-year plan by the Energy Bureau was a bit too conservative.

LI Li, Superintendent of ICIS Energy Study and Strategy Center, told the reporter from Securities Daily, “What Sinopec did has shored up confidence of private-owned capital who hesitated a lot before.”

LIU Yi-jun, Vice Director of the Research Center of Chinese Oil & Gas Development, told the reporter of the Securities Daily that the finding of the above field by Sinopec meant that shale gas would soon go from the stage of resource evaluation to the stage of development, providing possibility for mass development.

In LIU’s eyes, the key problem faced by Sinopec at present was whether the productivity of 1.8 billion m3 could be stable, whether the shale gas development would have existing capacity without national subsidies. He believed that shale gas development even with Sinopec as the leader still needed to explore a new mode for its mass commercialization.

Actually, as a major monopoly in the field of China’s natural gas, CNPC began to set foot in the field of shale gas in 2006, becoming the company with the earliest start in shale gas. On the contrary, natural gas has always been a weak spot of Sinopec. Therefore, Sinopec has long been hoping to surpass in the field of unconventional natural gas. At present, Sinopec was making constant efforts depending on such favorable blocks as Fuling, Jiaoshiba and Pengshui, yielding an eye-catching achievements. Last year, China’s shale gas output was 0.2 billion m3 while Sinopec yielded an output of 0.155 billion m3 and CNPC 40 million m3.

It has to be admitted that Sinopec is the so-called “latecomer” who surpasses the old-timer. However, CNPC never slacken its efforts in developing shale gas.

In February, CNPC’s basic scheme of pipeline transportation has taken an initial form for the key shale gas exploitation block -- Changning-Weiyuan Block and is to enter the accelerating stage. Currently, there are 9 wells in this block that have been put into pilot production, adding up to 80 million m3 of shale gas. Over 20 working platforms are to be built and over 110 new wells are to be spudded in. It is expected that another 8 new wells are going into production this year. As planned, by the end of April of this year, more than 10 platforms will have been spudded in. And by the end of July, all the platforms will have been spudded in.

An analyst told the Securities Daily, “CNPC is expected to start a commercialized and large-scale operation of shale gas.”

On March 19th, YANG Qing-li, General Manager of the Engineering Technology Sub-Company, expressed at the 6th International Petroleum Summit that CNPC was to enhance shale gas development to realize 2.6 billion m3 shale gas exploitation in the year of 2015.

An insider also said to Securities Daily that with increasing demand of the natural gas, as a country short of oil and gas, China would pay more and more attention to the development of shale gas, so shale gas development shall be the highlight of Sinopec and CNPC.

Capital Expenditure to Be Compressed and Capital to Be Raised From Multiple Parties to Make Concerted Efforts

In the 2013 Annual Report just issued by Sinopec, FU Cheng-yu emphasized that in 2014, Sinopec planned to expend 161.1 billion yuan to enhance exploration and development of Fuling shale gas, trying to realize a big growth for China’s shale gas.

Although Sinopec’s capital expenditure of this year has been compressed 7% compared with the plan formulated at the beginning of this year, the expenditure for the plate of exploration and development is 87.9 billion yuan, proportioning half of the total capital.

It is worth noting that as per 2013 Annual Report, Sinopec’s gross liability in 2013 was 761.3 yuan, 51.4 billion yuan more than that at the end of last year.

As for the Sinopec, the climbing liability scale is relevant with its large-scale expansion both home and abroad in recent years.

FU Cheng-yu also said at the Performance Press Conference that in the past, the Sinopec tried to gain a rapid expansion on the scale but the performance was not as good as expected, that in the future, the emphasis should be put on quality development instead of stimulation by investment, and that it was why more capital expenditure would be cut down next year.

It has to be mentioned that Sinopec’s development strategy has been adjusted from the “crazy” overseas expansion a few years ago to domestic development. As FU Cheng-yu said that Sinopec’s future investment would be put in the domestic market and that capital investment for shale gas for the next step would be strengthened.

YANG Shao-hui, analyst from Ping’an Securities, believed, “Both CNPC and Sinopec would expand input in the field of shale gas in 2014. It is expected that the degree of marketization for the shale gas exploration will not be less than that of the tight gas development at Sulige gas field.”

The insider above also pointed out, “The resource-rich regions of shale gas are usually concentrated in mountainous areas. Therefore, it is pretty difficult and costly to develop shale gas. To put it more bluntly, the process of shale gas development is indeed a process of ‘throwing money’.”

It is worth noting that Sinopec is now introducing private capital from the slate of oil-gas sales to promoting a mixed ownership in the future.

According to FU Cheng-yu’s planning, in the next step, a mixed ownership economy will be developed during the development process of the whole industrial chain, including developing, transporting, selling and other appreciable fields.

“The major breakthroughs by Sinopec in shale gas development are the progress in exploration technology and the modification of financing mode.” SONG Zhi-chen, a researcher of energy industry from China National Investment Consulting Co., Ltd., told the reporter of Securities Daily. He said that the engineering quantity for shale gas development was a lot, so introducing the private capital would be helpful to alleviate the pressure of capital so that development of shale gas fields would be accelerated.